nep-bec New Economics Papers
on Business Economics
Issue of 2020‒01‒13
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. The 'Margin call'. Export experience and firm entry into new export markets By Matteo Bugamelli; Andrea Linarello; Roberta Serafini
  2. The empirics of granular origins: some challenges and solutions with an application to the UK By Dacic, Nikola; Melolinna, Marko
  3. Barriers to Entry and Regional Economic Growth in China By Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
  4. Frontier and Superstar Firms in Italy. By Francesca Lotti; Enrico Sette
  5. Corporate governance and firm performance: Evidence from the agri-food industry of Russia By Alisher Tleubayev
  6. The insurance role of the firm By Luigi Guiso; Luigi Pistaferri
  7. Learning Before and After the Global Crisis: Firm-level Innovation in Latin America By King Yoong Lim; Diego Morris
  8. Mark-up volatility in Food Value Chains: Evidence from France and Italy By Maria Garrone; Jo Swinnen
  9. Firms as problem solvers: economics meets computer science By Kim, Minseong
  10. All you need is cash: corporate cash holdings and investment after the financial crisis By Joseph, Andreas; Kneer, Christiane; van Horen, Neeltje; Saleheen, Jumana

  1. By: Matteo Bugamelli (Bank of Italy); Andrea Linarello (Bank of Italy); Roberta Serafini (European Central Bank)
    Abstract: We use firm-level data on the universe of Italian exporters to characterize the evolution of aggregate goods exports during the period 2000-15. We first decompose aggregate annual export dynamics into the intensive and the extensive margin, where the latter is further broken down into its firm, product and market components. We document that the intensive margin and, to a lesser extent, net market entry have been the main drivers of export growth, counterbalancing the negative effect coming from firms ceasing their exporting activity. The contribution of the intensive margin comes mostly from medium-large and, especially, more productive firms, while that of net market entry is concentrated among medium-sized firms. We then focus on market entry and ask which characteristics are more significant in affecting the probability that an already-exporting firm enters a new destination market. We focus in particular on the role of export experience and show that firm-destination specific dimensions, such as the distance between the new market and the closest market already served by the firm and the contiguity between the two, play an important role. These results show the prevalence of expansion strategies that follow a proximity principle.
    Keywords: firm level data, intensive and extensive trade margins, entry into foreign markets, export experience
    JEL: F10
    Date: 2019–12
  2. By: Dacic, Nikola (Goldman Sachs & Co); Melolinna, Marko (Bank of England)
    Abstract: We study the effects of firm-level microeconomic fluctuations on aggregate productivity in the United Kingdom. We show that a standard measure of residual productivity growth of the largest UK firms (the ‘granular residual’) produces results that are counter-intuitive and not statistically significant. To combat this, we introduce a unique production function approach to estimate firm-specific technology shocks, accounting for firm-level heterogeneity and common shocks. Using this measure, we find that firm-level shocks matter; the ‘granular residual’ explains around 30% of aggregate UK productivity dynamics. We also show that simplifications of our approach, which omit controlling for firm-level heterogeneity or do not account for common shocks, do not perform well, highlighting the importance of identifying firm-specific shocks correctly in order to properly test the ‘granularity hypothesis’.
    Keywords: business cycle; aggregate volatility; granularity hypothesis; firm-level productivity
    JEL: E23 E24 E32
    Date: 2019–12–20
  3. By: Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
    Abstract: Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector
    Keywords: Chinese economic growth; SOEs; firm entry; entry barriers; capital wedges; output wedges; SOE reform.
    JEL: O11 O14 O16 O40 O53 P25 R13 D22 D24 E24
    Date: 2020–01–05
  4. By: Francesca Lotti (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: We study the dynamics of firms in the top decile of the TFP distribution in Italy (frontier firms). Using granular microdata from the census of corporations, we show their main characteristics, their weight in terms of revenues and employment, and measure their persistency in the top deciles of the TFP distribution. Frontier firms are more profitable, less likely to go bankrupt and younger; they invest more and use less long-term bank debt to finance their assets; and they are larger in terms of revenues, but not in terms of employees. Finally, we gauge their contribution to aggregate TFP growth, finding that TFP growth of frontier firms has intensified over time, as did the divide between firms at the top and the bottom of the TFP distribution. However, the market share of frontier firms only increased over time in the business services and transportation sectors; there is no increase, and in some cases, there is actually a decrease in other industries, notably in manufacturing. Hence, we do not find strong evidence of superstar firm effects, except in business services.
