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on Business Economics |
| By: | Muehlemann, Samuel; Pfeifer, Harald; Wittek, Bernhard |
| 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 first-differences 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). |
| JEL: | J23 J24 M53 |
| Date: | 2020–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umaror:2020008&r=all |
| By: | Elhanan Helpman; Benjamin C. Niswonger |
| Abstract: | We develop a model with a finite number of multi-product firms that populate an industry together with a continuum of single product firms, and study the dynamics of this industry that arises from investments in the invention of new products. Consistent with the available evidence, the model predicts rising markups and concentration and a declining labor share. We then examine the dynamics of market shares and product spans in response to improvements in the technologies of the multi-product and single product firms, and the impact of these changes on the steady state distribution of market shares and product spans. Our model predicts the possibility of an inverted-U relationship between labor productivity and product span in the cross-section of firms, for which we provide suggestive evidence. It also predicts that rising entry costs of single-product firms may flatten the relationship between labor productivity and market shares of the large multi-product firms. |
| JEL: | D43 L11 L13 L25 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27389&r=all |
| By: | Dyaran Bansraj (Erasmus University Rotterdam); Han Smit (Erasmus University Rotterdam); Vadym Volosovych (Erasmus University Rotterdam) |
| Abstract: | By holding assets longer and increasingly focusing on growth strategies private equity firms enter the territory of strategic buyers. In one such strategy, a private equity firm buys a company and then builds on that “platform†through add-on acquisitions. We ask whether such serial (buy-and-build) acquisition strategies deliver operating synergies, as expected from strategic buyers, or rather are a form of “window-dressing.†We collect a sample of buy-and-build strategies from seven major European markets and find that the profitability of these strategies improves more than that of the comparable strategies, constructed by us from stand-alone companies. We analyze a number of operating outcomes across various strategy sub-types and confirm that these operational improvements are consistent with the synergy interpretation. |
| Keywords: | Private Equity, Leveraged Buyouts, Buy-and-Build, Operating Performance, Synergies |
| JEL: | L2 G24 G34 |
| Date: | 2020–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200041&r=all |
| By: | Shinya Fukui (Graduate School of Economics, Kobe University / Senior Researcher, Osaka Prefectural Government, Japan) |
| Abstract: | We observe dense agglomerations of Knowledge-Intensive Business Services (KIBS) in large cities such as Tokyo and Osaka. Such urban features of KIBS stem from the fact that the main customers for KIBS are corporate headquarters (HQs), and KIBS’s main input is highly skilled labor. We adhere to the model proposed by Redding and Venables (2004) and present a monopolistic competition model. Our results indicate that improving access to the agglomeration of HQs and KIBS and knowledge agglomeration will strengthen market access and supply access and that KIBS firms will be even more inclined to establish locations in those municipalities. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:2008&r=all |
| By: | Martino Pelli; Jeanne Tschopp; Natalia Bezmaternykh; Kodjovi M Eklou |
| Abstract: | In this paper we provide a new identification strategy to test for the presence of putty-clay capital, i.e. capital that once installed cannot be re-invested. Using a panel of Indian manufacturing firms between 1995 and 2006, we quantify the response of firm sales within and across industries to an exogenous negative shock to the firm capital stock and find effects akin to Schumpeterian creative destruction, where surviving firms build back better. We show that within an industry, the sales of less productive firms decrease disproportionately more, while across industries capital destruction leads to a shift in sales towards more performing industries; which is consistent with a putty-clay technology. As a source of shock, we use a novel measure of firm exposure to storms based on the maximum wind speed exerted by each storm on each of the postal codes where the headquarters and the establishments of a firm are located. We establish that, depending on their strength, storms destroy up to 75.3% of the fixed assets of the median firm (in terms of its productivity and industry performance) and cause a decrease in its sales that can reach 99%. |
| Keywords: | firms, putty-clay capital, creative destruction, storms |
| JEL: | D22 D24 Q54 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2012&r=all |
| By: | Besley, Timothy J.; Roland, Isabelle; Van Reenen, John |
| Abstract: | This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm's probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firm-level employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor's PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm's future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms. |
| Keywords: | Credit frictions; Default Risk; Misallocation; productivity |
| JEL: | D24 E32 L11 O47 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14327&r=all |
| By: | Aghion, Philippe; Antonin, Celine; Bunel, Simon; Jaravel, Xavier |
| Abstract: | We use comprehensive micro data in the French manufacturing sector between 1994 and 2015 to document the effects of automation technologies on employment, wages, prices and profits. Causal effects are estimated with event studies and a shift-share IV design leveraging predetermined supply linkages and productivity shocks across foreign suppliers of industrial equipment. At all levels of analysis - plant, firm, and industry - the estimated impact of automation on employment is positive, even for unskilled industrial workers. We also find that automation leads to higher profits, lower consumer prices, and higher sales. The estimated elasticity of employment to automation is 0.28, compared with elasticities of 0.78 for profits, -0.05 for prices, and 0.37 for sales. Consistent with the importance of business-stealing across countries, the industry-level employment response to automation is positive and significant only in industries that face international competition. These estimates can be accounted for in a simple monopolistic competition model: firms that automate more increase their profits but pass through some of the productivity gains to consumers, inducing higher scale and higher employment. The results indicate that automation can increase labor demand and can generate productivity gains that are broadly shared across workers, consumers and firm owners. In a globalized world, attempts to curb domestic automation in order to protect domestic employment may be self-defeating due to foreign competition. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14443&r=all |
| By: | Stephen P. Ferris; Jan Hanousek; Jiri Tresl |
| Abstract: | We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries over the period 2001 to 2015. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, we find that corruption enhances a firm’s profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. We conclude that corruption persists because of its ability to improve a firm’s return on assets, which we refer to as the Corporate Advantage Hypothesis. |
