nep-bec New Economics Papers
on Business Economics
Issue of 2020‒10‒12
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Productivity effects of an exogenous improvement in transport infrastructure: accessibility and the Great Belt Bridge By Bruno de Borger; Ismir Mulalic; Jan Rouwendal
  2. Do Capabilities Reside in Firms or in Regions? Analysis of Related Diversification in Chinese Knowledge Production By Yiou Zhang; David L. Rigby;
  3. The Effect of Outward Foreign Direct Investments on Home Employment: Evidence using Swiss Firm-Level Data By Preetha Kalambaden, Daniel Steffen
  4. Reallocation Effects of the Minimum Wage By Christian Dustmann; Attila Lindner; Uta Schönberg; Matthias Umkehrer; Philipp vom Berge
  5. The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy By Elena Carletti; Tommaso Oliviero; Marco Pagano; Loriana Pelizzon
  6. Financial Distress and the Role of Management in Micro and Small-Sized Firms By Alexandre, Fernando; Cruz, Sara; Portela, Miguel
  7. The Big Sell: Privatizing East Germany's Economy By Lukas Mergele; Moritz Hennicke; Moritz Lubczyk
  8. Machine learning for optimizing complex site-specific management By Saikai, Yuji; Patel, Vivak; Mitchell, Paul
  9. The Impact of Business Group Affiliation and Country-Level Institutions on Corporate Governance of Emerging Market Firms By Hearn, Bruce; Oxelheim, Lars; Randoy, Trond
  10. Competitive effects of IPOs: evidence from Chinese listing suspensions By Frank Packer; Mark M Spiegel

  1. By: Bruno de Borger (University of Antwerp); Ismir Mulalic (Technical University of Denmark); Jan Rouwendal (Vrije Universiteit Amsterdam)
    Abstract: Most studies of the effects of transport infrastructure on the performance of individual firms have focused on marginal expansions of the rail or highway network over time. In this paper, we study the short-run effects of a large discrete shock in the quality of transport infrastructure, viz. the opening of the Great Belt bridge connecting the Copenhagen area with a neighboring island and the mainland of Denmark. We analyse the effect of the opening of the bridge on the productivity of firms throughout the country using a two-step approach: we estimate firm- and year-specific productivity for a large panel of individual firms, using the approaches developed by Levinsohn and Petrin (2003) and De Loecker (2011). Then, controlling for firm-fixed effects, we relate productivity to a calculated measure of accessibility that captures the effect of the opening of the bridge. We find large productivity effects for firms located in the regions near the bridge, especially for relatively small firms in the construction and retail industry. Estimation results further suggest statistically significant but small positive wage effects throughout the country, even in regions far from the bridge. Finally, there is some evidence that the bridge has stimulated new activities in the Copenhagen region at the expense of firms disappearing on the neighboring island Funen.
    Keywords: production functions, productivity, accessibility, agglomeration, transport infrastructure
    JEL: R12 H54 O18
    Date: 2019–09–13
  2. By: Yiou Zhang; David L. Rigby;
    Abstract: Do capabilities reside in firms, in regions, or in both? Most models of related diversification, building on the early work of Hidalgo et al. (2007), examine how the structure of economic activity within a region conditions the trajectory of diversification. Inter-regional flows are sometimes added to these models. The logic here is that capabilities are largely built-up within regions and sometimes shared between them. We challenge that logic, exploring whether capabilities are more likely to be built within the firm and to flow across spatial boundaries than they are to be built within the region flowing across firm boundaries. Analysis focuses on Chinese patent data spanning 286 cities over the period 1991 to 2015. We develop standard models of related diversification before examining how the branches of multi-locational firms diversify their knowledge portfolios. Evidence shows that the knowledge structure of firms is more important than the knowledge structure of regions in shaping branch diversification. We show that the influence of the firm and the region on diversification vary significantly between headquarters (HQ) branches and non-HQ branches of firms, and between the non-HQ branches of firms that are located in core and peripheral cities of China.
