nep-bec New Economics Papers
on Business Economics
Issue of 2020‒09‒28
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Growing Like China: Firm Performance and Global Production Line Position By Davin Chor; Kalina Manova; Zhihong Yu
  2. Monetary Policy, Firm Heterogeneity, and Product Variety By Francesco Zanetti; Masashige Hamano
  3. Uncertainty and Firms' Labour Decisions. Evidence from European Countries By Martinez-Matute, Marta; Urtasun, Alberto
  4. Declining Business Dynamism among Our Best Opportunities: The Role of the Burden of Knowledge By Thomas Astebro; Serguey Braguinsky; Yuheng Ding
  5. Immigration and Entrepreneurship in the United States By Pierre Azoulay; Benjamin Jones; J. Daniel Kim; Javier Miranda
  6. Removal of Potential Competitors – A Blind Spot of Merger Policy? By Massimo Motta; Martin Peitz
  7. Entrepreneurial Orientation of the Companies in Bosnia and Herzegovina: The Importance of Contextual Factors By Veselinović, Ljiljan; Kulenović, Mirza; Šunje, Aziz
  8. Entry of malls and exit of stores - The role of distance and economic geography By Klaesson, Johan; Nilsson, Helena
  9. COVID-19 Is Also a Reallocation Shock By Jose Maria Barrero; Nicholas Bloom; Steven J. Davis
  10. (Forced) Feminist Firms By Benjamin Bennett; Isil Erel; Léa H. Stern; Zexi Wang
  11. Unobserved Heterogeneity in the Productivity Distribution and Gains From Trade By Dewitte, Ruben; Dumont, Michel; Rayp, Glenn; Willemé, Peter
  12. Price-setting mixed duopoly, subsidization and the order of firms’ moves: an irrelevance result By Ohnishi, Kazuhiro

  1. By: Davin Chor; Kalina Manova; Zhihong Yu
    Abstract: Global value chains have fundamentally transformed international trade and development in recent decades. We use matched firm-level customs and manufacturing survey data, together with Input-Output tables for China, to examine how Chinese firms position themselves in global production lines and how this evolves with productivity and performance over the firm lifecycle. We document a sharp rise in the upstreamness of imports, stable positioning of exports, and rapid expansion in production stages conducted in China over the 1992-2014 period, both in the aggregate and within firms over time. Firms span more stages as they grow more productive, bigger and more experienced. This is accompanied by a rise in input purchases, value added in production, and fixed cost levels and shares. It is also associated with higher profits though not with changing profit margins. We rationalize these patterns with a stylized model of the firm lifecycle with complementarity between the scale of production and the scope of stages performed.
    JEL: F10 F14 F23
    Date: 2020–09
  2. By: Francesco Zanetti; Masashige Hamano
    Abstract: This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy.
    Keywords: Monetary policy; firm heterogeneity; product variety; reallocation
    JEL: E32 E52 L51 O47
    Date: 2020–09–17
  3. By: Martinez-Matute, Marta (Universidad Autónoma de Madrid); Urtasun, Alberto (Banco de España)
    Abstract: Uncertainty affects employers' decisions on labour workforce, as it does on capital. We exploit differences on how firms adjust their labour work-force when uncertainty increases. Using data from the Wage Dynamic Network Survey for 25 European countries, we first construct, opposite to usual aggregate indicators, a set of uncertainty indicators exploiting firms' microeconomic environment. We combine variability from the country, sector and size of the firm. Secondly, we investigate the effect of uncertainty on firms' strategies to adjust labour through hirings and rings. Results reveal that firms reduce hiring decisions and recur to individual layos more frequently when uncertainty increases. An increase of one point in the uncertainty indicator increases the probability of having frozen hiring in between 21% to 39%. We also find more significant effects when firms are facing credit constraints and labour adjustment costs are higher.
