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on Business Economics |
| By: | Andreas Beerli (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan Ruffner (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Siegenthaler (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Giovanni Peri (Department of Economics, UC Davis, USA) |
| Abstract: | We study a reform that granted European cross-border workers free access to the Swiss labor market and had a stronger effect on regions close to the border. The greater availability of cross-border workers increased foreign employment substantially. Although many cross-border workers were highly educated, wages of highly educated natives increased. The reason is a simultaneous increase in labor demand: the reform increased the size, productivity, and innovation performance of skill-intensive incumbent firms and attracted new firms, creating opportunities for natives to pursue managerial jobs. These effects are mainly driven by firms that reported skill shortages before the reform. |
| Keywords: | border region, cross-border workers, free movement of persons, firm performance, firm relocation, immigration policy, immigration restrictions, labor mobility, skilled immigration |
| JEL: | F22 J22 J24 J61 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:20-486&r=all |
| By: | Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent Meyer |
| Abstract: | Drawing on data from the firm-level Survey of Business Uncertainty, we present three pieces of evidence that COVID-19 is a persistent reallocation shock. First, rates of excess job and sales reallocation over 24-month periods have risen sharply since the pandemic struck, especially for sales. We compute these rates by aggregating over monthly firm-level observations that look back 12 months and ahead 12 months. Second, as of December 2020, firm-level forecasts of sales revenue growth over the next year imply a continuation of recent changes, not a reversal. Third, COVID-19 shifted relative employment growth trends in favor of industries with a high capacity of employees to work from home and against those with a low capacity. |
| Keywords: | COVID-19; reallocation shock; business expectations; working from home; Survey of Business Uncertainty |
| JEL: | D22 D84 E23 E24 J21 J62 J63 |
| Date: | 2021–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:89580&r=all |
| 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. |
| Keywords: | Global value chains, production line position, upstreamness, firm heterogeneity, firm lifecycle, China |
| JEL: | F10 F14 F23 L23 L24 L25 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1715&r=all |
| By: | Masashige Hamano (Waseda University); Francesco Zanetti (University of Oxford) |
| 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: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:2005&r=all |
| By: | David E. Altig; Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent Meyer; Emil Mihaylov; Nicholas B. Parker |
| Abstract: | We draw on the monthly Survey of Business Uncertainty (SBU) to make three observations about pandemic-era uncertainty in the U.S. economy. First, equity market traders and executives of nonfinancial firms share similar assessments about uncertainty at one-year lookahead horizons. That is, the one-year VIX has moved similarly to our survey-based measure of (average) firm-level subjective uncertainty at one-year forecast horizons. Second, looking within the distribution of beliefs in the SBU reveals that firm-level expectations shifted towards upside risk in the latter part of 2020. In this sense, decision makers in nonfinancial businesses share some of the optimism that seems manifest in equity markets. Third, and despite the positive shift in tail risks, overall uncertainty continues to substantially dampen capital spending plans, pointing to a source of weak growth in demand and in potential gross domestic product. |
| Keywords: | business expectations; uncertainty; subjective forecast distributions |
| JEL: | L2 M2 O32 O33 |
| Date: | 2021–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:89579&r=all |
| By: | Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka |
| Abstract: | An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over 2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets. |
| Keywords: | concentration, HHI, market definition, entry barriers, mergers, merger control, intangibles |
| JEL: | L24 L44 K21 O32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8866&r=all |
| By: | Berthou, Antoine; Jong-Hyun Chung, John; Manova, Kalina; Sandoz Dit Bragard, 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: | international trade; export demand; import competition; productivity; allocative efficiency; misallocation |
| JEL: | F10 F14 F43 O24 O40 O47 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108224&r=all |
| By: | Anwar Azazi (Department of Management, Faculty of Economics & Business, Tanjungpura University, Pontianak, Indonesia. Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:) |
| Abstract: | Objective - The objective of this study was to investigate empirically the relationship between the compensation of chief executive officers (CEO) and a firm's performance in the banking industry and to examine if CEO compensation affects bank performance differently between banks with and without prospect. Methodology/Technique - The author uses two measures of performance, total return on assets and Tobin, s Q, and concentrate on total CEO compensation. All data are collected from annual reports of banks listed in Indonesia Stock Exchange for a sample of 23 commercial banks or 167 firm-year observation over the 2009-2018 period utilizing the purposive random sampling technique. CEO compensation and bank performance are then analysed employing pooled regression method. Finding - This study finds supporting evidence for the agency-related problem in the banking industry in Indonesia. It then proves that high CEO compensation does have an inverse effect on bank performance, mainly on firm value. It also provides evidence that the pay-performance also demonstrates different patterns in firms with and without prospect. Novelty - This study uses novel and hand-collected data on CEO compensation in the banking industry and developing econometric evidence regarding CEO pay-performance relating to banks with and without prospect. Type of Paper - Empirical. |
| Keywords: | CEO compensation; Financial performance; banking industry. |
| JEL: | M41 G21 G32 M12 |
| Date: | 2020–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:afr191&r=all |
| By: | Alexander Schramm; Alexander Schwemmer; Jan Schymik |
