nep-bec New Economics Papers
on Business Economics
Issue of 2020‒11‒02
eleven papers chosen by
Vasileios Bougioukos
Bangor University

  1. Product switching, market power and distance to core competency By R. MONIN; M. SUAREZ CASTILLO
  2. Judge Bias in Labor Courts and Firm Performance By Cahuc, Pierre; Carcillo, Stéphane; Patault, Bérengère; Moreau, Flavien
  3. Services Trade and Labour Market Outcomes: Evidence from Italian Firms By Omar Bamieh; Francesco Bripi; Matteo Fiorini
  4. Fixed Costs and the Division of Labor By Zhou, Haiwen
  5. Integrated versus Segmented Markets: Implications for Export Pricing and Welfare By Raphael Becker; Sergey K. Nigai; Tobias Seidel
  6. Internal digitalization and tax-efficient decision making By Klein, Daniel; Ludwig, Christopher A.; Nicolay, Katharina
  7. Explaining Firm-Level Gender Productivity Differential in Africa By Amira El-Shal; Hanan Morsy
  8. Subjective Uncertainty, Expectations, and Firm Behavior By Lautenbacher, Stefan
  9. Survival and the ergodicity of corporate profitability By Mundt, Philipp; Alfarano, Simone; Milaković, Mishael
  10. State-Owned Enterprises across Europe: Stylized Facts from a Large Firm-level Dataset By Bram De Lange; Bruno Merlevede
  11. Determinants of Financial Performance of Microfinance Banks in Kenya By King'ori S. Ngumo; Kioko W. Collins; Shikumo H. David

  1. By: R. MONIN (Insee); M. SUAREZ CASTILLO (Insee - Crest)
    Abstract: Within-firm product switching is recognised as an important source of growth. We examine how portfolio dynamics is related to product market power, product efficiency and within-firm differentiation. We derive perproduct markup and marginal cost following De Loecker et al. (2016) on a large panel of French manufacturers over 2009-2017 and build three novel measures of product similarity. We find that selection based on performance is a leading driver of the performance gap between entrant and incumbent products. Markups are as important as marginal costs in explaining selection patterns. Our results suggest that firms renew their portfolio using trial and error and select the best performing products, closer to their core competency. However at the firm level, most of markup growth is accounted for by a reallocation toward best performing products, with a minor role for product entry and exit in the short run.
    Keywords: Multiproduct firms; Product dynamics; Product portfolio; Markups
    JEL: D2 D4 L1
    Date: 2020
  2. By: Cahuc, Pierre (Sciences Po, Paris); Carcillo, Stéphane (OECD); Patault, Bérengère (CREST (ENSAE)); Moreau, Flavien (International Monetary Fund)
    Abstract: Does labor court uncertainty and judge subjectivity influence firms performance? We study the economic consequences of judge decisions by collecting information on more than 145,000 Appeal court rulings, combined with administrative firm-level records covering the whole universe of French firms. The quasi-random assignment of judges to cases reveals that judge bias has statistically significant effects on the survival, employment, and sales of small low-performing firms. However, we find that the uncertainty associated with the actual dispersion of judge bias is small and has a non-significant impact on their average outcomes.
    Keywords: firm survival, judge bias, dismissal compensation, employment
    JEL: J33 J63 J65
    Date: 2020–10
  3. By: Omar Bamieh; Francesco Bripi; Matteo Fiorini
    Abstract: The paper investigates the relationship between services trade performance and employment characteristics in Italian firms. Our analysis is at the micro level and descriptive in nature. We merge micro data on services trade transactions with employment and wage variables at the level of the firm. We find that firms engaged in services trade tend to employ a larger share of managers and white collars and to pay higher average wages. They also exhibit systematically smaller shares of blue collars in their employment structure. These patterns hold qualitatively across all main sectors of firms' affiliation and across sectors of traded services. We find a strong and positive association between services exports and/or imports and total employment. Regression analysis confirms this last finding and shows it is robust to controlling for various confounding heterogeneity.
