nep-bec New Economics Papers
on Business Economics
Issue of 2020‒07‒27
seventeen 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 Muehlemann, Samuel; Pfeifer, Harald; Wittek, Bernhard
  2. Trade, Productivity and (Mis)allocation By Berthou, Antoine; Chung, John Jong-Hyun; Manova, Kalina; Sandoz, Charlotte
  3. Competition and Innovation: Evidence from Worldwide Corporate R&D Spenders By Michele Cincera; Ela Ince; Anabela Marques Santos
  4. Identifying Service Market Reform Priorities in Italy By Nazim Belhocine; Daniel Garcia-Macia
  5. Riding Out of a Financial Crisis: The Joint Effect of Trust and Corporate Ownership By Mario Daniele Amore; Mircea Epure
  6. The value of online banking to small and medium- sized enterprises: evidence from firms operating in the UAE free trade zones By Parvaneh Shahnoori; Glenn P. Jenkins
  7. Entry determinants of the Software and Video games firms in Barcelona By Méndez Ortega, Carles
  8. Measuring Corporate Governance Quality in Concentrated-Ownership Firms By Oded Cohen
  9. How Much Should we Trust Estimates of Firm Effects and Worker Sorting? By Stéphane Bonhomme; Kerstin Holzheu; Thibaut Lamadon; Elena Manresa; Magne Mogstad; Bradley Setzler
  10. Worker participation in decision-making, worker sorting, and firm performance By Müller, Steffen; Neuschäffer, Georg
  11. Who benefits from tax incentives? The heterogeneous wage incidence of a tax credit By Clément Carbonnier; Clément Malgouyres; Loriane Py; Camille Urvoy
  12. Corporate Profitability and the Global Persistence of Corruption By Ferris, Stephen; Hanousek, Jan; Tresl, Jiri
  13. Cloud Computing and Firm Growth By Timothy DeStefano; Richard Kneller; Jonathan Timmis
  14. Firms’ expectations on access to finance at the early stages of the Covid-19 pandemic By Ferrando, Annalisa; Ganoulis, Ioannis
  15. Firms’ asset holdings and inflation expectations By Saten Kumar
  16. Firm and Worker Dynamics in a Frictional Labor Market By Bilal, Adrien; Engbom, Niklas; Mongey, Simon; Violante, Giovanni L.
  17. Corporate Culture as a Theory of the Firm By Gary B. Gorton; Alexander K. Zentefis

  1. 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
  2. By: Berthou, Antoine; Chung, John Jong-Hyun; Manova, Kalina; Sandoz, Charlotte
    Abstract: We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse. (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity. (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access.
    Keywords: Allocative Efficiency; export demand; import competition; international trade; Misallocation; productivity
    JEL: F10 F14 F43 F62 O24 O40 O47
    Date: 2019–12
  3. By: Michele Cincera; Ela Ince; Anabela Marques Santos
    Abstract: The paper aims at assessing the effect of competition of firm-level innovation. The sample is composed of the world top corporate R&D spender listed in the EU-2017 industrial R&D Scoreboard, and the analysis covers the years spanning 2007 to 2016. We use an industry-year-indicator, the inverse of the Lerner index, to measure the competition level R&D expenditures are used as a proxy for innovation. Model is estimated using two-stage least squares, to control for potential endogeneity of the competition indicator. Results confirm the existence of an inverted-U relationship between competition and innovation. Further analysis is undertaken splitting the overall firm sample into services and manufacturing sectors according to technology and knowledge intensities. We validate the inverted-U shaped relationship between competition and innovation for the firms in medium-high-tech and high-tech manufacturing sectors whereas we do not observe the impact for the firms in medium-low and low-tech manufacturing sectors nor service sectors.
    Keywords: Competition, Innovation, Manufacturing, Services.
    Date: 2019–07
  4. By: Nazim Belhocine; Daniel Garcia-Macia
    Abstract: Italy’s labor productivity in market services has declined since 2000, underperforming manufacturing and peer European countries, especially in strongly regulated sectors. A model of monopolistic competition is used to identify which service sectors would benefit more from removing entry and/or exit barriers. Using Italian firm-level data, the paper finds that sectors with high markups, such as professional services, would primarily benefit from removing entry barriers. Sectors with a large mass of unproductive firms, such as retail, would instead benefit from removing exit barriers. Policy recommendations to improve efficiency are outlined in relation to the sectoral priorities identified in the data.
