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on Business Economics |
| By: | Smirnyagin, Vladimir (University of Minnesota) |
| Abstract: | This paper studies firm dynamics over the business cycle. I present evidence from the United Kingdom that more rapidly growing firms are born in expansions than in recessions. Using administrative records from Census data, I find that this observation also holds for the last four recessions in the United States. I also present suggestive evidence that financial frictions play an important role in determining the types of firms that are born at different stages of the business cycle. I then develop a general equilibrium model in which firms choose their managers’ span of control at birth. Firms that choose larger spans of control grow faster and eventually get to be larger, and in this sense have a larger target size. Financial frictions in the form of collateral constraints slow the rate at which firms reach their target size. It takes firms longer to get up to scale when collateral constraints tighten; therefore, businesses with the largest target size are affected disproportionately more. Thus, fewer entrepreneurs find it profitable to choose larger projects when financial conditions deteriorate. Using Bayesian methods, I estimate the model using micro and aggregate data from the United Kingdom. I find that financial shocks account for over 80% of fluctuations in the formation of businesses with a large target size, and TFP and labour wedge shocks account for the remaining 20%. An independently estimated version of the model with no choice over the span of control needs larger aggregate shocks in order to account for the same data series, suggesting that the intensive margin of business formation is important at business cycle frequencies. The model with the choice over the span of control generates an empirically relevant and non-targeted collapse in the right tail of the cumulative growth distribution among firms started in recessions, while the model without such a choice does not. The paper also discusses implications for micro-targeted government stimulus policies. |
| Keywords: | Business cycles; firm dynamics |
| JEL: | E23 E32 H25 |
| Date: | 2020–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0846&r=all |
| By: | Saki Bigio (Department of Economics, UCLA; NBER); Eduardo Zilberman (Department of Economics, PUC-Rio; Research Department, Central Bank of Chile) |
| Abstract: | Speculation, in the spirit of Harrison and Kreps (1978), is introduced into a standard real business cycle model. Investors (speculators) hold heterogeneous beliefs about firm growth. Firm ownership, and thus, the firm’s discount factor varies with waves of optimism and leverage. These waves ripple into firm investments in hours. The firm’s discount factor links the equity premium and labor volatility puzzles. We obtain an upper bound to the amplification that can be generated by speculation for any model of beliefs—a factor of 1.5. A calibration based on diagnostic beliefs amplifies hours volatility by a factor of 1.15 and produces a bubble component of 20 percent. |
| Keywords: | Heterogeneous Beliefs; Business Cycles; Asset Prices; Speculation; Bubbles |
| JEL: | D84 E32 E44 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:161&r=all |
| By: | Sergio Salgado; Fatih Guvenen; Nicholas Bloom |
| Abstract: | Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, during recessions, they display a large left tail of negative growth rates (and during booms, a large right tail of positive growth rates). We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agent model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions. |
| JEL: | E3 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26565&r=all |
| By: | Elisabeth Christen; Michael Pfaffermayr; Yvonne Wolfmayr |
| Abstract: | This paper provides new insight into the firm-level employment impacts of trade cost changes at the industry level in the Austrian services sector. We apply a two-part model of firm survival (exit) and firm growth. Separate regressions for firm entry rates at the industry-region level complete the picture of total trade-induced net job creation. We implement the trade cost measure introduced by Chen and Novy (2011) and base it on own estimates of industry specific substitution elasticities. Falling trade costs in the Austrian services sector over the period 2000 to 2014 resulted in net job creation of about 19,000 jobs accounting for 9.5 percent of overall job flows in the sector. The smallest and least productive firms contract while large and productive firms expand as predicted by theory. Most adjustments occur at the extensive margin due to changes in the probability of firm survival. |
| Keywords: | services trade, trade costs, elasticity of substitution, firm-level evidence, heterogenous firms, gravity model, job flows, trade and employment |
| JEL: | C15 C21 C25 C23 C26 F14 F16 F66 J21 D21 L20 L80 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8008&r=all |
| By: | Andrea Ricci |
| Abstract: | What is the link between flexible employment, labour productivity and wages? Taking advantage of an original firm level database combining information from Rilevazione Imprese e Lavoro (RIL) conducted by INAPP on a representative sample of Italian firms with the AIDA archive, we explore the nexus between temporary employment, labour productivity and wages along the distributions of labour productivity and wages. By applying conditional quantile technique with additive fixed effects, we detect a strong negative relationship between the use of fixed-term contracts and both labour productivity and wages. The effect of temporary employment on firms’ labour productivity and wages is heterogeneous along the distributions. Low-productive firms - recurring more to temporary contracts - are also more affected by an incremental use of short-term work arrangements risking to be trapped in a vicious cycle of low-productivity and low-wages. |
| Keywords: | Labour productivity, Wages, Temporary employment, Firm-level analysis |
| JEL: | J2 J24 J31 L25 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ast:wpaper:0050&r=all |
| 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 use an instrumental variable approach exploiting the location of colonial electric infrastructure and the need for an interconnected grid in the island of Java. I find that electrification causes industrial development by increasing the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. |
| JEL: | D24 O13 O14 O18 Q41 R11 R12 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_052v3&r=all |
| By: | Serguey Braguinsky (University of Maryland - Department of Management & Organization; National Bureau of Economic Research (NBER); Osaka University - Institute of Social and Economic Research); Atsushi Ohyama (Hitotsubashi University); Tetsuji Okazaki (University of Tokyo); Chad Syverson (University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)) |