    Keywords: Services trade, Employment, Firm-level data, Italy
    JEL: F14 F16
    Date: 2020–05
  4. By: Zhou, Haiwen
    Abstract: How market size and the level of coordination costs determine the degree of specialization is studied in an infinite horizon model with the amount of capital determined endogenously. Firms producing the same intermediate good engage in oligopolistic competition and choose the degree of specialization of their technologies to maximize profits. A more specialized technology is a technology with a lower marginal cost, but a higher fixed cost. Interestingly, the relationship between the level of coordination costs and a firm’s degree of specialization is ambiguous. A firm in a country with a larger market size, more patient citizens, or a higher amount of knowledge will choose more specialized technologies and this country will have a higher wage rate and a higher capital stock. If fixed costs decrease, firms will choose more flexible manufacturing.
    Keywords: The division of labor, market size, fixed costs, flexible manufacturing, coordination costs
    JEL: D43 L13 O14
    Date: 2020–10–19
  5. By: Raphael Becker; Sergey K. Nigai; Tobias Seidel
    Abstract: This paper challenges the common assumption of market segmentation in international trade. To analyze export entry and pricing decisions of firms in integrated vs. segmented markets, we develop a novel tractable approach based on stochastic export costs that allows us to compare firm-level and aggregate outcomes under arbitrary market interdependence. We find that allowing for potential re-exporting arbitrage between countries imposes constraints on export prices of firms and has first-order implications for trade and welfare.
    Keywords: market segmentation, pricing constraints, gains from trade
    JEL: F12 F13 F14 F15
    Date: 2020
  6. By: Klein, Daniel; Ludwig, Christopher A.; Nicolay, Katharina
    Abstract: Our study investigates firms' internal digitalizationas a crucial foundation for timely, data-driven decision making. We evaluate the association between digital infrastructure and improved decision making intax planning decisions to analyze if the benefits of digitalization expand beyond firms' core business functions. The novel use of a survey that identifies European firms' digital infrastructure over the period from 2005 to 2016 allows us to create an index of IT sophistication. Using this index, we extend prior approaches and observe the effectiveness of tax planning decisions in terms of a firm's ability to exploit income shifting incentives. Our empirical analysis confirms the prediction that digitalized firms respond more efficiently to income shifting incentives. Further, we provide evidence that firms with sophisticated IT are more reactive to shocks in the income shifting incentive than non-digital firms. Our results suggest that internal digitalization allows firms to efficiently monitor and manage internal processes and to strategically price internal transactions. With this work, we are the first to document the association of digitalization and the performance of firms' support functions.
    Keywords: Digital Transformation,Digitalization,Firm Performance,Decision Making,Multinational Corporations,Business Taxation,Information Technology,Profit Shifting
    JEL: O33 L25 H25 H26 K34
    Date: 2020
  7. By: Amira El-Shal (African Development Bank); Hanan Morsy (African Development Bank)
    Abstract: The gender gap in firm productivity is the widest in Africa, and evidence on the determinants of this variation remains thin. We exploit a harmonized firm-level survey dataset of 46 African countries over the period 2006-2018 to explain the productivity gender differential and identify the association pathways. Special focus is placed on the behavior with respect to innovation and technology adoption and dealing with market inefficiencies and institutional barriers. We construct five composite indices to reflect the categories of productivity determinants and apply mean and quantile decomposition approaches. Our estimates indicate a significant productivity differential by the gender of entrepreneur in Africa, specifically in the Northern and Eastern regions. Interestingly, the differential is not induced by educational nor entrepreneurial abilities but rather by women being more negatively affected by institutional barriers, such as corruption and perceptions about it, and market inefficiencies, such as the lack of access to finance. These results can be explained by gender-based behavioral differences and institutional structures, which can as well affect women’s selection of business activity, making their firms less likely to benefit from some innovation and technology adoption activities.
    Date: 2020–10–20
  8. By: Lautenbacher, Stefan
    Abstract: Based on a large and representative panel of German firms, this paper relates a novel measure of subjective uncertainty to business expectations and firm decisions. Uncertainty is measured by asking managers directly how uncertain they are about their future business development. I show that the relationship between perceived uncertainty and expectations is strongly negative at the micro level and almost perfectly inverse in the aggregate. It is also state-dependent: uncertainty co-moves less with expectations in bad times. In a case study at the onset of the COVID-19 recession, I exploit the between-firm variation in firms' uncertainty and expectations to examine the implications of the ``real options'' theory. I find that changes in uncertainty during the aggregate downturn do not predict ``wait and see'' behavior. By contrast, first moment changes are related to investments deferral and a reduction of the workforce.
