nep-bec New Economics Papers
on Business Economics
Issue of 2020‒06‒29
nineteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. The Effect of Business Cycle Expectations on the German Apprenticeship Market: Estimating the Impact of COVID-19 By Mühlemann, Samuel; Pfeifer, Harald; Wittek, Bernhard
  2. The Inverted-U Relationship Between Credit Access and Productivity Growth By Philippe Aghion; Antonin Bergeaud; Gilbert Cette; Rémy Lecat; Hélène Maghin
  3. Does board gender diversity influence firm profitability? A control function approach By Rey Dang; l'Hocine Houanti; Krishna Reddy; Michel Simioni
  4. Entrepreneurship and Regional Windfall Gains: Evidence from the Spanish Christmas Lottery By Bermejo, Vicente; Ferreira, Miguel; Wolfenzon, Daniel; Zambrana, Rafael
  5. The Dynamics of Corporate Debt Structure By Halling, Michael; Yu, Jin; Zechner, Josef
  6. Robot Imports and Firm-Level Outcomes By Bonfiglioli, Alessandra; Crinò, Rosario; Fadinger, Harald; Gancia, Gino
  7. Casting conference calls By Cohen, Lauren; Lou, Dong
  8. Augmenting the production function with knowledge capital to test the Porter hypothesis: the case of French food industries By Jean Pierre Huiban; Antonio Musolesi
  9. Testing for Asymmetric Employer Learning and Statistical Discrimination By Ge, Suqin; Moro, Andrea; Zhu, Beibei
  10. Product Innovation, Product Diversification, and Firm Growth: Evidence from Japan’s Early Industrialization By Serguey Braguinsky; Atsushi Ohyama; Tetsuji Okazaki; Chad Syverson
  11. Creditor control rights and board independence By Ferreira, Daniel; Ferreira, Miguel A.; Mariano, Beatriz
  12. Productivity dispersion and persistence among the world's most numerous firms By Burke, Marshall; Emerick, Kyle; Maue, Casey
  13. Firm-Level Expectations and Behavior in Response to the COVID-19 Crisis By Lukas Buchheim; Jonas Dovern; Carla Krolage; Sebastian Link
  14. The Value of Firm Networks: A Natural Experiment on Board Connections By Faia, Ester; Mayer, Max; Pezone, Vincenzo
  15. Tacit Collusion with Consumer Preference Costs By Roig, G.
  16. Plants in Space By Ezra Oberfield; Esteban Rossi-Hansberg; Pierre-Daniel Sarte; Nicholas Trachter
  17. The Bonding Effect of Deferred Compensation: Worker Separations from a Large Firm in Early Transition Russia By Ananyev, Mikhail; Dohmen, Thomas; Lehmann, Hartmut
  18. Patterns of formation of the assortment of exports of Russian firms By Kuznetsov, Dmitriy (Кузнецов, Дмитрий)
  19. Subsidizing Innovation Over the Business Cycle. By Jorge Andrés Vélez-Ospina; Isabel Busom Piquer

  1. By: Mühlemann, Samuel (University of Munich); Pfeifer, Harald (BIBB); Wittek, Bernhard (LMU Munich)
    Abstract: A firm's expectation about the future business cycle is an important determinant of the decision to train apprentices. As German firms typically train apprentices to either fill future skilled worker positions, or as a substitute for other types of labor, the current coronavirus crisis will have a strong and negative impact on the German economy according to the current business cycle expectations of German firms. To the extent that the training decision of a firm depends on its perception of the business cycle, we expect a downward shift in the firm's demand for apprentices and consequently also a decrease in the equilibrium number of apprenticeship contracts. We analyze German data on the apprenticeship from 2007 to 2019 and apply firstdifferences regressions to account for unobserved heterogeneity across states and occupations, allowing us to identify the association between changes in two popular measures of business cycle expectations (the ifo Business Climate Index and the ifo Employment Barometer) and subsequent changes in the demand for apprentices, the number of new apprenticeship contracts, unfilled vacancies and unsuccessful applicants. Taking into account the most recent data on business cycle expectations up to May 2020, we estimate that the coronavirus-related decrease in firms' expectations about the business cycle can be associated with a predicted 9% decrease in firm demand for apprentices and an almost 7% decrease in the number of new apprenticeship positions in Germany in 2020 (-34,700 apprenticeship contracts; 95% confidence interval: +/- 8,800).