    Keywords: uncertainty, labour adjustment, firms' labour decisions, freeze hirings, layoffs
    JEL: D22 D81 J21 J23
    Date: 2020–08
  4. By: Thomas Astebro; Serguey Braguinsky; Yuheng Ding
    Abstract: We document that since 1997, the rate of startup formation has precipitously declined for firms operated by U.S. PhD recipients in science and engineering. These are supposedly the source of some of our best new technological and business opportunities. We link this to an increasing burden of knowledge by documenting a long-term earnings decline by founders, especially less experienced founders, greater work complexity in R&D, and more administrative work. The results suggest that established firms are better positioned to cope with the increasing burden of knowledge, in particular through the design of knowledge hierarchies, explaining why new firm entry has declined for high-tech, high-opportunity startups.
    JEL: J24 J3 O3
    Date: 2020–09
  5. By: Pierre Azoulay; Benjamin Jones; J. Daniel Kim; Javier Miranda
    Abstract: Immigration can expand labor supply and create greater competition for native-born workers. But immigrants may also start new firms, expanding labor demand. This paper uses U.S. administrative data and other data resources to study the role of immigrants in entrepreneurship. We ask how often immigrants start companies, how many jobs these firms create, and how these firms compare with those founded by U.S.-born individuals. A simple model provides a measurement framework for addressing the dual roles of immigrants as founders and workers. The findings suggest that immigrants act more as "job creators" than "job takers" and that non-U.S. born founders play outsized roles in U.S. high-growth entrepreneurship.
    JEL: J15 L26 M13 O3
    Date: 2020–09
  6. By: Massimo Motta; Martin Peitz
    Abstract: In dynamic industries, firms often face new competitive threats. If firms are able to identify those threats early on, they may simply acquire potential competitors under the radar of competition authorities. Merger policy thus has to deal with two issues: (1) how to make sure that potentially problematic mergers are notified and investigated; and (2) how to assess the social costs and benefits of such mergers. The latter requires to take a stance regarding the standard and burden of proof. We argue for a reversal of burden of proof, at least if one of the merging firms is considered to be a “systemic firm”.
    Keywords: Merger policy, potential competitor, notification, standard of proof, burden of proof, killer acquisition
    JEL: K21 L41
    Date: 2020–08
  7. By: Veselinović, Ljiljan; Kulenović, Mirza; Šunje, Aziz
    Abstract: Entrepreneurial orientation (EO) represents a firm-level construct that captures innovativeness, proactiveness, and risk-taking of the existing companies. The main focus of this paper is to present the EO of 477 companies in Bosnia and Herzegovina and to compare EO between companies operating within different contextual factors. We used descriptive statistics and statistical testing to draw conclusions. Our paper presents the mean values of entrepreneurial orientation for each NACE industry category. In addition, our results confirm that there are statistically significant differences in entrepreneurial orientation between (a) the companies operating in a more competitive environment and the companies operating in a less competitive environment; (b) the companies with acquired ISO certificates and high level of TQM practices and the companies without ISO certificates and low level of TQM practices; (c) the companies operating in predominantly export-oriented markets and the companies operating in predominantly local markets; and finally (d) the companies located in Federation of Bosnia and Herzegovina and the companies located in Republic of Srpska. However, there are no statistically significant differences in entrepreneurial orientation between the older companies (older than two, five and ten years) and younger companies; nor between companies of different sizes. By analyzing organizational contextual factors, this paper identifies key variables that may play an important role in designing more complex structural models. Additionally, this paper presents the current state of entrepreneurial orientation of existing companies in Bosnia and Herzegovina.
    Keywords: entrepreneurial orientation,contextual factors,firm behavior,entrepreneurship,Bosnia and Herzegovina
    JEL: L2
    Date: 2019
  8. By: Klaesson, Johan (Center for Entrepreneurship and Spatial Economics); Nilsson, Helena (Institute of Retail Economics (Handelns Forskningsinstitut))
    Abstract: The empirical literature on the effects of external malls on incumbent stores is inconclusive, and quantitative research on this topic is limited. In an attempt to add to the literature, this study examines the effect of the entry of external retail malls on store survival. Using a full firm population panel dataset at the store level covering the period 2000-2014, we examine the effect of a change in the distance to an external retail mall on the probability of retail store exit. In doing this we explicitly model the economic geography. We measure the economic activity in the location where these stores are situated using a market potential measure to gauge the economic density. The main result of this study is that the effects differ depending on where the incumbent firm is located. The effects on firms located in low-density areas and those on firms located in high-density areas differ dramatically. In low-density areas we find complementary effects which means that the probability of incumbent store exit is lesser. In high-density areas the estimated effect is the opposite, the entry of a new external mall increases the probability of incumbent store exit. The strength of the effects is dependent on the distance between the incumbent firm and the newly established external mall. Additionally, the size of effects differs between different parts of the retail sector. Effects remain over a number of years after entry of external malls but become smaller over time.