    Keywords: subjective uncertainty; expectations; firms; corporate decisions; survey data; business cycles
    JEL: C83 D22 D84 E32
    Date: 2020–10–13
  9. By: Mundt, Philipp; Alfarano, Simone; Milaković, Mishael
    Abstract: The cross-sectional variation in corporate profitability has occupied research across fields as diverse as strategic management, industrial organization, finance, and accounting. Prior work suggests that industry affiliation as well as different forms of corporate idiosyncrasies are important determinants of profitability, but it disagrees widely on the quantitative importance of particular effects. This paper shows that industry and corporate specificities become irrelevant in the long run because profitability is ergodic conditional on survival, implying that there is a uniform, time-invariant regularity in profitability that applies across firms. Conditional on survival, we cannot reject the hypothesis that corporations are on average equally profitable and also experience equally volatile fluctuations in their profitability, irrespective of their individual characteristics. The same is not true for shorter-lived firms, even for up to 20 years after entry or before exit, and would explain the contradictory findings in the extant literature, which usually considers samples containing heterogeneous mixtures of surviving and shorter-lived companies. Therefore the mere fact of survival, rather than any previously suggested set of variables, becomes the only relevant information for corporate profitability in the long run.
    Keywords: performance,dynamic competition,corporate strategy,stochastic differential equation
    JEL: C14 L10 D21 E10
    Date: 2020
  10. By: Bram De Lange; Bruno Merlevede (-)
    Abstract: This paper constructs a firm-level dataset to document the prevalence of State- Owned Enterprises (SOEs) in 27 European countries over the period 2002-2012. We find government ownership of firms to be widespread over the European continent. On average we annually observe 35,596 firms with a state participation; 21,377 of these are majority-owned by the state. Notwithstanding an expected tendency towards concentration in the mining, energy, transport, postal and telecommunication sectors, we do detect non-negligible government ownership in all sectors of the business economy. Countries with a socialist legal origin show the highest number of SOEs and SOEs are present in almost all sectors. Countries with an English legal origin show the lowest numbers of SOEs. Lower levels of economic and financial development, and lower scores on institutional characteristics are associated with higher levels of government ownership at country-level. More collectivist societies also showhigher levels of government ownership. While SOEs are on average larger than privately-owned firms (POEs), half of the SOEs employs less than 50 people. Through a matching exercise we show that SOEs are outperformed by POEs in terms of 16 real and financial firm level indicators.This is no longer the case when SOEs are listed or controlled by a foreign government. In countries with better scores on institutional characteristics SOEs are generally less outperformed by POEs. More collectivist societies are characterised by SOEs that employ more people and pay higher wages, but are less efficient. In terms of employment growth SOEs are outperformed by POEs, but SOEs are more resilient in times of crisis. Further SOEs have a lower propensity to exit which does not seem to vary with the political orientation of the country.
    Keywords: Europe, State Ownership, Firm Heterogeneity, Firm-level data
    JEL: H11 L32 O52
    Date: 2020–10
  11. By: King'ori S. Ngumo; Kioko W. Collins; Shikumo H. David
    Abstract: Microfinance provides strength to boost the economic activities of low-income earners and thus contributes to eradication of poverty. However, microfinance institutions face stringent competition from commercial banks; the growth of microloan activities of commercial banks may confront microfinance institutions with increased competition for borrowers. In Kenya, the micro finance sector has extremely high competition indicated by the shifting market share and profitability. This study sought to examine the determinants of financial performance of Microfinance banks in Kenya. The study adopted a descriptive research design and used secondary data from 7 Microfinance banks for a period of 5 years from 2011 to 2015. The data collected was analyzed using correlation and regression analysis. The study found a positive and statistically significant relationship between operational efficiency, capital adequacy, firm size and financial performance of microfinance banks in Kenya. However, the study found an insignificant negative relationship between liquidity risk, credit risk and financial performance of microfinance banks in Kenya. The study concluded that there is direct relationship between operational efficiency, capital adequacy, firm size and financial performance of microfinance banks in Kenya.
    Date: 2020–10

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