nep-bec New Economics Papers
on Business Economics
Issue of 2020‒02‒24
nine papers chosen by
Vasileios Bougioukos
Bangor University

  1. Speculation-Driven Business Cycles By Saki Bigio; Eduardo Zilberman
  2. The Impact of size and group affiliation in emerging markets: A Cost efficiency analysis of Indian firms By Ramesh Jangili
  3. Demand Learning and Firm Dynamics: Evidence from Exporters By Nicolas Berman; Vincent Rebeyrol; Vincent Vicard
  4. Investment behavior and firms' financial performance: A comparative analysis using firm-level data from the wine industry By Claudiu Albulescu
  5. Decomposing the Labor Productivity Gap between Upper-Middle-Income and High-Income Countries By Amin,Mohammad; Islam,Asif Mohammed; Khalid,Usman
  6. Management Practices in Croatia : Drivers and Consequences for Firm Performance By Grover,Arti Goswami; Iacovone,Leonardo; Chakraborty,Pavel
  7. Agglomeration and productivity in South Africa: Evidence from firm-level data By Amusa Hammed; Wabiri Njeri; Fadiran David
  8. Do Cash Windfalls Affect Wages? Evidence from R&D Grants to Small Firms By Sabrina T. Howell; J. David Brown
  9. Entry Barriers, Idiosyncratic Distortions, and the Firm-Size Distribution By Fattal Jaef,Roberto N.

