nep-bec New Economics Papers
on Business Economics
Issue of 2019‒12‒09
eight papers chosen by
Vasileios Bougioukos
Bangor University

  1. Long-term business relationships, bargaining and monetary policy By Mirko Abbritti; Asier Aguilera-Bravo; TommasoTrani
  2. The origins of firm heterogeneity: a production network approach By Bernard, Andrew; Dhyne, Emmanuel; Manova, Kalina; Magerman, Glenn; Moxnes, Andreas
  3. Globalization and state capitalism: assessing Vietnam's accession to the WTO By Baccini, Leonardo; Impullitti, Giammario; Malesky, Edmund J.
  4. Product Liability, Multidimensional R&D and Innovation By Lin, Ping; Zhang, Tianle
  5. History Dependence, Cohort Attachment, and Job Referrals in Networks of Close Relationships By Ayal Chen-Zion; James E. Rauch
  6. Product Market Strategy and Corporate Policies By Jakub Hajda
  7. Minimum Wage Increase and Firm Profitability: Evidence from Poland By Mykola Babiak; Olena Chorna
  8. What Do Survey Data Tell Us About US Businesses? By Anmol Bhandari; Serdar Birinci; Ellen McGrattan; Kurt See

  1. By: Mirko Abbritti (University of Navarra); Asier Aguilera-Bravo (Public University of Navarra and INARBE); TommasoTrani (University of Navarra)
    Abstract: A growing empirical literature documents the importance of long-term relationships and bargaining for price rigidity and firms' dynamics. This paper introduces long-term business-to-business (B2B) relationships and price bargaining into a standard monetary DSGE model. The model is based on two assumptions: first, both wholesale and retail producers need to spend resources to form new business relationships. Second, once a B2B relationship is formed, the price is set in a bilateral bargaining between firms. The model provides a rigorous framework to study the effect of long-term business relationships and bargaining on monetary policy and business cycle dynamics. It shows that, for a standard calibration of the product market, these relationships reduce both the allocative role of intermediate prices and the real effects of monetary policy shocks. We also find that the model does a good job in replicating the second moments and cross-correlations of the data, and that it improves over the benchmark New Keynesian model in explaining some of them.
    Keywords: Monetary Policy, PriceBargaining, ProductMarketSearch, B2B
    JEL: E52 E3 D4 L11
    Date: 2019–10–28
  2. By: Bernard, Andrew; Dhyne, Emmanuel; Manova, Kalina; Magerman, Glenn; Moxnes, Andreas
    Abstract: This paper quantifies the origins of firm size heterogeneity when firms are interconnected in a production network. Using the universe of buyer-supplier relationships in Belgium, the paper develops a set of stylized facts that motivate a model in which firms buy inputs from upstream suppliers and sell to downstream buyers and final demand. Larger firm size can come from high production capability, more or better buyers and suppliers, and/or better matches between buyers and suppliers. Downstream factors explain the vast majority of firm size heterogeneity. Firms with higher production capability have greater market shares among their customers, but also higher input costs and fewer customers. As a result, high production capability firms have lower sales unconditionally and higher sales conditional on their input prices. Counterfactual analysis suggests that the production network accounts for more than half of firm size dispersion. Taken together, our results suggest that multiple firm attributes underpin their success or failure, and that models with only one source of firm heterogeneity fail to capture the majority of firm size dispersion.
    Keywords: production networks; productivity; firm size heterogeneity
    JEL: F10 F12 F16
    Date: 2019–01
  3. By: Baccini, Leonardo; Impullitti, Giammario; Malesky, Edmund J.
    Abstract: What do state-owned enterprises (SOEs) do? How do they respond to market incentives? Can we expect substantial efficiency gains from trade liberalization in economies with a strong presence of SOEs? Using a new dataset of Vietnamese firms we document a set of empirical regularities distinguishing SOEs from private _rms. Then we empirically study the effect of the 2007 WTO accession on selection, competition, and productivity. Our results show that WTO entry is associated with higher probability of exit, lower firm profitability, and substantial increases in productivity for private firms but not for SOEs. Our estimates suggest that the overall productivity gains would have been about 40% larger in a counterfactual Vietnamese economy without SOEs. We highlight some economic mechanisms possibly driving these findings through the lenses of a model of trade with heterogeneous private and state-owned firms. The model suggests that political/regulatory barriers to entry and access to credit are key drivers of the different response of SOEs to trade liberalization. Further empirical tests broadly validate these insights.
    Keywords: state-owned enterprises; state capitalism; heterogeneous firms; gains from trade; WTO; Vietnam
    JEL: F12 F13 F14 P31 P33
    Date: 2019–01
  4. By: Lin, Ping; Zhang, Tianle