    Keywords: external shopping malls; complements; retail; panel-data; firm-exit; market potential
    JEL: C33 D22 L81 P25
    Date: 2020–08–31
  9. By: Jose Maria Barrero (ITAM - Business School); Nicholas Bloom (Stanford University and NBER); Steven J. Davis (University of Chicago, NBER, and Hoover Institution)
    Abstract: Drawing on firm-level forecasts at a one-year horizon in the Survey of Business Uncertainty (SBU), we construct novel, forward-looking reallocation measures for jobs and sales. These measures rise sharply after February 2020, reaching rates in April that are 2.4 (3.9) times the pre-COVID average for jobs (sales). We also draw on special SBU questions to estimate that the COVID-19 shock caused 3 new hires for every 10 layoffs, that 32-42% of COVID-induced layoffs will be permanent, and that one-tenth of all work days (one-fifth for office workers) will shift from business premises to residences in the post-pandemic world relative to the pre-pandemic situation. Our survey evidence aligns well with anecdotal evidence of large pandemic-induced demand increases at many firms, evidence on job openings, gross job creation and gross business formation, and a sharp pandemic-induced rise in equity return dispersion across firms. After developing the evidence, we consider implications for the economic outlook and for policy responses to the pandemic. Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, land-use restrictions, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock.
    Keywords: COVID-19, coronavirus, reallocation shock, Survey of Business Uncertainty, CARES Act
    JEL: D22 D84 E24 H12 H25 J21 J62 J63 J65
    Date: 2020
  10. By: Benjamin Bennett; Isil Erel; Léa H. Stern; Zexi Wang
    Abstract: We explore how lowering labor market frictions for female workers affects corporate performance. Using the staggered adoption of state-level Paid Family Leave acts, we provide causal evidence on the value created by relieving frictions to accessing female talent, for private and public firms. Reduced turnover and rising female leadership are potential mechanisms that contribute to performance gains. Across specifications, our estimates indicate that treated establishments’ productivity increases between 4% and 5% relative to neighbor control establishments. The treatment effect is larger when workers are in less religious counties and in those with more women of childbearing age.
    JEL: J16 J22 J24 J32 J78 M14 M51
    Date: 2020–09
  11. By: Dewitte, Ruben; Dumont, Michel; Rayp, Glenn; Willemé, Peter
    Abstract: A correct parametric approximation of the productivity distribution is essential to calculate Gains From Trade (GFT) in heterogeneous firms models. This paper argues that heterogeneity in productivity is best captured by Finite Mixture Models (FMMs). FMMs build on the existence of unobserved subpopulations in the data. As such, they are generally consistent with models of firm dynamics differing between groups of firms and allow for a very flexible distribution fit. We find FMMs to increase this fit by more than 70% compared to currently considered distributions. A GFT exercise with Portuguese data reveals that only FMMs approximate the ‘true gains’ reasonably well.
    Keywords: Finite Mixture Model, firm size distribution, productivity distribution, Gains From Trade
    JEL: F11 F12 L11
    Date: 2020–07–08
  12. By: Ohnishi, Kazuhiro
    Abstract: This paper examines price-setting duopoly games with production subsidies and shows that the optimal production subsidy, profits and economic welfare are identical irrespective of whether (i) a public firm and a private firm simultaneously and independently set prices, (ii) the public firm acts as a Stackelberg leader, or (iii) both firms behave as profit-maximizers.
    Keywords: Mixed duopoly model; Price competition; Subsidization
    JEL: C72 D21 L32
    Date: 2020–08

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