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on Business Economics |
| By: | Dinlersoz, Emin M. (U.S. Census Bureau); Kalemli-Ozcan, Sebnem (University of Maryland); Hyatt, Henry (U.S. Census Bureau); Penciakova, Veronika (Federal Reserve Bank of Atlanta) |
| Abstract: | We study the leverage of U.S. firms over their life cycles and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new dataset that combines private and public firms’ balance sheets with firm-level data from U.S. Census Bureau’s Longitudinal Business Database for the period 2005–12. Public and private firms exhibit different leverage dynamics over their life cycles. Firm age and size are systematically related to leverage for private firms but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations. |
| Keywords: | leverage; firm dynamics; firm growth; firm life-cycle; financial constraints; borrowing limits; short-term debt; aggregate shocks |
| JEL: | E23 G32 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-18&r=all |
| By: | Audinga Baltrunaite (Bank of Italy); Elisa Brodi (Bank of Italy); Sauro Mocetti (Bank of Italy) |
| Abstract: | The paper examines the evolution of the ownership structures and governance of Italian firms, from the second half of the 2000s to the present, with a triple objective. First, it provides an up-to-date, census-based, descriptive analysis of the ownership structure and governance of Italian firms. Second, it examines the effects of the reduction of entry costs on firm demography and the characteristics of those entering the market. Third, it shows the correlations between institutional context, governance structures and company performance. |
| Keywords: | ownership structure, governance, family firms, firm performance |
| JEL: | G32 G34 G38 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_514_19&r=all |
| By: | Gee Hee HONG; OGURA Yoshiaki; SAITO Yukiko |
| Abstract: | This paper examines how unprecedented population aging affects firm dynamics in Japan, using the panel data from 2007 to 2016. Our analysis confirms that during this time, average firm age increased due to low rates of firm entry and exit. Average age of CEOs also increased with population aging and low turnover of CEOs. Aging of firms and CEOs is more salient in rural areas than urban areas. Furthermore, as voluntary firm exits are positively correlated with the age of CEOs, more exits are likely to occur as population aging intensifies. In rural areas, low density of firms may imply higher search costs in finding new transaction partners. Firm exit induced by exit of transaction partners is more likely to happen for rural areas. Our results suggest that policies aimed at supporting business succession and addressing increases in voluntary exists should cater to the lifecycle of firms as well as the geographic location of firms. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:eti:polidp:19031&r=all |
| By: | Krzysztof Matuszczak (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | In this paper, we investigate the determinants of firm-level services export performance. Our focus is on three main aspects affecting services export: international capital linkages (FDI relationships), the existence of trade barriers, the demand and supply factors. The estimated models of the export performance include product and firm-level controls, such as foreign demand, firm-level imports, merchandise exporter status and foreign ownership, as well as destination fixed effects, product fixed effects, firm-level fixed effects. We used the Services Trade Restrictiveness Index (STRI) as a proxy to control for institutional trading barriers. The results suggest export-augmenting effects in services caused by both foreign ownership and involvement in activity in merchandise trade. Restrictions on international services market turned out to be significant as well. As far as the heterogeneity of firms is concerned, size of firms, industry and gravity variables such as GDP of trade-partner, distance and the common border have a significant impact on export. The study uses a unique firm-level dataset providing detailed information on services exports for the period of 2010-2015. In contrast to modern studies based on a random sample of firms, we used the entire population of services exporters in Poland. |
| Keywords: | firm heterogeneity, services trade, FDI in services, trade barriers, determinants of export |
| JEL: | F10 F14 F23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2019-20&r=all |
| By: | Tarek A. Hassan (Boston University); Stephan Hollander (Tilburg University); Laurence van Lent (Frankfurt School of Finance and Management); Ahmed Tahoun (London Business School) |
| Abstract: | We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm`s actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. These results continue to hold after controlling for news about the mean (as opposed to the variance) of political shocks. Interestingly, the vast majority of the variation in our measure is at the firm level rather than at the aggregate or sector level, in the sense that it is neither captured by the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter. |
| Keywords: | Political uncertainty, quantification, firm-level, lobbying |
| JEL: | D8 E22 E24 E32 E6 G18 G32 G38 H32 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:96&r=all |
| By: | Phelan, Tom (Federal Reserve Bank of Cleveland) |
| Abstract: | Business owners in the United States are disproportionately represented among the very wealthy and are exposed to substantial idiosyncratic risk. Further, recent evidence indicates business income primarily reflects returns to the human (rather than financial) capital of the owner. Motivated by these facts, this paper characterizes the optimal taxation of income and wealth in an environment where business income depends jointly on innate ability, luck, and the accumulated past effort exerted by the owner. I show that in (constrained) efficient allocations, more productive entrepreneurs typically bear more risk and that the associated stationary distributions of income, wealth, and firm size exhibit the thick right (Pareto) tails observed in the data. Finally, when owners may save in a risk-free bond and trade shares of their business, I show that the optimal linear taxes in this environment call for double taxation of firm profits, at both the firm and the personal income level, and for a tax/subsidy on wealth that may assume either sign. |
| Keywords: | Optimal taxation; moral hazard; optimal contracting; human capital; |
| JEL: | D61 D63 E62 |
| Date: | 2019–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:192600&r=all |
| By: | Zhou, Haiwen |