    Abstract: We study the effect of product liability on the incentives of product and safety innovation. We first develop a monopoly model in which a firm chooses both product novelty and safety in an innovation stage followed by a production stage. A greater product liability directly increases the marginal benefit of producing a safer product and thus increases product safety. However, as product liability increases, product novelty may increase or decrease, depending on the relative strengths of demand-shifting and cross-R&D effects identified in the model. Consequently, a greater product liability may decrease consumer welfare and thus total welfare. We extend the results to an oligopoly model with differentiated products and study the effects of competition measured by the number of firms and the degree of product substitutability. We find that equilibrium product novelty and safety decrease with the number of firms but exhibit non-monotonic relationships with the degree of product substitutability.
    Keywords: Product Liability, Safety, Novelty, Innovation Incentive
    JEL: D4 K13 L13
    Date: 2019–11
  5. By: Ayal Chen-Zion; James E. Rauch
    Abstract: We model network formation in a firm. Agents learn about the quality of their working relationships with each other. Their good relationships become their networks. Accumulating relationships becomes increasingly costly, however. Over time agents become less open to forming relationships with others unknown to them, leading their networks to be front-loaded with agents they met near the beginning of their careers. The interaction of this dynamic with turnover yields predictions about the time pattern of history dependence in an agent’s network as a function of his tenure. Mutual openness of newly arrived agents in a firm also leads to the cross-section prediction of “cohort attachment,” a tendency for members of an agent’s hiring cohort to be disproportionately represented in his network. When members of a network formed within a firm are subsequently split across many firms, the desire to renew their successful working relationships can lead to job referrals. Former co-workers who provide referrals will be drawn disproportionately from the referred workers’ hiring cohorts at their previous employers.
    Keywords: networks, history dependence, job referrals
    JEL: D85 J63 J64
    Date: 2019
  6. By: Jakub Hajda
    Abstract: Corporate finance has related corporate policies to cash flow risk. I show that corporate valuation and policies are better understood when taking into account the dynamics of products, which microfound firms' cash flows. I demonstrate empirically that product portfolio age is negatively related to firm value, investment and leverage, consistent with the product life cycle channel. I quantify its importance by estimating a model of financing, investment, and product portfolio decisions. The model rationalizes the stylized facts by showing that capital investment and product introductions act as complements and that product dynamics induce stronger precautionary savings motives. The results indicate that product dynamics are important, as they explain 25% of variation in investment and leverage. The estimates imply that product life cycle effects are large and stronger among firms supplying fewer products and competing more intensely. Alleviating these effects can increase firm value by up to 4.5%.
    JEL: G32 G31
    Date: 2019–11–25
  7. By: Mykola Babiak (CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences, Politickych veznu 7, 111 21 Prague, Czech Republic); Olena Chorna (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 11000, Prague 1, Czech Republic)
    Abstract: In this paper, we investigate how the increase in minimum wages affect firm profitability. We focus on the firm-level panel data in Poland, where minimum wage growth remained stable and averaged around 4 percent between 2003 and 2007 butaccelerated to 20 percent in 2008. Implementing a difference-in-difference approach in this quasi-experimental setting, we find that the minimum wage increase contributed positively to average wages and negatively to firm profitability. Intuitively, the increased labor costs due to a higher wage floor directly reduce profits in the absence of labor demand adjustments. We formally test and confirm validity of theseempirical predictions in a simple theoretical model of a profit maximizing firm.
    Keywords: Minimum wage, firm profitability, difference-in-difference
    JEL: C21 J23 L25
    Date: 2019–06
  8. By: Anmol Bhandari; Serdar Birinci; Ellen McGrattan; Kurt See
    Abstract: This paper examines the reliability of survey data on business incomes, valuations, and rates of return, which are key inputs for studies of wealth inequality and entrepreneurial choice. We compare survey responses of business owners with available data from administrative tax records, brokered private business sales, and publicly traded company filings and document problems due to nonrepresentative samples and measurement errors across all surveys, subsamples, and years. We find that the discrepancies are economically relevant for the statistics of interest. We investigate reasons for these discrepancies and propose corrections for future survey designs.
    Keywords: Business fluctuations and cycles; Firm dynamics
    JEL: C83 E22 H25
    Date: 2019–12

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