nep-bec New Economics Papers
on Business Economics
Issue of 2019‒12‒23
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Overlapping Ownership, Endogenous Quality,and Welfare By Duarte Brito; Ricardo Ribeiro; Helder Vasconcelos
  2. CEO Pay in Perspective By Marcel Boyer
  3. Governance and State-Owned Enterprises: How Costly is Corruption? By Anja Baum; Clay Hackney; Paulo Medas; Mouhamadou Sy
  4. Managing the family firm: evidence from CEOs at work By Bandiera, Oriana; Lemos, Renata; Prat, Andrea; Sadun, Raffaella
  5. Taxation and the life cycle of firms By Andrés Erosa; Beatriz González
  6. Does Electrification Cause Industrial Development? Grid Expansion and Firm Turnover in Indonesia By Dana Kassem
  7. Productivity Dynamics in French Woodworking Industries. By Enrico De Monte; Anne-Laure Levet
  8. Opting Out, Collective Contracts and Labour Flexibility: Firm-Level Evidence for The Italian Case By Damiani, Mirella; Pompei, Fabrizio; Ricci, Andrea
  9. Idiosyncratic shocks: estimation and the impact on aggregate fluctuations By Svetlana Popova
  10. Global sourcing, firm size and export survival By Bandick, Roger
  11. Markup Cyclicality: Evidence From Belgian Manufacturing Firms By Asmae EL GALLAA
  12. Mark-up volatility in Food Value Chains: Evidence from France and Italy By Maria Garrone; Jo Swinnen
  13. Taxation and Supplier Networks: Evidence from India By Lucie Gadenne; Tushar Nandi; Roland Rathelot
  14. Firms' Efficiency, Exits and Government procurement contracts By Evguenia Bessonova

  1. By: Duarte Brito (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia and CEFAGE); Ricardo Ribeiro (Universidade Católica Portuguesa, Católica Porto Business School and CEGE); Helder Vasconcelos (Universidade do Porto, Faculdade de Economia and CEF.UP)
    Abstract: This paper investigates how overlapping ownership affects quality levels, consumer surplus, firms' profits and welfare when the industry is a vertically differentiated duopoly and quality choice is endogenous. This issue is particularly relevant since recent empirical evidence suggests that overlapping ownership constitutes an important feature of a multitude of vertically differentiated industries. We show that overlapping ownership while detrimental for welfare, may increase or decrease the quality gap, consumer surplus and firms' profits. In particular, when the overlapping ownership structure is such that the high quality firm places a positive weight on the low quality firm's profits, the incentives of the high quality firm to compete aggressively reduce. This may increase the equilibrium quality of the low quality firm, which in turn may lead to higher consumer surplus, despite higher prices.
    Keywords: Overlapping Ownership, Vertical Di¤erentiation.
    JEL: L13 L41
    Date: 2019–12
  2. By: Marcel Boyer
    Abstract: The CEO pay ratio, measured as the ratio of CEO pay over the median salary of a firm’s employees, is the most often quoted number in the popular press. This ratio has reached 281 this last year for S&P500 firms, the largest US firms by capitalization (as of November 21 2019). But the B-ratio I proposed here, measured as the CEO pay over the total payroll of the firm, relates CEO pay to the salary of each employee and may be the most relevant and informative figure on CEO pay as perceived by the firm’s employees themselves. How much a typical employee of the S&P500 firms implicitly “contributes” to the salary of his/her CEO? An amount of $273 on average or 0.5% of one’s salary, that is, one half of one percent on an individual salary basis. To assess whether such a contribution is worthwhile, one must determine the value of the CEO for the organization and its workers and stakeholders. The Appendix provides the data for all 500 firms regrouped in 10 industries (Bloomberg classification).
    Keywords: CEO Pay Ratio,B-Ratio,S&P500,Bloomberg,Real Options,
    Date: 2019–12–12
  3. By: Anja Baum; Clay Hackney; Paulo Medas; Mouhamadou Sy
    Abstract: State-owned enterprises (SOEs) are present in key sectors of the economies around the world. While they can provide an important public service, there is widespread concern that their activities are negatively affected by corruption. However, there is limited cross-country analysis on the costs of corruption for SOEs. We present new evidence on how corruption affects the performance of SOEs using firm level data across a large number of countries. One striking result is that SOEs perform as well as private firms in core sectors when corruption is low. Taking advantage of a novel database reforms, we also show that SOE governance reforms can generate significant performance gains.