    Keywords: productivity, firm dynamics, reallocation, market power.
    JEL: D24 O47 L16
    Date: 2019–12
  5. By: Alisher Tleubayev (Leibniz Institute of Agricultural Development in Transition Economies (IAMO))
    Abstract: Current study provides pioneering empirical evidence on the corporate governance and firm performance relationship in the case of the large scale agri-food companies in Russia. While Russia plays an important role in global food security, its domestic agri-food production is heavily dependent on large scale producers.In spite of the emergence and continuing growth of large scale agricultural enterprises in many parts of the world, the literature on large scale corporate farming is scarce. Corporate governance literature is especially limited in the case of transition economies like Russia, which has relatively short history of market economics. A sudden move towards the decentralized market after the collapse of the communist regime in the beginning of 1990s led to the emergence of new private companies. Most of these newly privatized companies were large in size, with very poor governance levels. However, increased attention from government, relatively stabilized national economy, improvements in legislation and access to international financial markets led to significant improvements in governance structure after 1999. All these factors taken together, makes it especially interesting to study the corporate governance in the case of Russia. A panel data of 203 agri-food enterprises of Russia for the period between 2012 and 2017 is employed in the analysis.
    Keywords: corporate governance, agri-food industry, firm performance, Russia, panel data
    JEL: M14 Q12 Q13
    Date: 2019–10
  6. By: Luigi Guiso (EIEF); Luigi Pistaferri (Stanford University)
    Abstract: We review the recent literature on the risk sharing role of the firm. We provide a framework for studying risk sharing between workers and firm owners vis-à-vis firms specific shocks of different nature.We show how this framework can be taken to the data to provide estimates of the extent of insurance within the firm. Estimates from a large number of Western countries strongly support the view that in capitalist economies the firm is a large albeit far from complete wage insurance instrument. We quantify the welfare benefits of firm-provided wage insurance, show evidence on how workers react to firms shockspassed through wages, and discuss the future role of the firm as a wage insurance provider.
    Date: 2020
  7. By: King Yoong Lim; Diego Morris
    Abstract: Economic shocks of the kind we recently witnessed with the 2008 global financial and economic crisis do not come around very often but when they do, their effect can be catastrophic, not the least because of their impact on businesses. Existing theories of how firms react to crises such as these are ambiguous and very little empirical evidence exist, particularly for the developing world. As such, our main contribution to the literature is to shed light on these issues, articulating a theoretical framework and testing it using three waves of cross-country innovation identifying survey implemented by the World Bank in Latin American economies. The three waves coincide with a timespan that covers before, during, and after the global crises. Our results provide strong support that firms alter their practices and witness different profit outcomes before and after a downturn depending on innovation decisions. In fact, we find evidence that indicates that the profitability gains from new products for firms may be higher during downturns.
    Keywords: Economic crisis, Innovation, Latin America, Productivity.
    JEL: D22 D24 O30 O31
    Date: 2020–01
  8. 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
  9. By: Kim, Minseong
    Abstract: A theory of the firm based on the idea that firms are problem solvers is developed. A network of firms and hierarchical structure of an individual firm are analyzed in terms of distributed and parallel computing. This framework, based on notions of computer science, allows us a simple answer to why a network of firms exists instead of a network of individuals.
    Keywords: theory of the firm; vertical integration; parallel computing; distributed computing; synchronization
    JEL: D20 D40 L20
    Date: 2019–12–01
  10. By: Joseph, Andreas (Bank of England); Kneer, Christiane (Bank of England); van Horen, Neeltje (Bank of England); Saleheen, Jumana (Bank of England)
    Abstract: Firms with high pre-crisis cash holdings invested significantly more than their cash-poor rivals during the global financial crisis and especially so during the recovery phase. This resulted in a persistent and growing investment gap between cash-rich and cash-poor firms. Cash especially benefited young and small firms and firms in industries where rivals became more financially constrained. The amplification effect of cash was absent in the period preceding the crisis. The ability to continue to invest allowed cash-rich firms to gain market share and accumulate more profits over the long-run. Having a liquid balance sheet when the credit cycle turns thus gives firms a competitive edge that lasts far beyond the crisis years.
    Keywords: Firm investment; cash holdings; credit constraints; financial crisis
    JEL: E22 E32 E44 G32
    Date: 2019–12–20

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