    Keywords: Related diversification; Patents; Capabilities; China
    Date: 2020–09
  3. By: Preetha Kalambaden, Daniel Steffen
    Abstract: This paper investigates the effect of outward foreign direct investments (FDI) on home employment in an understudied context - a small economy with a large relative outward FDI stock. Using Swiss firm-level data we construct a novel instrumental variable to identify a direct negative displacement effect and an indirect positive output effect. We find that FDI to high-income countries have a positive effect on domestic jobs, while FDI to lower middle-income countries are associated with a loss of domestic jobs. Further, FDI to low-income countries tend to have a positive effect on home employment. Overall, the effect of outward FDI on home employment is small and tends to create more domestic jobs than it relocates.
    Keywords: Foreign direct investments, home employment, multinational firms, globalization
    JEL: F14 F16 F23 F66
    Date: 2020–08
  4. By: Christian Dustmann (Centre for Research and Analysis of Migration, University College London); Attila Lindner (University College London (UCL), CReAM, CEP, IFS, IZA, MTA-KTI, CEPR); Uta Schönberg (University CollegeLondon (UCL), Institute for Employment Research Nuremberg (IAB), Centre for Research and Analysis of Migration (CReAM), CEPR and IZA); Matthias Umkehrer (Institute for Employment Research Nuremberg (IAB)); Philipp vom Berge (Institute for Employment Research Nuremberg (IAB))
    Abstract: In this paper, we investigate the wage, employment and reallocation effects of the introduction of a nationwide minimum wage in Germany that affected 15% of all employees. Based on identification designs that exploit variation in exposure across individuals and regions, we find that the minimum wage raised wages, but did not lower employment. At the same time, the minimum wage lead to reallocation effects. At the individual level, the minimum wage induced low wage workers (but not high wage workers) to move from small, low paying firms to larger, higher paying firms. This worker upgrading to better firms can account for up to 25% of the wage increase induced by the minimum wage. Moreover, at the regional level, average firm quality (measured as firm size or fixed firm wage effect) increased in more affected regions in the years following the introduction of the minimum wage.
    Date: 2020–02
  5. By: Elena Carletti; Tommaso Oliviero; Marco Pagano; Loriana Pelizzon
    Abstract: We forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown, using a representative sample of 80,972 Italian firms. A 3-month lockdown entails an aggregate yearly drop in profits of about 10% of GDP and results in financial distress for 17% of the sample firms, employing 8.8% of the sample employees. Distress is more frequent for small and medium-sized enterprises, for firms with high pre-COVID-19 leverage, and those belonging to the Manufacturing and Wholesale Trading sectors. Listed companies are less likely to enter distress, while there is no clear correlation between distress rates and family firm ownership.
    Keywords: COVID-19, pandemics, losses, distress, equity, recapitalization.
    JEL: G01 G32 G33
    Date: 2020–10
  6. By: Alexandre, Fernando (University of Minho); Cruz, Sara (University of Minho); Portela, Miguel (University of Minho)
    Abstract: In this paper, we focus on managerial characteristics of micro and small-sized firms. Using linked employer-employee data on the Portuguese economy for the 2010-2018 period, we estimate the impact of management teams' human capital on the probability of firms becoming financially distressed and on their subsequent recovery. Our estimates show that the relevance of management teams' formal education on the probability of firms becoming financially distressed depends on firms' size and the type of education. We show that management teams' formal education and tenure reduces the probability of micro and small-sized firms becoming financially distressed and increases the probability of their subsequent recovery. The estimates also suggest that those impacts are stronger for micro and small-sized firms. Additionally, our results show that functional experience previously acquired in other firms, namely in foreign-owned and in exporting firms and in the area of finance, may reduce the probability of micro firms becoming financially distressed. On the other hand, previous functional experience in other firms seems to have a strong and highly significant impact on increasing the odds of recovery of financially distressed firms. We conclude that policies that induce an improvement in the managerial human capital of micro and small-sized firms have significant scope to improve their financial condition, reducing the likelihood of firms entering a state of financial distress.