    Keywords: apprenticeship market, COVID-19, coronavirus, business cycle expectations
    JEL: J23 J24 M53
    Date: 2020–06
  2. By: Philippe Aghion (Harvard University [Cambridge]); Antonin Bergeaud (PSE - Paris School of Economics); Gilbert Cette (Centre de recherche de la Banque de France - Banque de France, 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); Rémy Lecat (Centre de recherche de la Banque de France - Banque de France); Hélène Maghin
    Abstract: We identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation‐based growth with credit constraints, where the above two counteracting effects generate an inverted‐U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm‐level dataset. We first show evidence of an inverted‐U relationship between credit constraints and productivity growth when we aggregate our data at the sectoral level. We then move to firm‐level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experience lower exit rates, particularly the least productive firms among them. To support these findings, we exploit the 2012 Eurosystem's Additional Credit Claims programme as a quasi‐experiment that generated an exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: credit constraint,firms,growth,interest rate,productivity
    Date: 2019–01
  3. By: Rey Dang (UNISTRA - Université de Strasbourg); l'Hocine Houanti (La Rochelle Business School); Krishna Reddy (Institute of Technology); Michel Simioni (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRA - Institut National de la Recherche Agronomique - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques)
    Abstract: We investigate the relation between board gender diversity and firm profitability using the control function (CF) approach recently suggested by Wooldridge (2015). The CF method takes account of the problem of endogenous explanatory variables that have potential to bias the results. Using a sample of firms that made up the S&P 500 over the period 2004-2015, we find that the presence of women on corporate boards (measured either by the percentage of female directors on corporate boards or the Blau index of heterogeneity) has a positive and significant (at the 1% level) effect on firm profitability (measured by the return on assets). We compare our results to more traditional approaches (such as pooled OLS or the fixed-effects model). Through this study, we shed light on the effect of women on corporate boards on firm performance, as it is still a controversial issue (Post and Byron, 2015).
    Keywords: women,board of directors,control function,firm performance,econometrie
    Date: 2020–06–05
  4. By: Bermejo, Vicente; Ferreira, Miguel; Wolfenzon, Daniel; Zambrana, Rafael
    Abstract: The Spanish Christmas Lottery is the largest lottery worldwide. We exploit local windfall gains arising from lottery prizes to estimate the effect of income on entrepreneurship. We find higher firm creation and greater self-employment in winning provinces. Our estimates imply that 46 firms are created for every â?¬1,000 increase in disposable income per capita. The effect occurs in both non-tradable and tradable industries, and is more pronounced in regions with poorer access to finance. Firms created in winning provinces are larger, create more value-added, and are more likely to survive. These results suggest that local income and financial development are important drivers of entrepreneurship.
    Keywords: Aggregate income; entrepreneurship; Financial Development; firm creation; Local demand; public policy; Self-employment
    JEL: D14 L26
    Date: 2020–04
  5. By: Halling, Michael; Yu, Jin; Zechner, Josef
    Abstract: We find that US public firms spread out their debt more across different sources in recession quarters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional variation in these dynamics. Firms with less leverage and higher debt concentration further decrease leverage and increase debt concentration in recessions. The opposite is true for firms with higher leverage and lower debt concentration. The latter (former) group consists of firms that are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash levels. While the fraction of total assets funded by bank debt increases in the recession by approximately 18% of its average non-recession level, the equivalent measure for market debt drops by approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during recession quarters, especially for borrowers characterized by high profitability while firm size, in contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows that a substantial fraction of frms changes its debt policy over the business cycle. For example, 12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during recessions.