| Abstract: | We study how managerial incentives affect the allocation of capital inside firms. To identify the effect of incentives on investment decisions we use a within-firm estimator that exploits variation across capital goods and a US accounting reform as an exogenous shock to managers' short-termist incentives. Our evidence shows that capital (mis)allocation within firms can be amplified by short-termist incentives. More short-term incentives cause a shift in investment expenditures away from durables towards more short-lived capital goods, effectively shortening the durability of firms' capital stocks. To study the economic implications of this within-firm misallocation channel, we then build a model of firm investments with incentive frictions that we calibrate to the US economy. We show that even moderate increases in short-termist incentives, such as those around the accounting reform, may cause substantial inefficiencies. These inefficiencies lead to large within-firm spreads in the marginal products of capital goods, causing long-run declines in output and real wages. |
| Keywords: | Corporate investment; Firm dynamics; Capital reallocation; Short-term incentives |
| JEL: | E22 G31 D24 D25 L23 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_260&r=all |
| By: | Besley, Timothy; 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 firmlevel 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: | productivity; default risk; credit frictions; misallocation |
| JEL: | D24 E32 L11 O47 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108227&r=all |
| By: | Inma Martínez-Zarzoso (University of Goettingen and University Jaume); Shampa Roy-Mukherjee (University of East London); Finn-Ole Semrau (Kiel Wold Institute); Anca M. Voicu (Rollings College) |
| Abstract: | We investigate the relationship between energy intensity and firms’ internationalization strategies by using data for Indian firms over the period 1987 to 2016 to estimate a panel data model that considers firm heterogeneity. Energy intensity is explained by the extensive and intensive margins of exports, estimated total factor productivity, foreign ownership, size and innovation activities. The main results indicate that exporters are more energy efficient than non-exporters, and that there is heterogeneity between industries. In particular, more energy-intensive industries present a higher reduction in energy intensity for exporters in comparison to non-exporters. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2021.1&r=all |
| By: | Indranil Chakraborty; Fahad Khalil; Jacques Lawarree |
| Abstract: | Unlike standard auctions, we show that competitive procurement may optimally limit competition or use inefficient allocation rules that award the project to a less efficient firm with positive probability. Procurement projects often involve ex post moral hazard after the competitive process is over. A procurement mechanism must combine an incentive scheme with the auction to guard against firms bidding low to win the contract and then cutting back on effort. While competition helps reduce the rent of efficient firms, it exacerbates the problem due to moral hazard. If allocative efficiency is a requirement, limiting the number of participants may be optimal. Alternatively, the same incentives can be optimally provided using inefficient allocation rules. |
| Keywords: | competitive procurement, auctions, moral hazard |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8863&r=all |
| By: | Kilian Huber |
| Abstract: | The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers. |
| Keywords: | bank regulation, big banks, bank size, economic growth, Brexit, economic geography, employment, globalisation, productivity,technological change |
| JEL: | E24 E44 G21 G28 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1735&r=all |
| By: | Bernard Dumas; Tymur Gabuniya; Richard C. Marston |
| Abstract: | The distinction between domicile and place of business is becoming more and more relevant as a growing number of firms have activities abroad. In most statistical studies of international stock returns, a firm is included in a country’s index if its headquarters are located in that country. This classification scheme ignores the operations of the firm. We propose, instead, to measure the firms’ exposures to “geographic zones” according to the place where they conduct business. As a representation of “geographic risks”, we synthesize zone factors from all firms in the dataset, be they domestic firms or multinationals. And we show the properties of the exposures to the zone factors. |
| JEL: | G32 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28185&r=all |
| By: | Thomas Grebel; Lionel Nesta (Université Côte d'Azur, CNRS, GREDEG (France)) |
| Abstract: | We investigate the determinants of the sign of Research and Development reaction functions of rival firms. Using a two-stage n-firm Cournot competition game, we show that this sign depends on four types of environments in terms of product rivalry and technology spillovers. We test the predictions of the model on the world's largest manufacturing corporations. Assuming that firms make R&D investments based on the R&D effort of the representative rival company, we develop a dynamic panel data model that accounts for the endogeneity of the decision of the rival firm. Empirical results thoroughly corroborate the validity of the theoretical model. |
| Date: | 2020–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03042941&r=all |
| By: | Laure-Anne Parpaleix (CGS i3 - Centre de Gestion Scientifique i3 - CNRS - Centre National de la Recherche Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres); Blanche Segrestin (CGS i3 - Centre de Gestion Scientifique i3 - CNRS - Centre National de la Recherche Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres) |
| Abstract: | Since short-termism has come under criticism, how can a firm's strategic choices take account of long-term interests? Can long-term shareholding be fostered, and would it suffice? To answer these questions, this article examines how we apprehend the long term. Instead of defining it in relation to the investment horizon of a firm's plans, innovation forces us to see the long term as a firm's capacity for "regeneration", i.e., for recurrently renewing not just its product line but also its fields of innovation. From this perspective, the issue has less to do with shareholders keeping their stake in the firm during a cycle of product development than with their adherence to a "logic of regeneration". Two concepts recently introduced by the PACTE Act (raison d'être and société à mission) offer important means for making finance compatible with the long term. Corporate engagements on innovations for a desirable future can thus be entrenched in bylaws, beyond eventual changes of shareholders. |
| Date: | 2019–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03030229&r=all |