    Keywords: Total factor productivity;Price indexes;Unemployment;Development;Labor productivity;service market reform,firm entry/exit barriers,markups,productivity.,WP,exit barrier,entry barrier,markup,regulated profession,market service
    Date: 2020–02–21
  5. By: Mario Daniele Amore; Mircea Epure
    Abstract: We study how generalized trust shapes the ability of firms with different ownership forms to obtain trade financing and perform during a financial crisis. Exploiting geographic variations in trust across Italian regions and the occurrence of the 2008-09 financial crisis in a difference-indifferences setting, we show that generalized trust makes family firms less able to obtain trade financing during the crisis. This finding maps into performance results: trust alleviates the negative effect of a crisis for non-family firms, while it aggravates the negative effect for family firms. This latter result depends crucially on a firm’s corporate governance: trust does not harm family firms whose board is open to non-family directors. Collectively, our findings illustrate how culture interacts with corporate attributes in shaping a firm’s prospects.
    Keywords: trust, trade financing, Family firms, financial crisis, performance
    JEL: G32 G34 Z10
    Date: 2020–07
  6. By: Parvaneh Shahnoori (Department of Economics, Payame Noor University, Bandar Abbas, Iran); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Canada and Eastern Mediterranean University, North Cyprus)
    Abstract: This study estimates the willingness to pay of small and medium-sized enterprises (SMEs) for a business online banking services. The estimation utilizes a contingent valuation method employing data from 400 SMEs in the United Arab Emirates free zones. An interval regression model is used to identify company characteristics affecting WTP. The results indicate an average WTP for online banking of $518.50 per month. Firms engaging in international trade value these services at least 10% more than those with only domestic operations. Other variables that significantly affect WTP include number of employees and the transportation cost of using traditional branch banking.
    Keywords: Contingent Valuation Method, Interval Regression Model, Willingness to Pay, Business Online Banking
    JEL: C13 F10 G21
    Date: 2019
  7. By: Méndez Ortega, Carles
    Abstract: This paper aims to determine which reasons lead Software and Video games firms (SVE hereafter) to locate in certain areas of Barcelona. This high-tech industry is a key industry in developed economies mainly located in urban areas. To carry out this analysis, we use SVE firm entries at neighbourhood level between 2011 and 2013 and a set of covariates that capture neighbourhood characteristics (localization and agglomeration economies, high-tech amenities, diversity, human capital and crime). Our results show that i) SVE firms tend to choose locations with a high diversity and good high-tech amenities (e.g. 22@ district), ii) the importance of the localization and agglomeration economies, since spatial spillovers are a key factor for this type of firms and iii) the role of the diversity in the location process of these firms, since SVE firms choose places with a high diversity of cultural and creative activity. JEL Codes: R10, R30, L86. Keywords: Software and Video games Industry, location determinants, Count Data models, Barcelona
    Keywords: Localització industrial, Indústria informàtica, Videojocs -- Indústria i comerç, 332 - Economia regional i territorial. Economia del sòl i de la vivenda,
    Date: 2019
  8. By: Oded Cohen (bank of Israel)
    Abstract: In this paper, I present a corporate governance index adjusted to firms with concentrated ownership. The index consists of 31 components that measure three dimensions of corporate governance quality at the firm level: board independence, board qualifications, and controlcash flow wedge. The index has several advantages over indexes constructed in previous papers: it is based exclusively on mandatorily disclosed data, which are more reliable than the voluntarily disclosed data previously used in some studies; it does not contain components that measure the firm’s corporate social responsibility since this dimension is not relevant to investor protection; it does not contain components that measure outcomes related to a firm’s corporate governance quality, including the number and volume of related-party transactions and disciplinary acts taken against management; it extensively measures board qualifications; and its components are well defined so that the index may be calculated without applying discretion. Based on this index, I calculate corporate governance quality scores for 120 nonfinancial Israeli public firms in the period 2007–2014 and show governance quality to have improved owing to legal reforms that went into effect during those years, as well as to changes voluntarily undertaken by the firms.