    Keywords: financial distress, human capital, firm performance
    JEL: G32 J24 L25
    Date: 2020–09
  7. By: Lukas Mergele; Moritz Hennicke; Moritz Lubczyk
    Abstract: The end of communism in the 1990s probably is the most fundamental restructuring of institutions witnessed in recent history. At its core was the large-scale redistribution of previously state-owned companies. We construct a unique firm-level dataset to study this redistribution in East Germany where the entire state-owned economy was either privatized or liquidated within less than five years. We examine whether the privatization authority followed its mandate to privatize competitive firms using initial labor productivity to indicate firms’ competitiveness. Our results highlight that firms with higher baseline productivity are more likely to be privatized, yield higher sales prices, are more often acquired by West German investors, and are more likely to remain in business even 20 years after leaving public ownership. The privatization agency plausibly contributed to these outcomes by rating and prioritizing productive firms.
    Keywords: privatization, labor productivity, German reunification
    JEL: D24 G38 H11 L33 P31
    Date: 2020
  8. By: Saikai, Yuji; Patel, Vivak; Mitchell, Paul
    Abstract: Despite the promise of precision agriculture for increasing the productivity by implementing site-specific management, farmers remain skeptical and its utilization rate is lower than expected. A major cause is a lack of concrete approaches to higher profitability. When involving many variables in both controlled management and monitored environment, optimal site-specific management for such high-dimensional cropping systems is considerably more complex than the traditional low-dimensional cases widely studied in the existing literature, calling for a paradigm shift in optimization of site-specific management. We propose an algorithmic approach that enables farmers to efficiently learn their own site-specific management through on-farm experiments. We test its performance in two simulated scenarios---one of medium complexity with 150 management variables and one of high complexity with 864 management variables. Results show that, relative to uniform management, site-specific management learned from 5-year experiments generates $43/ha higher profits with 25 kg/ha less nitrogen fertilizer in the first scenario and $40/ha higher profits with 55 kg/ha less nitrogen fertilizer in the second scenario. Thus, complex site-specific management can be learned efficiently and be more profitable and environmentally sustainable than uniform management.
    Keywords: Research and Development/Tech Change/Emerging Technologies
    Date: 2020–09–16
  9. By: Hearn, Bruce (University of Bradford); Oxelheim, Lars (Research Institute of Industrial Economics (IFN)); Randoy, Trond (School of Business and Law)
    Abstract: This study outlines how the corporate governance of emerging market firms is influenced by corporate affiliation and institutional embeddedness. We argue that the stronger the business group affiliation, the less likely is the emerging market firm to adopt shareholder value-enhancing corporate governance and that this relationship is moderated by institutional quality and tribalism. Based on189 initial public offerings (IPOs) from 22 African countries between 2000 and 2016, we find a significant negative relationship between business group ownership and IPO firms’ quality of corporate governance. We also find this relationship to be significantly negatively moderated by country-level institutional quality and positively by indigenous tribalism. The result adds to the understanding of barriers toa convergence towards one uniform global corporate governance model.
    Keywords: Corporate Governance Practice; Africa; Emerging Economies; IPO; Business Groups
    JEL: G23 G38 M12 M14 M16
    Date: 2020–09–30
  10. By: Frank Packer; Mark M Spiegel
    Abstract: Theory suggests that initial public offerings (IPOs) can adversely impact listed firms, both directly by increasing intra-industry competition, and indirectly by completing related asset market spaces. However, the endogeneity of individual IPO activity hinders testing these channels. This paper examines listing suspensions in China in a panel specification that accounts for macroeconomic and financial conditions, isolating the firm-level IPO impact. We measure the competitive impact of listing suspensions through the value share of postponed firms in the IPO queue in their industry, and asset-space competition by firms’ historical covariance with a synthetic portfolio of listed firms with the IPO queue industry mix at the time of suspension. Our results support the predicted IPO effects through both channels. We also document heterogeneity in IPO effects. Stronger firms–measured through a variety of proxies–benefit less from the suspension news. These results are robust to a battery of sensitivity tests.
    Keywords: initial public offerings, China, competition, asset space
    Date: 2020–09

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