    Keywords: business cycle variation; clus- ter analysis; corporate debt structure dynamics; debt concentration
    JEL: G01 G32
    Date: 2020–04
  6. By: Bonfiglioli, Alessandra; Crinò, Rosario; Fadinger, Harald; Gancia, Gino
    Abstract: We use French data over the period 1994-2013 to study how imports of industrial robots affect firm-level outcomes. Compared to other firms operating in the same 5-digit sector, robot importers are larger, more productive, and employ a higher share of managers and engineers. Over time, robot import occurs after periods of expansion in firm size, and is followed by improvements in efficiency and a fall in demand for labor. Guided by a simple model, we then develop various empirical strategies to identify the causal effects of robot adoption. Our results suggest that, while demand shocks generate a positive correlation between robot imports and employment, exogenous changes in automation lead to job losses. We also find that robot imports increase sales per worker and the employment share of high-skill professions, but have a weak effect on total sales. The latter result suggests that productivity gains from automation may not be entirely passed on to consumers in the form of lower prices.
    Keywords: automation; Displacement; firms; robots
    JEL: D22 J23 J24 O33
    Date: 2020–04
  7. By: Cohen, Lauren; Lou, Dong
    Abstract: We explore a subtle but important mechanism through which firms can control information flow to the markets. We find that firms that “cast” their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. A long-short portfolio that exploits this differential firm behavior earns abnormal returns of up to 149 basis points per month, or almost 18 percent per year. We find similar evidence in an international sample of earnings call transcripts from the UK, Canada, France, and Japan. Firms with higher discretionary accruals, firms that barely meet/exceed earnings expectations, and firms (and their executives) that are about to issue equity, sell shares, and exercise options, are all significantly more likely to cast their earnings calls.
    Keywords: information; strategic release; firms; conference calls
    JEL: J50
    Date: 2020–04–14
  8. By: Jean Pierre Huiban (ALISS - Alimentation et sciences sociales - INRA - Institut National de la Recherche Agronomique); Antonio Musolesi (Centre d'Economie et de Sociologie Rurales Appliquées à l'Agriculture et aux Espaces Ruraux - INRA - Institut National de la Recherche Agronomique - AgroSup Dijon - Institut National Supérieur des Sciences Agronomiques, de l'Alimentation et de l'Environnement)
    Abstract: We investigate the impact of pollution abatement effort on the economic performances by exploiting a rich panel data set composed of French food industry firms, observed over the 1993-2007 period. We test the Porter hypothesis, assuming that pollution abatement effort has a positive effect on the firm performance by triggering innovation. This is done by estimating a production function augmented with knowledge capital, such a capital being produced by both pollution abatement and R&D investments. Using different estimation methods, including structural semi-parametric ones, we first show than the so-called Porter assumption cannot be rejected when focusing on the full population of French food industry firms since the estimations indicate a positive and significant (though rather small) contribution of the pollution abatement capital to the firm productivity. Then, we consider a more restrictive sample of (potentially) innovative firms, actually engaging both RD and pollution abatement investments. Henceforth, the contribution of pollution abatement capital becomes not significant in regard to the R&D's one. These results do not support the sometimes invoked hypothesis according to which the positive effect of pollution abatements efforts on firms' performances is linked to the induced increased innovation. At the same time, the standard hypothesis, assuming that pollution abatement effort significantly decreases the firm performance is always rejected.
    Keywords: productivity, environmental investment, R&D, knowledge capital, food industry
    Date: 2020–06–05
  9. By: Ge, Suqin; Moro, Andrea; Zhu, Beibei
    Abstract: We test if firms statistically discriminate workers based on race when employer learning is asymmetric. Using data from the NLSY79, we find evidence of asymmetric employer learning. In addition, employers statistically discriminate against non-college educated black workers at time of hiring. We also find that employers directly observe most of the productivity of college graduates at hiring and learn very little over time about these workers.
    Keywords: statistical discrimination,employer learning,asymmetric learning
    JEL: J71 D82 J31
    Date: 2020
  10. By: Serguey Braguinsky; Atsushi Ohyama; Tetsuji Okazaki; Chad Syverson
    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 is a key to firm growth. It provides opportunities to capture high-end vertically differentiated product markets when successful while also facilitating the firm’s growth through horizontal expansion in product space. However, this process involves a high degree of uncertainty, so firms tend to introduce innovative products on experimental basis. In long-term outcomes, 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.
