nep-bec New Economics Papers
on Business Economics
Issue of 2021‒05‒03
thirteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Managerial talent and managerial practices: are they complements? By Audinga Baltrunaite; Giulia Bovini; Sauro Mocetti
  2. Contracts, Firm Dynamics, and Aggregate Productivity By Bernabe Lopez-Martin; David Perez-Reyna
  3. Keeping up with the Joneses: economic impacts of overconfidence in micro-entrepreneurs By Julia Seither
  4. Taxation and strategic reaction: A comparison of Cournot, Stackelberg and collusion By Todorova, Tamara; Vatoci, Besar
  5. Four Decades of Canadian Earnings Inequality and Dynamics Across Workers and Firms By Audra Bowlus; Émilien Gouin-Bonenfant; Huju Liu; Lance Lochner; Youngmin Park
  6. Ancestors, inter-generational transmission of attitudes, and corporate performance: Evidence from the Italian Mass Migration By Florio, Erminia; Manfredonia, Stefano
  7. Artificial intelligence and industrial innovation: Evidence from firm-level data By Rammer, Christian; Fernández, Gastón P.; Czarnitzki, Dirk
  8. The Transmission of Sectoral Shocks Across the Innovation Network By Fons-Rosen, Christian; Pu, Zhaoxin
  9. Spatial internet spillovers in manufacturing By Joël Cariolle; Maëlan Le Goff
  10. Government responses, business continuity, and management sentiment: Impact on debt financing during COVID-19 By Gopalakrishnan, Balagopal; Jacob, Joshy; Mohapatra, Sanket
  11. Firm Responses to High-Speed Internet By Steimer, Henrike
  12. Induced automation: evidence from firm-level patent data By Antoine Dechezleprêtre; David Hémous; Morten Olsen; Carlo Zanella
  13. The More the Merrier? On the Optimality of Market Size Restrictions By Colin von Negenborn

  1. By: Audinga Baltrunaite (Bank of Italy); Giulia Bovini (Bank of Italy); Sauro Mocetti (Bank of Italy)
    Abstract: We examine the role of managerial talent and its interaction with managerial practices in determining firm performance. We build a matched firm-director panel dataset for the universe of limited liability companies in Italy, tracking individuals across different firms over time. We define managerial talent as management's capacity to boost firms' total factor productivity, estimated using a two-way fixed effects model. Combining the data with survey information on a representative sample of firms, we then document that our measure of talent correlates with ex-ante and ex-post indicators of ability, i.e. managers' educational attainment and their forecast precision with respect to the firm's future performance. Most important, we leverage information on the adoption of managerial practices within the firm to examine potential synergies between managerial talent and structured managerial practices, thus bridging two separate strands of the literature. While talent and structured practices do boost firm productivity on their own, there is evidence of complementarities between the two. These findings hold both in a cross-sectional setting and in a panel analysis that accounts for time-invariant firm heterogeneity. Overall, our results indicate that the effectiveness of managerial practices depends on managers' ability to implement them.
    Keywords: Board of directors, managers, corporate governance, productivity, managerial practices
    JEL: G34 M10 D24
    Date: 2021–04
  2. By: Bernabe Lopez-Martin; David Perez-Reyna
    Abstract: We construct a firm-dynamics framework to evaluate the impact of the enforcement of contracts between final goods producers and intermediate goods suppliers on firm life-cycle growth, technology accumulation, and aggregate productivity. We show that contractual incompleteness implies a wedge on profits, which disincentives technology accumulation and is potentially correlated with technology, in addition to wedges on production decisions. We find that our model accounts for differences in output per worker of up to 33 percent across economies. The impact on firm life-cycle growth, the age and size distribution of firms is quantitatively significant.
    Date: 2021–04
  3. By: Julia Seither
    Abstract: This paper investigates the effects of incorrect beliefs over relative firm performance on micro-firm outputs through a randomized field experiment in Mozambique. At baseline, 76% of firm owners in the bottom of the distribution are overconfident about their firm’s performance. The estimates reveal that correcting these beliefs through a simple, easily scalable information experiment closes the performance gap between treated firms in the bottom of the distribution at baseline and average and top firms by almost 43%. Moreover, the treatment increases the time a firm owner allocates to her business, improves strategic cooperation with the most important business partners, and affects the pricing strategy of treated firm owners. My results suggest that incorrect beliefs about relative performance are a binding constraint to firm growth that have large implications for managerial behavior and firm outcomes.
