nep-bec New Economics Papers
on Business Economics
Issue of 2021‒02‒22
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. Artificial Intelligence, Robotics, Work and Productivity: The Role of Firm Heterogeneity By Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars
  2. Do high-quality local institutions shape labour productivity in Western European manufacturing firms? By Ganau, Roberto; Rodríguez-Pose, Andrés
  3. Pandemic-Era Uncertainty on Main Street and Wall Street By Brent Meyer; Emil Mihaylov; Steven J. Davis; Nicholas Parker; David Altig; Jose Maria Barrero; Nicholas Bloom
  4. Exclusive Data, Price Manipulation and Market Leadership By Yiquan Gu; Leonardo Madio; Carlo Reggiani
  6. Do Employees Benefit from Worker Representation on Corporate Boards? By Christine Blandhol; Magne Mogstad; Peter Nilsson; Ola L. Vestad
  7. Does Excellence Pay Off? Theory and Evidence from the Wine Market By Stefano Castriota; Alessandro Fedele
  8. 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
  9. Gender diversity in corporate boards: Evidence from quota-implied discontinuities By Olga Kuzmina; Valentina Melentyeva
  10. The firm-level link between productivity dispersion and wage inequality: A symptom of low job mobility? By Chiara Criscuolo; Alexander Hijzen; Michael Koelle; Cyrille Schwellnus; Erling Barth; Wen-Hao Chen; Richard Fabling; Priscilla Fialho; Alfred Garloff; Katharzyna Grabska; Ryo Kambayashi; Valerie Lankester; Balazs Stadler; Oskar Nordström Skans; Satu Nurmi; Balazs Murakozy; Richard Upward; Wouter Zwysen

  1. By: Heyman, Fredrik (Research Institute of Industrial Economics (IFN)); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: We propose a model with asymmetric firms where new technologies displace workers. We show that both leading (low-cost) firms and laggard (high-cost) firms increase productivity when automating but that only laggard firms hire more automation-susceptible workers. The reason for this asymmetry is that in laggard firms, the lower incentive to invest in new technologies implies a weaker displacement effect and thus that the output-expansion effect on labor demand dominates. Using novel firm-level automation workforce probabilities, which reveal the extent to which a firms’ workforce can be replaced by new AI and robotic technology and a new shiftshare instrument to address endogeneity, we find strong empirical evidence for these predictions in Swedish matched employer-employee data.
    Keywords: AI&R Technology; Automation; Job displacement; Firm Heterogeneity; Matched employer-employee data
    JEL: J70 L20 M50
    Date: 2021–02–09
  2. By: Ganau, Roberto; Rodríguez-Pose, Andrés
    Abstract: We investigate the extent to which regional institutional quality shapes firm labour productivity in Western Europe, using a sample of manufacturing firms from Austria, Belgium, France, Germany, Italy, Portugal and Spain, observed over the period 2009–2014. The results indicate that regional institutional quality positively affects firms' labour productivity and that government effectiveness is the most important institutional determinant of productivity levels. However, how institutions shape labour productivity depends on the type of firm considered. Smaller, less capital endowed and high-tech sectors are three of the types of firms whose productivity is most favourably affected by good and effective institutions at the regional level.
    Keywords: cross-country analysis; labour productivity; manufacturing firms; regional institutions; Western Europe
    JEL: C23 D24 H41 R12
    Date: 2019–08–01
  3. By: Brent Meyer (Federal Reserve Bank of Atlanta); Emil Mihaylov (Federal Reserve Bank of Atlanta); Steven J. Davis (University of Chicago - Booth School of Business; Hoover Institution; NBER); Nicholas Parker (Federal Reserve Bank of Atlanta); David Altig (Federal Reserve Bank of Atlanta); Jose Maria Barrero (Instituto Tecnológico Autónomo de México - Business School); Nicholas Bloom (University of Chicago - Department of Economics; CEPR; NBER)
    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 look- ahead 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 potential GDP.
    Keywords: Business expectations, uncertainty, subjective forecast distributions, surveys
    JEL: L2 M2 O32 O33
    Date: 2020
  4. By: Yiquan Gu; Leonardo Madio; Carlo Reggiani
    Abstract: The unprecedented access of firms to consumer level data not only facilitates more precisely targeted individual pricing but also alters firms’ strategic incentives. We show that exclusive access to a list of consumers can provide incentives for a firm to endogenously assume the price leader’s role, and so to strategically manipulate its rival’s price. Prices and profits are non-monotonic in the length of the consumer list. For an intermediate size, price leadership entails an equilibrium outcome characterised by supra-competitive prices and low consumer surplus. In contrast, for short or long lists of consumers, exclusive data availability intensifies market competition.