| Abstract: | This paper studies the determinants of a firm’s organizational form in the context of an imperfectly competitive industry. There are two kinds of organizational forms: the multi-divisional form (M-form) and the unitary form (U-form). An M-form firm suffers from ignorance of demand externalities among different products and double marginalization is eliminated. In contrast, in a U-form firm, demand externalities are taken into consideration and double marginalization exists. A firm’s optimal choice of organizational form depends on the market structure. |
| Keywords: | Organizational form, market structure, oligopoly, multi-divisional form, unitary form |
| JEL: | D43 L13 L23 |
| Date: | 2019–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96882&r=all |
| By: | James F. Albertus; Michael Smolyansky |
| Abstract: | We find that firms located in areas with higher intergenerational mobility are more profitable. Building off the work of Chetty and Hendren (2018a and 2018b)—who provide measures of intergenerational mobility for all commuting zones (essentially, metropolitan areas) within the U.S.—we are the first to show the positive association between intergenerational mobility and corporate profitability. Our regressions compare firms in the same industry at the same point in time and fully control for time-varying state-level shocks. As such, our findings cannot be explained by either differences in industry composition across localities or by variation in state-level economic conditions; nor can our results be explained by differences in firm characteristics or by local economic conditions. Rather, we argue that our findings are best explained by intergenerational mobility influencing human capital formation. Areas with higher mobility do a better job in unlocking their residents’ innate talents, which in turn is associated with improved performance by locally headquartered firms. In essence, our results uncover a positive link between greater equality of opportunity and increased corporate profitability. |
| Keywords: | Intergenerational mobility ; Corporate profitability ; Human capital |
| JEL: | G30 G32 J24 J62 R10 |
| Date: | 2019–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-81&r=all |
| By: | KAWAKAMI Atsushi |
| Abstract: | This paper investigated the role of corporate headquarters in diversification of products using "the Ministry of Economy, Trade and Industry Basic Survey of Japanese Business Structure and Activities." Following Bernard, Redding and Schott (2010) and Kawakami and Miyagawa (2013), diversified firms are more productive than firms producing single products. Empirical studies of this paper showed the same results in Japanese firms including service sectors after 2005. Based on the above result, we investigated the relationship between organizational capital and diversification following the framework of the model of Nocke and Yeaple (2014) and adopted the number of employees in managerial segments, research and planning segment and international segments in corporate headquarters offices as a proxy indicator of organizational capital. The Logit model and OLS support the hypothesis for organizational capital from Nocke and Yeaple (2014). But the fixed effect model and dynamic panel model suggested the research and planning segment plays the entrepreneurial role of a headquarters office in stimulating diversification by decreasing business withdrawals. Otherwise, the estimations suggested that organizational efficiency prompted both entry and exit of businesses. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:19061&r=all |
| By: | Litterio Mirenda (Bank of Italy); Sauro Mocetti; Lucia Rizzica (Bank of Italy) |
| Abstract: | We analyze the real effects of mafia infiltrations in the legal economy. We focus on the case of the 'ndrangheta, a large criminal organization originating from the South of Italy. Combining information from investigative records with panel data on firms' governance and balance sheets, we build an indicator of 'ndrangheta infiltrations in firms located in areas with no tradition of mafia settlements. We show that (i) organized crime targets firms in financial distress and privileges sectors that most rely on public sector demand or are more money laundering prone;; (ii) infiltrations generate a significant rise in the firm's revenues; (iii) the penetration of mafia produces a long-run negative effect on economic growth at the local level. |
| Keywords: | organized crime, firm performance, competition |
| JEL: | D02 K42 L11 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1235_19&r=all |
| By: | Krishna Dasaratha |
| Abstract: | We study a model of innovation with a large number of firms that create new technologies by combining several discrete ideas. These ideas can be acquired by private investment or via social learning. Firms face a choice between secrecy, which protects existing intellectual property, and openness, which facilitates social learning. These decisions determine interaction rates between firms, and these interaction rates enter our model as link probabilities in a resulting learning network. Higher interaction rates impose both positive and negative externalities on other firms, as there is more learning but also more competition. We show that the equilibrium learning network is at a critical threshold between sparse and dense networks. A corollary is that at equilibrium, the positive externality from interaction dominates: the innovation rate and even average firm profits would be dramatically higher if the network were denser. So there are large returns to increasing interaction rates above the critical threshold---but equilibrium remains critical even after natural interventions. One policy solution is to introduce informational intermediaries, such as public innovators who do not have incentives to be secretive. These intermediaries can facilitate a high-innovation equilibrium by transmitting ideas from one private firm to another. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1911.06872&r=all |
| By: | Peter Neary; Martina Lawless; Zuzanna Studnicka |
| Abstract: | This paper revisits the work of Fitzsimons, Hogan, and Neary (1999) on the level of trade between Ireland and Northern Ireland. In doing so, we reflect on the recent move to prominence of this issue since the referendum decision of the UK to leave the EU and also on the shift within the economics literature to looking at trade issues from a micro rather than a macro perspective as data availability has grown. Our country-level results show the same pattern of limited statistical significance for a border effect as was found in the earlier work still holds but when using firm-level data we find a positive and significant border effect. This effect holds for total trade at firm and product level with the primary determinant coming from the intensive margin, both in terms of average exports per firm and average exports per product within firms. |
| Keywords: | Brexit; Gravity; Multi-Product Firms |
| JEL: | F10 |
| Date: | 2019–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:887&r=all |