    JEL: D22 D91 O12
    Date: 2021
  4. By: Todorova, Tamara; Vatoci, Besar
    Abstract: We study the effect of distortionary taxes on three types of market structure: Cournot duopoly, Stackelberg duopoly, and a monopoly under a collusive agreement between the two rival firms in the industry. We investigate different tax regimes such as a per unit tax, an ad valorem tax and a tax on total revenue. A unit tax rate reduces optimal output and profits for firms while market price rises with the imposition of the tax. Interestingly, the optimal tax rate is the same for all three market structures. The ad valorem tax is imposed on the value of the product and is mostly borne by the Stackelberg follower who ends up producing a greater output than what he would produce in the absence of a tax. The ad valorem tax increases firm output and reduces market price. The total revenue decreases output and increases industry price like the unit tax.
    Keywords: Cournot duopoly, Stackelberg game, optimal tax rate, Lerner index
    JEL: D42 D43 H21 L12 L13
    Date: 2020–06–01
  5. By: Audra Bowlus; Émilien Gouin-Bonenfant; Huju Liu; Lance Lochner; Youngmin Park
    Abstract: This paper studies the evolution of individual earnings inequality and dynamics in Canada from 1983 to 2016 using tax files and administrative records. Linking these individuals to their employers (and rich administrative records on firms) beginning in 2001, it also documents the relationship between the earnings dynamics of workers and the size and growth of their employers. It highlights three main patterns over this period: First, with a few exceptions (sharp increase in top 1% and declining gender gap), Canada experienced relatively modest changes in overall earnings inequality, volatility, and mobility between 1983 and 2016. Second, there is considerable variability in earnings inequality and volatility over the business cycle. Third, the earnings dynamics of individuals are strongly related to the size and employment growth of their employers.
    Keywords: Econometric and statistical methods; Firm dynamics; Labour markets; Potential output; Productivity
    JEL: D22 D31 E24 J24 J31 J63
    Date: 2021–04
  6. By: Florio, Erminia; Manfredonia, Stefano
    Abstract: We study the effect of the attitudes of a CEO's ancestors on firm performance. To do so, we collect detailed information on emigrants from Italian municipalities during the Age of Mass Migration (1892-1924) from Ellis Island ships lists and use emigration experience as a proxy for ancestors' risk propensity. We adopt an epidemiological approach complemented with an instrumental variables strategy and find that Italian firms managed by a CEO that belongs to a family with past emigration experience tend to perform better and to be more productive. In line with an inter-generational transmission of attitudes hypothesis, we show a positive relationship between the emigration experience of a CEO's ancestors and alternative measures of corporate risk-taking. The attitudes of a CEO's ancestors have as well consequences on firm solvency and on the cost of capital.
    Keywords: Emigration,Attitudes,Corporate Performance,Mass Migration
    JEL: G30 M14 Z1
    Date: 2021
  7. By: Rammer, Christian; Fernández, Gastón P.; Czarnitzki, Dirk
    Abstract: Artificial Intelligence (AI) represents a set of techniques that enable new ways of innovation and allows firms to offer new features of products and services, to improve production, marketing and administration processes, and to introduce new business models. This paper analyses the extent to which the use of AI contributes to the innovation performance of firms. Based on firm-level data from the German part of the Community Innovation Survey (CIS) 2018, we examine the contribution of different AI methods and applications to product and process innovation outcomes. The representative nature of the survey allows extrapolating the findings to the macroeconomic level. The results show that 5.8% of firms in Germany were actively using AI in their business operations or products and services in 2019. The use of AI generated additional sales with world-first product innovations in these firms of about €16 billion, which corresponds to 18% of total sales of world-first innovations in the German business sector. Firms that developed AI by combining in-house and external resources obtained significantly higher innovation results. The same is true for firms that apply AI in a broad way and have already several years of experience in using AI.
    Keywords: Artificial Intelligence,Innovation,CIS data,Germany
    JEL: O14 O31 O32 O33 L25 M15
    Date: 2021
  8. By: Fons-Rosen, Christian (University of California, Merced); Pu, Zhaoxin (MPI-IC Munich)
    Abstract: Recent innovation literature has documented the benefits of cross-pollination of ideas across a wide set of industries and technology fields in an economy. Industrial and trade policies, by contrast, tend to favor economic specialization through the promotion of selected sectors. In this paper we use a firm-level panel of 13 European countries to assess whether an industry-specific policy propagates across the network of innovating firms through technological linkages. Following the competition shock to the European textile sector, triggered by the 2001 removal of import quotas on Chinese textiles, we find that patenting and knowledge sourcing behavior of non-textile firms are negatively affected. At the aggregate regional level, this indirect effect on non-textile firms can be around three to five times larger than the direct effect.