    Date: 2020–06
  11. By: Ferreira, Daniel; Ferreira, Miguel A.; Mariano, Beatriz
    Abstract: We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk and CEO cash compensation than firms without such appointments. We conclude that a firm’s board composition, governance, and policies are shaped by current and past credit agreements.
    JEL: F3 G3
    Date: 2018–10–01
  12. By: Burke, Marshall; Emerick, Kyle; Maue, Casey
    Abstract: A vast firm productivity literature finds that otherwise similar firms differ widely in their productivity and that these differences persist through time, with important implications for the broader macroeconomy. These stylized facts derive largely from studies of manufacturing firms in wealthy countries, and thus have unknown relevance for the world's most common firm type, the smallholder farm. We use detailed micro data from over 12,000 smallholder farms and nearly 100,000 agricultural plots across four countries in Africa to study the size, source, and persistence of productivity dispersion among smallholder farmers. Applying standard regression-based approaches to measuring productivity residuals, we find much larger dispersion but less persistence than benchmark estimates from manufacturing. We then show, using a novel framework that combines physical output measurement, estimates from satellites, and machine learning, that about half of this discrepancy can be accounted for by measurement error in output. After correcting for measurement error, productivity differences across firms and over time in our smallholder agricultural setting closely match benchmark estimates for non-agricultural firms. These results question some common implications of observed dispersion, such as the importance of misallocation of factors of production.
    Date: 2020–04
  13. By: Lukas Buchheim; Jonas Dovern; Carla Krolage; Sebastian Link
    Abstract: This paper studies the determinants of firms’ business outlook and managerial mitigation strategies in the wake of the COVID-19 crisis using a representative panel of German firms. We first demonstrate that the crisis amplifies pre-crisis weaknesses: Firms that appear relatively weak before the crisis are harder hit initially, and, on top of the initial impact, expect more difficulties for their businesses going forward. Consequently, such firms are first to cut employment and investment. Second, our results highlight that expectations regarding the duration of the shutdown—which, at this point of the crisis, exhibit plausibly random variation—are an important determinant of the chosen mitigation strategies: Firms that expect the shutdown to last longer are more likely to lay off workers and to cancel or postpone investment projects.
    Keywords: expectations, firm behaviour, COVID-19, shutdown, employment, investment
    JEL: D22 D84 E23
    Date: 2020
  14. By: Faia, Ester; Mayer, Max; Pezone, Vincenzo
    Abstract: This paper presents causal evidence of the effects of boardroom networks on firm value and compensation policies. We exploit exogenous variation in network centrality arising from a ban on interlocking directorates of Italian financial and insurance companies. We leverage this shock to show that firms whose centrality in the network rises after the reform experience positive abnormal returns around the announcement date and are better hedged against shocks. Information dissemination plays a central role: results are driven by firms that have higher idiosyncratic volatility, low analyst coverage, and more uncertainty surrounding their earnings forecasts. Firms benefit more from boardroom centrality when they are more central in the input-output network, hence more susceptible to upstream shocks, when they are less central in the cross-ownership network, or when they have low profitability or low growth opportunities. Network centrality also results in higher directors' compensation, due to rent sharing and improved executives' outside option, and more similar compensation policies between connected firms.
    Keywords: executives' compensation; firms networks; Natural Experiment
    JEL: D57 G14 G32 L14
    Date: 2020–04
  15. By: Roig, G.
    Abstract: When consumers have preference costs, two opposing effects need to be assessed to analyze firms' incentives to set collusive prices. On the one hand, preference costs make a deviation from collusion less attractive, as the deviating firm must offer a steeper discount to cover these preference costs. On the other hand, preference costs lock in consumers and make punishment from rivals less effective. When preference costs are low, the second effect dominates and collusion is harder to sustain than in a situation with no preference costs. The contrary happens with high enough preference costs.
