nep-bec New Economics Papers
on Business Economics
Issue of 2021‒03‒22
nine papers chosen by
Vasileios Bougioukos
Bangor University

  1. Monetary policy, firm heterogeneity, and product variety By Masashige Hamano; Francesco Zanetti
  2. The Impact of Business Environment Reforms on Firms’ Performance in Transition Economies By Berulava, George; Gogokhia, Teimuraz
  3. COVID-19 Is a Persistent Reallocation Shock By Barrero, Jose Maria; Bloom, Nick; Davis, Steven J.; Meyer, Brent H.
  4. Direct democracy, corporate political strategy, and firm value By Rüdiger Fahlenbrach; Alexei V. Ovtchinnikov; Philip Valta
  5. Employee Training and Firm Performance: Evidence from ESF Grant Applications By Martins, Pedro S.
  6. Capital (Mis)allocation and Incentive Misalignment By Alexander Schramm; Alexander Schwemmer; Jan Schymik
  7. Employee characteristics, absorptive capacity and innovation By Rho, Yeirae; Fabrizi, Simona; Lippert, Steffen
  8. Lending Cycles and Real Outcomes: Costs of Political Misalignment By Cagatay Bircan; Orkun Saka
  9. Are firing costs important for business cycles? Lessons from Bulgaria (1999-2018) By Aleksandar Vasilev

  1. By: Masashige Hamano; Francesco Zanetti
    Abstract: This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts an important 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 incumbent 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 that corroborates the relevance of monetary policy for product variety resulting from firm entry and exit.
    Keywords: Monetary policy, firm heterogeneity, product variety, reallocation
    JEL: E32 E52 L51 O47
    Date: 2021–01
  2. By: Berulava, George; Gogokhia, Teimuraz
    Abstract: The study investigates the impact of business environment on export performance of individual firms in transition economies. For these goals, the study utilizes the firm-level data from the Business Environment and Enterprise Performance Survey (BEEPS V round) across 28 transition economies. Applying the modified CDM model the paper examines the structural link between the business environment reforms, firm R&D, innovation, labor productivity, and export performance. The model was estimated sequentially, step-by-step. The estimates of the structural model, generally, proved our hypothesis about the impact of business environment reforms on the relationships between R&D investments, innovation, labor productivity and export performance. This study also supports the early findings that R&D is an important determinant of innovation, that innovation is a driver of labor productivity and that labor productivity, in turn, substantially increases the probability of firm’s participation at export markets.
    Keywords: Business environment reforms, R&D, Innovation, Productivity, Export, Transition economies
    JEL: D22 O12 O31 O38 P31
    Date: 2021
  3. By: Barrero, Jose Maria (Instituto Tecnologico Autonomo de Mexico); Bloom, Nick; Davis, Steven J.; Meyer, Brent H.
    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.
    Date: 2021–01–25
  4. By: Rüdiger Fahlenbrach (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)); Alexei V. Ovtchinnikov (HEC Paris - Finance Department); Philip Valta (University of Bern)
    Abstract: We analyze a novel data set of corporate contributions to ballot initiatives and referendums at the U.S. state level between 2003 and 2018. Ballot initiatives and referendums allow citizens of 26 U.S. states to vote directly on legislation. Firms make significant campaign contributions to ballot measure committees in favor of or against specific initiatives that exceed on average their political action committee contributions. Firms that contribute to successful (failed) direct initiated state initiatives generate positive (negative) CARs of 0.32% (-0.21%) on average around the election. They also experience significant sales growth in the two years surrounding successful ballot measure campaigns.
    Date: 2021–03
  5. By: Martins, Pedro S. (Queen Mary, University of London)
    Abstract: As work changes more quickly, firm-provided training may become more relevant. However, there is little causal evidence about the effects of training on firms. This paper studies a large training grants programme in Portugal, supported by the European Social Fund, contrasting firms that received the grants and firms that also applied but were unsuccessful. Combining several rich data sets, we compare a large number of potential outcomes of these firms, while following them over several years both before and after the grant decision. Our difference-in-differences models estimate significant positive effects on take up (training hours and expenditure), with limited deadweight; and that such additional training led to increased sales, value added, employment, productivity, and exports. These effects tend to be of at least 5% and, in some cases, 10% or more, and are robust in multiple dimensions.
    Keywords: training subsidies, productivity, programme evaluation
    JEL: J24 H43 M53
    Date: 2021–02
  6. 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
  7. By: Rho, Yeirae; Fabrizi, Simona; Lippert, Steffen
    Abstract: We investigate the determinants of firm absorptive capacity, with a particular focus on the effect of employee characteristics, and study how it affects a firm’s ability to generate new knowledge. Using administrative and national survey data on individuals and businesses, we first estimate absorptive capacity measures for New Zealand firms. We then show that the share of employees with international experience and the average skill level of employees have a positive impact on a firm’s learning capabilities, and that the positive effect of employees with international experience is greater if the firm also has a highly skilled workforce overall. We finally find that a firm's absorptive capacity is highly positively correlated to the likelihood of the firm innovating.
    Keywords: Absorptive capacity, knowledge spillover, innovation, linked employer-employee data
    JEL: D20 D22 D24 O31
    Date: 2021–01–02
  8. By: Cagatay Bircan; Orkun Saka
    Abstract: We document a strong political cycle in bank credit and industry outcomes in Turkey. In line with theories of tactical redistribution, state-owned banks systematically adjust their lending around local elections compared with private banks in the same province based on electoral competition and political alignment of incumbent mayors. This effect only exists in corporate lending and creates credit constraints for firms in opposition areas, which suffer drops in assets, employment and sales but not firm entry. Financial resources and factors of production are misallocated as more effient provinces and industries suffer the greatest constraints, reducing aggregate productivity.
    Keywords: bank credit, electoral cycle, state-owned banks, misallocation
    JEL: G21 D72 D73 P16
    Date: 2021
  9. By: Aleksandar Vasilev (Lincoln International Business School, UK.)
    Abstract: We introduce firing costs into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018). We investigate the importance of such labor market frictions for cyclical fluctuations in Bulgaria. Firing costs decrease employment volatility and pro-cyclicality, where both effects come at odds with data. Besides those, we do not find other important effects of firing costs for business cycle fluctuations in Bulgaria.
    Keywords: business cycle fluctuations, labor markets, firing costs, Bulgaria.
    JEL: E24 E32
    Date: 2021–03

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