    Keywords: technological linkages; spillovers; patents; knowledge sourcing; industrial policy;
    JEL: D57 L25 L60 O33 O38
    Date: 2020–01–22
  9. By: Joël Cariolle (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Maëlan Le Goff (Banque de France - Banque de France - Banque de France)
    Abstract: In this paper, we study the spatial spillover effects of internet usage on manufacturing output. Using repeated cross-section datasets of 40,154 manufacturing firms located in 91 developing and transition economies, we adopt an original shift-share instrumental variable setup , and find that a greater diffusion of email technology in locations increases manufacturing firm's sales and productivity. This result is driven by local email dissemination within industries, supporting the existence of network or knowledge spillover effects among proximate firms, engaged in similar or interlinked activities. By contrast, the dissemination of email technology across other industries located in the same place reduces manufacturing firms' performance. However, these inter-industry spillovers are U-shaped, indicating that they remain negative below a local email incidence threshold established at approximately 50% of the local universe of firms, and turn positive only once this threshold is reached. Last, we find that positive Internet spillovers are mediated by firm's own use of the internet technology, and by its absorptive capacity, reflected by its share of skilled production workers, its multi-plant status, and its maturity.
    Keywords: Connectivity,internet,spillovers,manufactures,industrialisation
    Date: 2021–04–14
  10. By: Gopalakrishnan, Balagopal; Jacob, Joshy; Mohapatra, Sanket
    Abstract: We examine how the government responses, amenability to remote working, and managerial outlook associated with COVID-19 influence debt financing by firms around the world. We find that the propensity and the amount of loan financing by firms is higher with greater stringency of lockdowns. Firms’ debt raising during the pandemic is also influenced by the work-from-home amenability of industries. We find that firms with greater reliance on customer interaction have a higher propensity for debt financing at the onset of the pandemic, indicative of their heightened need for liquidity. The propensity for bond financing is higher for firms that have a higher degree of exposure to the pandemic. In contrast, firms that hold a positive sentiment about the impact of the pandemic are less likely to raise debt financing. Our key results are largely robust to the effects of quantitative easing by the major central banks. The study deepens the understanding of the heterogeneous impact of the pandemic on debt financing on account of various country-, industry-, and firm-level factors.
    Date: 2021–04–23
  11. By: Steimer, Henrike (LMU Munich)
    Abstract: Does access to the broadband internet stimulate firm growth? In this paper, I analyze within-firm growth of established firms caused by the access to faster internet using geocoded social-security data. I identify firm responses to the access to the first generation of broadband internet and later speed upgrades by exploiting technological peculiarities of the broadband internet network. I find that firms with access to the first generation of broadband internet grow more slowly in employment while keeping their output growth constant. They reduce the share of low-skilled employment in their workforce. Further, I find that firms that receive access to later speed upgrades grow more in revenues and employment than firms that got access to the first generation of broadband internet but not to the upgrades. When getting access to higher internet speed, firms over-proportionally increase medium-skilled employment.
    Keywords: ICT; internet; firm growth; skill-bias; technology;
    JEL: D22 J23 O33
    Date: 2020–10–06
  12. By: Antoine Dechezleprêtre; David Hémous; Morten Olsen; Carlo Zanella
    Abstract: Do higher wages lead to more automation innovation? To answer this question, we first use the frequency of certain keywords in patent text to create a new measure of automation innovation in machinery. We show that our measure is correlated with a reduction in routine tasks in a cross-sectoral analysis in the US. We combine macroeconomic data from 41 countries and information on geographical patent history to build firm-specific measures of low- and high-skill wages. In a firm-level panel analysis, we find that an increase in low-skill wages leads to more automation innovation with an elasticity between 2 and 5. Placebo regressions show that the effect is specific to automation innovations. Finally, we focus on a specific labor market shock, the German Hartz reforms, and show that they reduced automation innovations by those non-German firms relatively more exposed to Germany.
    Keywords: Automation, innovation, patents, income inequality
    JEL: O31 O33 J20
    Date: 2021–04
  13. By: Colin von Negenborn (HU Berlin)
    Abstract: This paper provides a novel rationale for the regulation of market size when heterogeneous firms compete. A regulator seeks to maximize total welfare by choosing the number of firms allowed to enter the market, e.g. by issuing a certain number of licenses. Opening up the market for more firms has a two-fold effect: it increases competition and thus welfare, but at the same time, it also attracts more cost-intensive firms, driving down average production efficiency. The regulator hence faces a trade-off between raising beneficial competition and detrimental costs. If goods are sufficiently substitutable, the latter effect can outweigh the former. It is then optimal to restrict the market size, rationalizing a limit to competition. This result holds even in the absence of entry costs, search costs or increasing returns to scale, which previous literature required.
    Keywords: regulation; imperfect competition; oligopolies;
    JEL: D43 L13 L51
    Date: 2019–09–18

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