| Abstract: | We explore how firms grow by adding products. In contrast to most earlier work on the topic, our conceptual and empirical framework allows for separate treatment of product innovation (vertical differentiation) and diversification (horizontal differentiation). The market context is Japan’s cotton spinning industry at the turn of the last century. We find that introducing innovative products outside of the previously feasible set involves removing the “supply-side constraint” by investing in new types of machines and technologies. This process involves a high degree of uncertainty, however, so firms that take steps in this direction tend to first introduce innovative products on experimental basis. We show that conducting such experiments is a key to firm growth. It not only provides opportunities to capture the market in high-end vertically differentiated products when successful, but also facilitates horizontal differentiation of the firm’s products within its previous technical capabilities. In long-term outcomes over 20 years, the right tail of the firm size distribution becomes dominated by firms that were able to expand in both directions: moving first into technologically challenging vertically differentiated products, and then later applying their newly acquired high-end technical competence to horizontal expansion of their product portfolios. |
| Keywords: | Innovation, Growth |
| JEL: | D2 L1 N6 N8 O3 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-03&r=all |
| By: | Morrow, John; Dhingra, Swati |
| Abstract: | Empirical work has drawn attention to the high degree of productivity differences within industries and their role in resource allocation. This paper examines the allocational efficiency of such markets. Productivity differences introduce two new margins of potential inefficiency: selection of the right distribution of firms and allocation of the right quantities across firms. We show that these considerations affect welfare and policy analysis, and market power across firms leads to distortions in resource allocation. Demand-side elasticities determine how resources are misallocated and when increased competition from market expansion provides welfare gains. |
| Keywords: | efficiency; productivity; social welfare; demand elasticity; markups |
| JEL: | J1 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:59226&r=all |
| By: | Alves, Guillermo; Blanchard, Pablo; Burdin, Gabriel; Chávez, Mariana; Dean, Andrés |
| Abstract: | A growing body of research has been investigating the role of management practices and managerial behaviour in conventional private firms and public sector organizations. However, little is known about managers’ behavioural profile in noninvestorowned firms. This paper aims to fill this gap by providing a comprehensive behavioural characterization of managers employed in cooperatives. We gathered incentive-compatible measures of risk preferences, time preferences, reciprocity, altruism, and trust from 196 Uruguayan managers (half of them employed in worker cooperatives) and 92 first-year undergraduate students. To do this, we conducted a high-stakes lab-in-thefield experiment in which participants played a series of online experimental games and made incentivised decisions. |
| Keywords: | Competitividad, Investigación socioeconómica, Liderazgo, Productividad, |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:dbl:dblwop:1457&r=all |
| By: | Stjepan Srhoj (University of Dubrovnik); Ivan Zilic (The Institute of Economics, Zagreb) |
| Abstract: | This paper evaluates the effect of a self-employment grant scheme for unemployed individuals-designed to ease the first 12 months of business operation-on firm growth, survival, and labor market re-integration in Croatia in the 2010-2017 period. Grants offered a moderate amount of finances (up to 50% of average annual gross salary) and absorbed only 5% of funds allocated to active labor market policies, but accounted for 10% of new firms opened throughout the years. We use the universe of unemployment episodes and the universe of unlimited and limited liability firms to document the effect of self-employment grants both causally and descriptively. Exploiting longitudinal structure of unemployment episodes dataset, we find that individuals who finish their spell with a grant have a significantly lower probability of returning to unemployment. Also, we find that limited liability firms opened via a grant have lower growth potential and worse survival profile, while unlimited liability firms-even though a sizable portion of them closes after a required 12-month grant period-have a more favorable survival profile. While these results are in line with the rest of the empirical literature on the self-employment grants, we also find that the effectiveness of these grants has increased throughout the years, indicating towards the direction of institutional learning. |
| Keywords: | self-employment grant, evaluation, unemployment, firm performance |
| JEL: | J68 M13 H25 H43 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:iez:wpaper:2001&r=all |
| By: | Evguenia Bessonova; Anna Tsvetkova |
| Abstract: | The paper focuses on trends in the convergence of labour and multifactor productivity in Russia. Using firm-level data for the 2011-2016 period, we obtain the following result: low-productivity firms grow faster than high-productivity ones. Despite this, the initial gap between the most and the least productive firms in the Russian economy is so wide that it is hardly possible to overcome in the short term. Moreover, we find that this gap has increased over the 2011-2016 period, suggesting divergence in productivity levels of Russian firms. To verify the divergence within narrowly defined industries, we also use the stochastic frontier analysis. Our estimates confirm divergence in most industries. |
| Keywords: | productivity gap, beta-convergence, sigma-convergence, stochastic frontier analysis. |
| JEL: | D24 E22 O47 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps51&r=all |
| By: | Bergantiños, Gustavo; Navarro-Ramos, Adriana |
| Abstract: | This paper considers agglomeration economies. A new firm is planning to open a plant in a country divided into several regions. Each firm receives a positive externality if the new plant is located in its region. In a decentralized mechanism, the plant would be opened in the region where the new firm maximizes its individual benefit. Due to the externalities, it could be the case that the aggregated utility of all firms is maximized in a different region. Thus, the firms in the optimal region could transfer something to the new firm in order to incentivize it to open the plant in that region. We propose two rules that provide two different schemes for transfers between firms already located in the country and the newcomer. The first is based on cooperative game theory. This rule coincides with the nucleolus and the t-value of the associated cooperative game. The second is defined directly. We provide axiomatic characterizations for both rules. We characterize the core of the cooperative game. We prove that both rules belong to the core. |
| Keywords: | game theory, core, axiomatic characterization, agglomeration economies. |
| JEL: | C71 |
| Date: | 2020–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98121&r=all |