  1. By: Saki Bigio; Eduardo Zilberman
    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
    Date: 2020–01
  2. By: Ramesh Jangili (Indira Gandhi Institute of Development Research; Institute of Economic Growth)
    Abstract: Despite strengthening market discipline and improving overall competition, emerging markets, like India, still have severe information problems. Large firms and group firms in these markets have the potential to gain differential advantage as well as destroy value. We analyse the cost efficiency performance of firms in India: the degree of cost efficiency with respect to firm size and the cost efficiency of firms affiliated to business groups with that of standalone firms. We find that as firm size increases the degree of cost efficiency decreases and standalone firms exhibit better cost efficiency scores when compared with that of group affiliated firms. This supports the view that firms having either market power or involved in explicit or implicit form collusion incur higher costs. Alternatively, firms which do not have market power minimises the cost in a better way.
    Keywords: Cost Efficiency, Size, Group Affiliation, Stochastic Frontier Analysis
    JEL: L25 D24 M21
    Date: 2019–12
  3. By: Nicolas Berman (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Vincent Rebeyrol (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vincent Vicard (Centre de recherche de la Banque de France - Banque de France)
    Abstract: This paper provides direct evidence that learning about demand is an important driver of firms' dynamics. We present a model of Bayesian learning in which firms are uncertain about idiosyncratic demand in each market and update their beliefs as noisy information arrives. Firms update their beliefs to a given demand shock more, the younger they are. We test and empirically confirm this prediction, using the structure of the model, together with exporter-level data, to identify demand shocks and the firms' beliefs about future demand. Consistent with theory, we also find the learning process to be weakened in more uncertain environments.
    Keywords: exports,demand,firm growth,belief updating,uncertainty
    Date: 2019–03
  4. By: Claudiu Albulescu (CRIEF)
    Abstract: This paper assesses the role of financial performance in explaining firms' investment dynamics in the wine industry from the three European Union (EU) largest producers. The wine sector deserves special attention to investigate firms' investment behavior given the high competition imposed by the latecomers. More precisely, we investigate how the capitalization, liquidity and profitability influence the investment dynamics using firm-level data from the wine industry from France (331 firms), Italy (335) firms and Spain (442) firms. We use data from 2007 to 2014, drawing a comparison between these countries, and relying on difference-and system-GMM estimators. Specifically, the impact of profitability is positive and significant, while the capitalization has a significant and negative impact on the investment dynamics only in France and Spain. The influence of the liquidity ratio is negative and significant only in the case of Spain. Therefore, we notice different investment strategies for wine companies located in the largest producer countries. It appears that these findings are in general robust to different specifications of liquidity and profitability ratios, and to the different estimators we use.
    Date: 2020–01
  5. By: Amin,Mohammad; Islam,Asif Mohammed; Khalid,Usman
    Abstract: Using firm-level survey data on registered private firms collected by the World Bank's Enterprise Surveys, this paper compares the level of labor productivity in 22 upper-middle-income countries and 11 high-income countries for which comparable data are available. The results show that labor productivity in the upper-middle-income countries is about 57.5 percent lower than in the high-income countries. The productivity difference is robust and holds for firms of different sizes and industries. The analysis uses the Oaxaca-Blinder decomposition to identify the sources of the productivity gap. It finds that the endowment effect and the structural effect contribute roughly equally to the productivity gap. Several firm- and country-level variables determine the productivity gap. The biggest contributors via the endowment effect include tertiary education attainment, law and order, and quality management proxied by international quality certification. Factors that contribute most via the structural effect include market size, secondary education attainment, and law and order. Thus, the results underline the importance of human capital, institutions, and market size for closing the productivity gap between the upper-middle-income and high-income countries.
    Date: 2019–12–03
  6. By: Grover,Arti Goswami; Iacovone,Leonardo; Chakraborty,Pavel
    Abstract: Embedding management and operational practices survey in a broader firm capabilities survey, this paper finds that an average firm in Croatia scores 0.532 on structured management practices, which is farther from the frontier (0.615 in the United States). This average, however, masks the wide heterogeneity in management practices among firms. Relative to advanced countries, a large share of firms in Croatia are badly managed. Management is particularly worse in services and more so in non-knowledge intensive services. Better managed firms show superior performance: improving the management score from the 10th decile to the 90th decile is expected to improve sales per employee by 36 percent, profits by 33 percent and the probability to innovate by 11 percent. Likewise, better managed firms more likely use sophisticated technologies and have a higher probability of accessing external finance. What drives firms to improve their management practices? As elsewhere in the world, global linkages of firms matter. However, unlike the evidence in advanced countries, management capabilities in Croatia is negatively associated with firm age, especially in services, indicating the possibility of allocative inefficiency, where learning and selection mechanism does not weed out the badly managed firms perhaps due to the lack of pro-competitive forces.
    Date: 2019–11–22
  7. By: Amusa Hammed; Wabiri Njeri; Fadiran David
    Abstract: Using comprehensive, anonymized tax administrative data for the 2008–14 period, we examine firm-level productivity in South Africa. Measures of firm-level productivity are included in a spatial autoregressive model that assesses spillovers from total factor productivity originating from agglomeration economies and the spatial diffusion of productivity shocks.We find that across South Africa’s firms, intermediate inputs have the highest impact on firm productivity. The results from the spatial analysis indicate that for a firm in a particular region, its clustering with other firms, having increased market power, and an extended length of stay in a particular region have a greater impact on productivity than do market conditions and firm-specific characteristics associated with firms located in neighbouring regions or municipalities.
    Keywords: Agglomeration,South Africa,Firm productivity
    Date: 2019
  8. By: Sabrina T. Howell; J. David Brown
    Abstract: This paper examines how employee earnings at small firms respond to a cash flow shock in the form of a government R&D grant. We use ranking data on applicant firms, which we link to IRS W2 earnings and other U.S. Census Bureau datasets. In a regression discontinuity design, we find that the grant increases average earnings with a rent-sharing elasticity of 0.07 (0.21) at the employee (firm) level. The beneficiaries are incumbent employees who were present at the firm before the award. Among incumbent employees, the effect increases with worker tenure. The grant also leads to higher employment and revenue, but productivity growth cannot fully explain the immediate effect on earnings. Instead, the data and a grantee survey are consistent with a backloaded wage contract channel, in which employees of financially constrained firms initially accept relatively low wages and are paid more when cash is available.
    JEL: G32 G35 J31 J41
    Date: 2020–01
  9. By: Fattal Jaef,Roberto N.
    Abstract: This paper studies the interaction between entry barriers and idiosyncratic distortions in the context of a standard model of firm dynamics. It derives a strategy to infer entry barriers based on the combination of cross-country data on average firm size, cross-country estimates of idiosyncratic distortions, and equilibrium conditions of the theory. It finds sizable entry barriers that correlate positively with income per-capita. The TFP gains from complete reversals of distortions range between 20 and 50 percent. Idiosyncratic distortions are most distortive in low income countries whereas entry barriers are relatively more detrimental in advanced economies. The study also finds that distortions tend to mitigate each other's negative effect on TFP.
    Date: 2019–09–27

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