    Date: 2020–05
  9. By: Stéphane Bonhomme; Kerstin Holzheu; Thibaut Lamadon; Elena Manresa; Magne Mogstad; Bradley Setzler
    Abstract: Many studies use matched employer-employee data to estimate a statistical model of earnings determination where log-earnings are expressed as the sum of worker effects, firm effects, covariates, and idiosyncratic error terms. Estimates based on this model have produced two influential yet controversial conclusions. First, firm effects typically explain around 20% of the variance of log-earnings, pointing to the importance of firm-specific wage-setting for earnings inequality. Second, the correlation between firm and worker effects is often small and sometimes negative, indicating little if any sorting of high-wage workers to high-paying firms. The objective of this paper is to assess the sensitivity of these conclusions to the biases that arise because of limited mobility of workers across firms. We use employer-employee data from the US and several European countries while taking advantage of both fixed-effects and random-effects methods for bias-correction. We find that limited mobility bias is severe and that bias-correction is important. Once one corrects for limited mobility bias, firm effects matter less for earnings inequality and worker sorting becomes always positive and typically strong.
    JEL: C23 J31 J62
    Date: 2020–06
  10. By: Müller, Steffen; Neuschäffer, Georg
    Abstract: Worker participation in decision-making is often associated with high-wage and high-productivity firm strategies. Using linked-employer-employee data for Germany and worker fixed effects from a two-way fixed effects model of wages capturing observed and unobserved worker quality, we find that establishments with formal worker participation via works councils indeed employ higher-quality workers. We show that worker quality is already higher in plants before council introduction and further increases after the introduction. Importantly, we corroborate previous studies by showing positive productivity and profitability effects even after taking into account worker sorting.
    Keywords: works councils,worker sorting,worker quality,between-firm wage inequality,productivity,profits
    JEL: J5 J24 J31
    Date: 2020
  11. By: Clément Carbonnier (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique, LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po, Centre de recherche de la Banque de France - Banque de France); Clément Malgouyres (IPP - Institut des politiques publiques, PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Loriane Py (Centre de recherche de la Banque de France - Banque de France, IPP - Institut des politiques publiques); Camille Urvoy (LIEPP - Laboratoire interdisciplinaire d'évaluation des politiques publiques [Sciences Po] - Sciences Po - Sciences Po)
    Abstract: Do workers gain from lower business taxes, and why? We estimate how a large French corporate income tax credit is passed on to wages and explore the firm- and employee-level underlying mechanisms. The amount of tax credit firms get depends on their payroll share of workers paid less than a wage threshold. Exposure to the policy thus varies both across workers depending on their wage and across firms depending on their wage structure. Using exhaustive employer-employee data, we find that half of the surplus generated by the reform falls onto workers. Wage gains load on incumbents in high-skill occupations. The wage earnings of low-skill workers -- nearly all individually eligible -- do not change. This heterogeneous wage incidence is unlikely to be driven by scale effects or skill complementarities. We find that the groups of workers benefiting from wage gains are also more likely to continue working for the same firm. Further, we show that firms do not change their wage-setting behavior in response to the individual eligibility status of workers as there is no bunching in the distribution of entrants' wages. Overall, our results suggest that the wage incidence of firm taxation operates collectively through rent-sharing and benefits workers most costly to replace.
    Keywords: business taxation,tax incentives,wage incidence,rent sharing
    Date: 2020–03
  12. By: Ferris, Stephen; Hanousek, Jan; Tresl, Jiri
    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: Central and Eastern Europe; Corruption; Inefficiency; Performance; Private firms
    JEL: F38 G30
    Date: 2020–01
  13. By: Timothy DeStefano; Richard Kneller; Jonathan Timmis
    Abstract: Cloud computing enables a shift in the costs of ICT adoption from investment in fixed capital to pay-on-demand services allowing firms to scale and reorganize. Using new firm-level data we examine the impact of cloud on firm growth, using zip-code-level instruments of the timing of high-speed fiber availability and speeds. Cloud leads to the growth of employment and revenue for young firms, but they become concentrated in fewer establishments. For incumbents, we find smaller scale effects but dispersed activity through closing establishments and moving employment farther from the headquarters. Moreover, cloud adoption leads to worker relocation across establishments within firms.