    Date: 2019–11–22
  4. By: Bandiera, Oriana; Lemos, Renata; Prat, Andrea; Sadun, Raffaella
    Abstract: We build a comparable and bottom-up measure of CEO labor supply for 1,114 CEOs, and investigate whether family and professional CEOs differ on this dimension of effort. Family CEOs work 9% fewer hours relative to professional CEOs. CEO hours worked are positively correlated with firm performance, and account for 18% of the performance gap between family and professional CEOs. We study the sources of the differences in labor supply across family and professional CEOs by exploiting firm and industry heterogeneity, and variation in meteorological and sport events. The evidence suggests that family CEOs value–or can pursue–leisure activities more than professional CEOs.
    JEL: R14 J01 J50
    Date: 2018–05–01
  5. By: Andrés Erosa (Universidad Carlos III de Madrid); Beatriz González (Banco de España and Universidad Carlos III de Madrid)
    Abstract: The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect firms’ investment and financial policies over their life cycle. Corporate income taxation slows down firm growth over the life cycle by reducing after-tax profits available for reinvesting, and it distorts optimal firms’ size. Dividend income taxation reduces external equity financing, but it does not affect size at maturity. Capital gains taxes make firms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.
    Keywords: macroeconomics, capital income taxation, firm dynamics, investment
    JEL: D21 E22 E62 G32 H32
    Date: 2019–12
  6. By: Dana Kassem
    Abstract: I ask whether electrification causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electrification can cause industrial development, I shed light on an important economic mechanism - firm turnover. In particular, I study the effect of the extensive margin of electrification (grid expansion) on the extensive margin of industrial development (firm entry and exit). To deal with endogenous grid placement, I build a hypothetical electric transmission grid based on colonial incumbent infrastructure and geographic cost factors. I find that electrification causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Empirical tests show that electrification creates new industrial activity, as opposed to only reorganizing industrial activity across space. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electrified areas. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. Without the possibility of entry or competitive effects of entry, the effects of electrification are likely to be smaller.
    JEL: D24 L60 O13 O14 Q41
    Date: 2019–07
  7. By: Enrico De Monte; Anne-Laure Levet
    Abstract: This paper investigates productivity dynamics of firms active in French woodworking 4- digit industries. For this purpose we analyze firm-level data from the two fiscal data bases FICUS (1994 - 2008) and FARE (2008 - 2016). Based on firm-level productivity measures, recovered from the estimation of a value-added Cobb-Douglas production function, we mainly study the industries’ aggregate productivity growth related to entry and exit. Also, by constructing a transition matrix we investigate firms’ probability to survive, enter or exit given a specific ranking of their productivity. We find that all industries increased considerably their aggregate productivity between 1994 and 2016, where the by far largest part of this positive development is contributed by survivors productivity improvement. Entrants contribute negatively to aggregate productivity growths while the contribution of exitors varies in sign for different industries. Also, we find that firms reveal high persistence in their productivity ranking over time and that entry and exit is more probable for low productive and small firms.
    Keywords: production function estimation, aggregate productivity, productivity decomposition, technological change, firm entry and exit.
    JEL: C13 C14 D24 D30 O47
    Date: 2019
  8. By: Damiani, Mirella; Pompei, Fabrizio; Ricci, Andrea
    Abstract: This article analyses the role of deviations from higher level collective agreements adopted in firm-level bargaining to regain higher labour mobility, net positive employment effects and a resurgence of labour productivity. Using Italian firm level data, after performing preliminary pooled ordinary least squares and fixed effects estimates, we adopt a difference-in-difference approach combined with a propensity score matching. All the estimations show that opting out clauses notably increases both hiring and separations, but without significant variations in terms of net employment. In addition, no significant labour productivity gains are obtained. The only significant change concerns the increase in the share of temporary workers.
    Keywords: Opting Out, Collective Bargaining, Labour Flexibility, Difference in Difference
    JEL: J5 J51 J53 J63 J81 J82
    Date: 2019–12
  9. By: Svetlana Popova (Bank of Russia, Russian Federation)
    Abstract: Recently, economic granularity has been the focus of researchers' attention. Latest empirical works evaluate the granularity of various economies in terms of whether shocks to individual companies can affect volatility of macroeconomic variables. Studies of developed countries show that a large part of aggregate fluctuations arises from idiosyncratic shocks to companies because of their size or close linkages between them. Using the microdata of Russian firms on sales over the period from 1999 to 2017, we test the hypothesis that the Russian economy is granular. Here we found that idiosyncratic shocks contribute significantly to total sales volatility. It was also revealed that the effect of linkages is more important in aggregate volatility estimation, but not for the top-100 largest firms. These findings are important for understanding business cycle drivers and for estimation the impact of macroeconomic policies.