    Keywords: Tacit Collusion; Consumer Preference Costs
    JEL: D43 L13 L12
    Date: 2020–06–05
  16. By: Ezra Oberfield; Esteban Rossi-Hansberg; Pierre-Daniel Sarte; Nicholas Trachter
    Abstract: We study the number, size, and location of a firm's plants. The firm's decision balances the benefit of delivering goods and services to customers using multiple plants with the cost of setting up and managing these plants, and the potential for cannibalization that arises as their number increases. Modeling the decisions of heterogeneous firms in an economy with a vast number of widely distinct locations is complex because it involves a large combinatorial problem. Using insights from discrete geometry, we study a tractable limit case of this problem in which these forces operate at a local level. Our analysis delivers clear predictions on sorting across space. Productive firms place more plants in dense locations that exhibit high rents compared with less productive firms, and place fewer plants in markets with low density and low rents. Controlling for the number of plants, productive firms also operate larger plants than those operated by less productive firms in locations where both are present. We present evidence consistent with these and several other predictions using U.S. establishment-level panel data.
    JEL: D24 L25 R3
    Date: 2020–06
  17. By: Ananyev, Mikhail (IZA); Dohmen, Thomas (University of Bonn and IZA); Lehmann, Hartmut (University of Bologna)
    Abstract: Deferred payments, as implicit contracts, are predicted to bind workers to firms as long as workers believe that firms adhere to these implicit contracts. We employ a unique personnel data set from a Russian manufacturing firm to investigate whether wage arrears, delayed payments of wages, induce bonding effects. We find that workers' separation rates decrease dramatically when workers experience wage arrears, providing evidence for the bonding effects of deferred compensation schemes. After workers are repaid nominal wages, but have suffered real wage losses due to unexpectedly high inflation, we observe that workers affected by wage arrears again become much more likely to separate during and after the repayment period of a second episode of wage arrears, providing evidence for the weakening of the bonding effect after the firm's reputation for adequately compensating for deferred payments has been jeopardized.
    Keywords: deferred compensation, worker turnover, wage arrears, personnel data, Russia
    JEL: J30 J63 M52 P23
    Date: 2020–06
  18. By: Kuznetsov, Dmitriy (Кузнецов, Дмитрий) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: In the presented paper cross-sectional and time-series patterns of the formation of the export product scope of Russian manufacturing enterprises are studied. The main conclusions of the analysis can be formulated as follows. Firstly, in the detailed data of Russian exports indicate that the relatively greater importance of the specific competencies of firms (specific productivity) compared to the efficiency of managing business processes in an enterprise (company-wide productivity). Secondly, there is a dependence of the Russian firms export product scope and its concentration on the various characteristics of importing countries, reflecting, among other things, the proximity of the market and the local level of competition. It is further demonstrated that the shocks of competition levels in export markets translate into firm productivity shocks through redistribution of resources within firms. These shocks can make a significant contribution to the dynamics of productivity of manufacturing enterprises. Thirdly, the most successful products of the company are products of high quality. Fourth, the formation of the export product scope of Russian firms takes place mainly in the direction of goods close to the current basket of export firms in terms of labor structure, as well as the structure of intermediate consumption. To a somewhat lesser extent, the “export proximity” of goods is associated with vertical production ties between sectors. In turn, the proximity of the product to the comparative advantages of the region increases the likelihood of exporting this product and is positively related to the volume of exported goods.
    Date: 2020–03
  19. By: Jorge Andrés Vélez-Ospina (Departament d'Empresa, Universitat Autonoma de Barcelona); Isabel Busom Piquer (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: We investigate whether the impact of direct support for business investment in R&D and innovation varies over the business cycle. We address several questions: whether firms that obtain public support in a recession differ from firms that obtain it during expansions; whether the impact of support is smaller in recessions than in expansions, and whether effects vary with the treatment pattern. Using firm-level data from Spain during the period 2005 to 2014, we combine propensity score matching and difference-in-differences methods to estimate firms’ response to direct support in different phases of the cycle. Two findings stand out. First, while the impact of support on monetary investment in innovation is pro-cyclical, it is countercyclical in terms of the employee-time allocation to innovation activities. Second, the additionality of a one-year treatment is smaller than that of longer treatments, or repeate program participation. Firms receiving public support during the recession have assigned more employee time to innovation activities than a matched control group, preventing a decline of knowledge capital during the big recession.
    JEL: O25 O38 C14 C21 D22 L29 L53 H50
    Date: 2020–03

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