    Keywords: cloud, digital, productivity, firms
    JEL: J23 J24 L20 O33
    Date: 2020
  14. By: Ferrando, Annalisa; Ganoulis, Ioannis
    Abstract: This paper provides novel information on the propagation of the pandemic-induced real shock to firms’ financial conditions. It uses firm-level survey data from end February to early April 2020 for a large sample of euro area SMEs and large firms. Firms’ expectations on the availability of credit lines, bank loans and trade credit deteriorated significantly in the first half of March. Firms mostly expected to be affected if they had previously difficulties in securing finance, had higher indebtedness and, hence, less capacity to deal with a liquidity shock. Conditional on these factors, firm size does not seem to matter, except for trade credit, in which case SMEs had more positive conditional expectations. Together with the overall deterioration of expectations, there seems to have also been a reallocation of opportunities to access finance amidst the crisis. Small firms were more likely to have conditional expectations of improvement in their access to finance. JEL Classification: C83, D22, D84, E65, L25
    Keywords: Covid-19, expectation formation, survey data
    Date: 2020–07
  15. By: Saten Kumar
    Abstract: This paper investigates the relationship between firms’ inflation expectations and their holdings of liquid assets. We implement a new quantitative survey of firms’ expectations about inflation in New Zealand. We find that firms that hold more shares of liquid assets systematically report lower inflation expectations. Moreover, we implement an experiment by providing firms new exogenous information about recent inflation dynamics. This experiment allows us to assess how firms respond to new information in terms of belief revisions and firm-level decisions.
    Keywords: liquid assets, illiquid assets, expectations, survey, inattention
    JEL: E2 E3
    Date: 2020–06
  16. By: Bilal, Adrien; Engbom, Niklas; Mongey, Simon; Violante, Giovanni L.
    Abstract: This paper develops a random-matching model of a frictional labor market with firm and worker dynamics. Multi-worker firms choose whether to shrink or expand their employment in response to shocks to their decreasing returns to scale technology. Growing entails posting costly vacancies, which are filled either by the unemployed or by employees poached from other firms. Firms also choose when to enter and exit the market. Tractability is obtained by proving that, under a parsimonious set of assumptions, all workers' and firm decisions are characterized by their joint marginal surplus, which in turn only depends on the firm's productivity and size. As frictions vanish, the model converges to a standard competitive model of firm dynamics which allows a quantification of the misallocation cost of labor market frictions. An estimated version of the model yields cross-sectional patterns of net poaching by firm characteristics (e.g., age and size) that are in line with the micro data. The model also generates a drop in job-to-job transitions as firm entry declines, offering an interpretation to U.S. labor market dynamics around the Great Recession. All these outcomes are a reflection of the job ladder in marginal surplus that emerges in equilibrium.
    Keywords: Decreasing Returns to Scale; Firm Dynamics; frictions; Job turnover; Marginal Surplus; Net Poaching; On the job search; unemployment; Vacancies; worker flows
    JEL: D22 E23 E24 E32 J23 J63 J64 J69
    Date: 2019–12
  17. By: Gary B. Gorton; Alexander K. Zentefis
    Abstract: Markets and firms offer contrasting methods to arrange production. In markets, contracts govern the purchase of parts and services that compose production. In firms, the shared values, customs, and norms coming from a corporate culture govern employees’ joint development of those parts and services. We argue for this distinction as a theory of the firm. Firms exist because corporate culture at times is more efficient at carrying out production than detailed contracts. The firm’s boundary encircles the parts of production for which a manager optimally chooses corporate culture as the organizing device. The model can explain why some mergers and acquisitions fail, in a way consistent with empirical evidence, and why corporate cultures are hard to change.
    JEL: D02 D4 G30
    Date: 2020–06

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