    Keywords: firm-level dynamics, granular residuals, idiosyncratic shocks, aggregate fluctuations, industrial production.
    JEL: D20 E32 L14
    Date: 2019–09
  10. By: Bandick, Roger
    Abstract: This paper investigates how firm size and global sourcing affect the export surviving probabilities. By using data on export and import transactions disaggregated by destination/origin for the entire Danish manufacturing firms between the periods 1995-2006, the author is able to classify the firms into different size categories and to observe whether they continue or cease to export. Moreover, he is able to define whether the firms source intermediate inputs from high- or low-wage counties. The results, after controlling for the endogeneity of the international sourcing decision by using IV and matching approach, indicate that firm size is positively correlated with the likelihood of continuing to export. Moreover, for small and medium size firms, global sourcing seems also to increase the probability of staying in the export market but only if they source from high- wage countries. However, sourcing inputs from abroad, no matter if it is from high- or low-wage countries, do not seem to significantly affect the export surviving probabilities for larger firms.
    Keywords: global sourcing,firm size,export,IV,matching,cloglog
    JEL: F16 F23 J24 L25
    Date: 2019
  11. By: Asmae EL GALLAA
    Abstract: Countercyclical markup is a leading hypothesis in representative agent models of macroeconomic fluctuations; however, substantial heterogeneity across firms is documented at the micro-level. I test this hypothesis using an extensive firm-level data on Belgian manufacturing firms covering the period 1996-2014. I measure a firm’s markup as the wedge between its output elasticity of material inputs and their share in revenues. Consistent with recent studies challenging the findings of countercyclical markups I find that, on average, firmlevel markups appear to be procyclical. However, firms’ markups appear to be procyclical or acyclical depending on their size, age, end-use of products, and technological intensity.
    Keywords: countercyclical markups, business cycles, production function estimation, materials share
    Date: 2018–08–01
  12. By: Maria Garrone; Jo Swinnen
    Abstract: This paper estimates firm-level mark-ups and their volatility along the agri-food value chain using the methodology of De Loecker and Warzynski (2012). We estimate mark-ups of farmers, processors, wholesalers and retailers, how they change over time, and their volatility. We use detailed micro-level data from companies from Italy and France for the period 2006-2014. We find that farmers have a significantly higher volatility of mark-ups than other agents in the agri-food value chain, such as food processors, wholesalers and retailers. The volatility is negatively related with firm size in all sectors, and especially in agriculture.
    Date: 2018–06–06
  13. By: Lucie Gadenne (Institute for Fiscal Studies); Tushar Nandi (Institute for Fiscal Studies); Roland Rathelot (Institute for Fiscal Studies)
    Abstract: Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supplier networks in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier-client pairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ decision to pay VAT. Finally, we test the model’s predictions using variations over time within-firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and evidence of strategic complementarities in firms’ tax choices within supplier networks. These two mechanisms explain a substantial share of the supply chain segmentation that we observe.
    Date: 2019–08–20
  14. By: Evguenia Bessonova (Bank of Russia, Russian Federation)
    Abstract: This study provides evidence that productivity growth trends in Russia are similar to those in other countries where technology leaders enjoy productivity growth with a gap increasing between them and other companies. The survival analysis suggests that the most efficient firms quit the market at a faster rate than firms in other efficiency groups in the Russian economy. Survival functions of the least efficient firm do not always differ significantly from those of other companies. Results based on public procurement data provide evidence that additional financing from government contracts helps both the most and the least efficient firms to survive and shelters them from competitive pressure. In the short run, the positive effect of winning government procurement contracts for leaders seems to be only observed in their home regions, providing indirect evidence that the public procurement system does not support all types of firms with growth potential but only those affiliated with local authorities. Intervention in the mechanism of market selection through the system of public procurement could have a strong negative effect on economic growth as it provides incentives for inefficient firms without growth potential to stay in the market longer.
    Keywords: TFP growth, efficiency, productivity gap, government procurement contracts, firms’ exits.
    JEL: D24 H57 L52
    Date: 2019–10

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