| Keywords: | corruption; inefficiency; performance; private firms; |
| JEL: | G30 F38 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp659&r=all |
| By: | Fang,Sheng; Goh,Chorching; Roberts,Mark; Xu,L. Colin; Zeufack,Albert G. |
| Abstract: | Studies of female business leaders and economic performance are rarely conducted with worldwide observational data, and with considerations on the underlying cultural, institutional, and business environment. This paper uses worldwide, firm-level data from more than 100 countries to study how female-headed firms differ from male-headed firms in productivity level and growth, and whether the female leader performance disparity hinges on the underlying environment. Female-headed firms account for about 11 percent of firms and are more prevalent in countries with better rule of law, gender equality, and stronger individualistic culture. On average, female-headed firms have 9 to 16 percent lower productivity and 1.6 percentage points lower labor productivity growth, compared with male-headed firms. The disadvantage is mainly in manufacturing firms, largely nonexistent in service firms, and present in relatively small firms. Although the female leader performance disadvantage is surprisingly not related to gender equality, it is smaller where there is less emphasis on personal networks (better rule of law, lower trade credit linkages, lower usage of bank credit, and more equalizing internet), less competition, and the culture is more collective. The study does not find that the female leader disadvantage is amplified in corrupt environments. Africa differs significantly in that it features lower female disadvantage, stronger female advantage in services relative to manufacturing, and stronger sensitivity of female business leaders to electricity provision and bank credit access. |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9275&r=all |
| By: | Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti |
| Abstract: | We construct a model of firm dynamics with heterogeneous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007--2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth. |
| JEL: | L16 O31 O47 O53 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27404&r=all |
| By: | Acharya, Sushant; Wee, Shu Lin |
| Abstract: | We examine how worker and firm on-the-job search have differential impacts on the productivity-wage gap. While an increase in both worker and firm on-the-job search raise productivity, they have opposing effects on wages. Increased worker on-the-job search raises workers' outside options, allowing them to demand higher wages. Increased firm on-the-job search improves firms' bargaining position relative to workers' by raising job insecurity and the wedge between hiring and meeting rates. This allows firms to pass-through a smaller share of productivity to wages, enlarging the productivity-wage gap. Quantitatively, the model can account for the observed widening US productivity-wage gap over time. |
| Keywords: | Labor Share; on-the-job search; Productivity-wage gap; Replacement hiring; unemployment |
| JEL: | E24 J63 J64 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14430&r=all |
| By: | Victor Aguirregabiria |
| Abstract: | Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behavior of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency, and welfare. This paper studies the identification of firms' beliefs using their observed actions -- a revealed preference and beliefs approach. I consider a general structural model of market competition where firms have incomplete information and their beliefs and profits are nonparametric functions of decisions and state variables. Beliefs may be out of equilibrium. The framework applies both to continuous and discrete choice games and includes as particular cases models of competition in prices or quantities, auction models, entry games, and dynamic investment games. I focus on identification results that exploit a natural exclusion restriction in models of competition: an observable variable that affects a firm's cost (or revenue) but does not have a direct effect on other firms' profits. I present identification results under three scenarios --- common in empirical IO --- on the data available to the researcher. |
| Keywords: | Non-equilibrium beliefs; Structural models of competition; Identification; Revealed beliefs approach |
| JEL: | C57 D81 D83 D84 L13 |
| Date: | 2020–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-670&r=all |
| By: | Rongsheng Tang; Yang Tang; Ping Wang |
| Abstract: | Over the past few decades, we find that about 80% of the widening residual wage inequality to be within jobs. We propose performance-pay incidence and job relatedness as two primary factors driving within-job inequality and embed them into a sorting equilibrium framework. We show that equilibrium sorting is positive assortative both within-job and across jobs. While performance-pay position amplifies within-job wage inequality through self-selection, the overall relationship between job relatedness and within-job wage inequality is found generally ambiguous. To quantify the role played by these factors, we calibrate the model to the US economy in 2000, where the model can account around 92% of the changes in within-job inequality among the highly educated from 1990 to 2000. Counterfactual analysis shows the contributions of performance-pay incidence and job relatedness are about 42% and 26%, respectively, both higher than that of job-specific productivity. While performance-pay incidence is particularly crucial for within-job wage dispersion in business/professional industry and professional occupation, job relatedness is the most important for mining/goods/construction industry and sales occupation. |
| JEL: | E24 I24 J31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27390&r=all |
| By: | Calamunci, Francesca; Drago, Francesco |
| Abstract: | We analyze the economic consequences on firm profitability, performance, and investments of having another firm in the same market affiliated with a criminal organization. We do so by evaluating the spillover effects of a law providing the judicial administration of organized crime firms through the imposition of external managers in order to remove the connection to the criminal organization, and at the same time guarantee the continuity of production. By using detailed information on more than 180,000 companies, we exploit the firms' yearly variation in the exposure to criminal firms' judicial administration in their market (in the same province and industry). The empirical design allows us to control for confounding effects at the firm, market, and year levels. The results show that there is a large, positive spillover from the enforcement law, suggesting that the burden the organized crime firms impose on other firms is very large. Firms' performance and turnover increases by 2.2 and 0.7 percent, respectively, in the first four years after an organized crime firm enters the status of judicial administration. Investments measured by tangible and intangible assets increase with the number of firms entering into judicial administration by 0.75 percent. These results suggest that intensifying confiscation measures against criminal organizations has a strong positive effect on the economy. |
| Keywords: | event study analysis; organized crime; public policy evaluation |
| JEL: | H00 H32 J00 K14 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14326&r=all |