    Keywords: Exclusive data, Personalised pricing, Price leadership, Strategic price manipulation
    JEL: D43 K21 L11 L13 L41 L86 M21 M31
    Date: 2021–01
  5. By: Kanwal Ikqbal Khan (Institute of Business & Management, University of Engineering & Technology, Lahore, Pakistan); Ayesha Mushtaq (Institute of Business & Management, University of Engineering & Technology, Lahore, Pakistan E)
    Abstract: Corporate violations have drawn the attention of scholars and business analysts in the last decade. Although regulations regarding CSR practices prevail, yet organizations are reluctant in their implementation as it is perceived costly, thereby neglecting its long-term institutional benefits. The current study bridges the gap between application of CSR practices in a firm and its impact on market credibility. Further, the study also addresses seven dimensions of CSR in measuring its magnitude to retain the market credibility, reducing information asymmetry and enhancing a firm’s loan accessibility. The study focuses on the non-financial firms listed at Pakistan Stock Exchange from 2009 till 2018. The results confirm that CSR practices enhance firms’ credibility. Further, the comparative analysis demonstrates that family firms that are older, bigger in size, maintain low cash holdings and financial leverage, are risk aversive, having high asset tangibility due to their involvement in CSR practices than non-family firms. Managers and shareholders may use these results to publicize CSR in order to create more opportunities for financial accessibi
    Keywords: Corporate Social Responsibility Practices, Market credibility, Information Asymmetry and Family firms
    JEL: G32 I31 L25
    Date: 2020–06
  6. By: Christine Blandhol (Princeton University - Department of Economics); Magne Mogstad (University of Chicago - Department of Economics; Statistics Norway; IFS; NBER); Peter Nilsson (Stockholm University - Institute for International Economic Studies); Ola L. Vestad (Statistics Norway - Research Department)
    Abstract: Do employees benefit from worker representation on corporate boards? Economists and policymakers are keenly interested in this question – especially lately, as worker representation is widely promoted as an important way to ensure the interests and views of the workers. To investigate this question, we apply a variety of research designs to administrative data from Norway. We find that a worker is paid more and faces less earnings risk if she gets a job in a firm with worker representation on the corporate board. However, these gains in wages and declines in earnings risk are not caused by worker representation per se. Instead, the wage premium and reduced earnings risk reflect that firms with worker representation are likely to be larger and unionized, and that larger and unionized firms tend to both pay a premium and provide better insurance to workers against fluctuations in firm performance. Conditional on the firm’s size and unionization rate, worker representation has little if any effect. Taken together, these findings suggest that while workers may indeed benefit from being employed in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.
    Keywords: Worker compensation; worker representation; corporate governance; unions
    JEL: G34 G38 J31 J54 J58
    Date: 2020
  7. By: Stefano Castriota; Alessandro Fedele
    Abstract: We investigate the effect of product excellence on firm profiability in a competitive market with vertical and horizontal di¤erentiation. We develop a theoretical model and derive conditions under which the e¤ect of excellence on prontability, the latter defined as the ratio of equilibrium profits to the invested capital, can be either positive, zero, or negative. We test our theoretical predictions by examining a sample of 1,052 Italian wineries over the period 2006-2015. Using di¤erent econometric methodologies, we find that excellence, proxied by firm reputation for quality, has no significant impact on profitability, measured by the return on invested capital (ROIC).We conclude by discussing policy and managerial implications.
    Keywords: product excellence, firm prontability; vertical and horizontal di¤erentiation; reputation for quality; wine market
    JEL: L15 L14 L66 L13 Q1 D21 D22
    Date: 2021–02–01
  8. By: Stéphane Bonhomme (University of Chicago - Department of Economics); Kerstin Holzheu (Sciences Po); Thibaut Lamadon (University of Chicago - Department of Economics; NBER; IFAU; IFS); Elena Manresa (New York University - Department of Economics); Magne Mogstad (University of Chicago - Department of Economics; Statistics Norway; NBER; IFS); Bradley Setzler (University of Chicago - Department of Economics)
    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 dispersion matters less for earnings inequality and worker sorting becomes always positive and typically strong.
    Keywords: Earnings inequality, firm effects, worker sorting, bias correction, fixed effects, random effects, matched employer employee data
    JEL: J31 J62 C23
    Date: 2020
  9. By: Olga Kuzmina (New Economic School); Valentina Melentyeva (ZEW and University of Mannheim)
    Abstract: Using data across European corporate boards, we investigate the effects of quota-induced female representation on firm value and operations. We use quasi-random assignment induced by rounding and find that promoting gender equality is aligned with shareholder interests. This result is in stark contrast with previous work finding large negative effects of women on firm value. This discrepancy arises because these papers considered firms with different pre-quota shares of women to be good counterfactuals to each other. In our data, we see that such firms grew differently already before the regulation, resulting in a negatively biased estimate of the effect. We overcome this bias by considering sharp increases that arise whenever percentage-based regulation applies to a small group of people. We further show that these large positive effects of female directors are not explained by increased risk-taking or changes in board characteristics, but rather by scaling down inefficient operations and empire-"demolishing".
    Keywords: Gender diversity, gender quota, board of directors, firm performance
    JEL: J16 J48 G34 G38 C18
    Date: 2021–02
  10. By: Chiara Criscuolo; Alexander Hijzen; Michael Koelle; Cyrille Schwellnus; Erling Barth; Wen-Hao Chen; Richard Fabling; Priscilla Fialho; Alfred Garloff; Katharzyna Grabska; Ryo Kambayashi; Valerie Lankester; Balazs Stadler; Oskar Nordström Skans; Satu Nurmi; Balazs Murakozy; Richard Upward; Wouter Zwysen
    Abstract: Differences in average wages across firms – which account for around one-half of overall wage inequality – are mainly explained by differences in firm wage premia (the part of wages that depends exclusively on characteristics of firms) rather than workforce composition. Using a new cross-country dataset of linked employer-employee data, this paper investigates the role of cross-firm dispersion in productivity in explaining dispersion in firm wage premia, as well as the factors shaping the link between productivity and wages at the firm level. The results suggest that around 15% of cross-firm differences in productivity are passed on to differences in firm wage premia. The degree of pass-through is systematically larger in countries and industries with more limited job mobility, where low-productivity firms can afford to pay lower wage premia relative to high-productivity ones without a substantial fraction of workers quitting their jobs. Stronger product market competition raises pass-through while more centralised bargaining and higher minimum wages constrain firm-level wage setting at any given level of productivity dispersion. From a policy perspective, the results suggest that the key priority should be to promote job mobility, which would reduce wage differences between firms while easing the efficient reallocation of workers across them.
    Keywords: labour mobility, linked employer-employee data, productivity dispersion, Wage inequality
    JEL: E02 E25 E63 J31 J61
    Date: 2021–02–22

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