|
on Business Economics |
| By: | Jiang, Helu; Zheng, Yu; Zhu, Lijun |
| Abstract: | Exploiting the gradualism of the Chinese economic reforms and cross-sectional variations in entry rates, we show empirical evidence from firm-level data that industries with higher entry rates achieve higher growth and a more competitive market structure in subsequent years. We then embed firm entry into a model of endogenous productivity and market structure with heterogeneous firms and sectors, and calibrate it to the Chinese manufacturing sector in 2004-7. We find the positive impact of entry on growth is achieved primarily through a pro-competitive effect, whereby entry induces endogenously a larger fraction of industries to be more competitive in the economy. We quantify the contribution on growth from the reduction of entry barriers associated with the state-owned enterprise reforms in the late 1990s and early 2000s and find it explains 20% of the aggregate growth of the manufacturing sector from 2004-7. More generally, we highlight the critical role of reducing entry barriers in promoting competition and growth in developing countries. |
| Keywords: | Endogenous Growth; Entry Barriers; Firm Dynamics; Firm entry |
| JEL: | D22 D43 O11 O30 O47 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15763&r= |
| By: | Bighelli, Tommaso; Di Mauro, Filippo; Melitz, Marc J.; Mertens, Matthias |
| Abstract: | This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. |
| Keywords: | allocative efficiency,European market structure,firm concentration,market power,productivity |
| JEL: | D24 E25 F15 L11 L25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhcom:32021&r= |
| By: | Castaneda Dower, Paul; Gerber, Theodore; Weber, Shlomo |
| Abstract: | This paper addresses whether kinship networks promote or impede entrepreneurship in the Kyrgyz Republic. We conducted a survey of firm managers/entrepreneurs about their business networks, resources they receive from and provide to their contacts, their firm's performance, and the business environment they face. Our data indicate that receiving help from kin connections increases profitability, while providing help to kin decreases it. While kin-reliant firms grow slower than firms with a lower degree of kin assistance, the former grow faster than firms that do not have access to business networks. In addition, kin connections and firm performance are unrelated for firms that have adopted best business practices. Our results demonstrate that directly measuring both receipt and provision of help from/to kin helps resolve the ambiguity of findings in the broader literature regarding the net effects of kin networks on firm performance: the two forms of network use are positively correlated, yet have opposite effects. |
| Keywords: | firm performance; Kinship networks; Kyrgyz Republic |
| JEL: | O12 O14 O17 P23 Z13 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15813&r= |
| By: | Baltrunaite, Audinga; Karmaziene, Egle |
| Abstract: | This paper examines how the size of the corporate directors' labor market affects board appointments in Italian private limited liability firms. As an exogenous shock to a firm's access to potential non-local directors, we exploit the gradual expansion of the high-speed railway network that improves intercity mobility. We find that the non-local supply of directors increases the positive assortative matching between directors and firms: high-quality firms improve the quality of their boards, while low-quality firms reduce it. We also show that director quality is positively associated with firm growth and productivity, and negatively associated with the probability of default. |
| Keywords: | Board Of Directors; director supply; Match quality |
| JEL: | G32 G34 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15828&r= |
| By: | Fulghieri, Paolo; Sevilir, Merih |
| Abstract: | This paper presents a theory of post-merger human capital integration where successful integration depends on the willingness of employees of the merging firms to collaborate and share knowledge. In our model, employees in the post-merger firm choose between collaboration to create synergies, and competition to extract greater resources from the corporate headquarters. We show that incentives to collaborate are stronger in mergers between firms with greater human capital complementarity. In such mergers the post-merger firm has a greater reliance on employee human capital in internalizing the benefut of collaboration, increasing the likelihood that employees will be retained in the post-merger firm and receive higher wages. Anticipating the importance of their human capital, employees become more willing ex ante to choose collaboration over competition, resulting in a greater likelihood of successful human capital integration. Consistent with recent empirical evidence, our model suggests that mergers between firms with greater human capital complementary lead to better merger performance. In addition, our model generates novel predictions such as post-merger wages increasing, and layoffs decreasing in the level of human capital complementarity between merging firms. |
| Keywords: | Human Capital; mergers |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15865&r= |
| By: | Baqaee, David Rezza; Farhi, Emmanuel |
| Abstract: | How does an increase in the size of the market, say due to fertility, immigration, or globalization, affect welfare? We study this question using a model with heterogeneous firms, Kimball preferences, fixed costs, and monopolistic competition. We decompose changes in welfare from increased scale into changes in technical efficiency and changes in allocative efficiency due to reallocation. We non-parametrically identify residual demand curves with firm-level data from Belgian manufacturing firms and, using these estimates, quantify our theoretical results. We find that around 80% of the aggregate returns to scale are due to changes in allocative efficiency. As markets get bigger, competition intensifies and triggers Darwinian reallocations: socially-valuable firms expand, small firms shrink and exit, and new firms enter. However, important as they are, improvements in allocative efficiency are not driven by reductions in markups or deaths of unproductive firms. Instead, they are caused by a composition effect that reallocates resources from low- to high-markup firms. |
| Keywords: | Allocative Efficiency; Incomplete pass-through; increasing returns; Market Size Effect; monopolistic competition |
| JEL: | E0 L1 O4 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15712&r= |
| By: | Huber, Kilian |
| 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 postwar 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; Bank size; Economies of Scale; financial regulation; Firm Employment; German History; Large Firms; Manager Compensation; Too Big To Fail |
| JEL: | E24 E44 G21 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15769&r= |
| By: | C. Lanier Benkard; Ali Yurukoglu; Anthony Lee Zhang |
| Abstract: | This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper's main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others' home product markets. |
| JEL: | L1 L4 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28745&r= |
| By: | Affeldt, Pauline; Duso, Tomaso; Gugler, Klaus; Piechucka, Joanna |
| 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; Entry Barriers; HHI; Intangibles; Market Definition; Merger Control; mergers |
| JEL: | K21 L24 L44 O32 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15699&r= |
| By: | Themann, Michael; Koch, Nikolas |
| Abstract: | This paper assesses the potential impact of the European Union Emissions Trading System (EU ETS) on firm productivity. We estimate a stylized version of the neo-Schumpeterian model, which incorporates innovation and productivity catch-up as two potential sources of firm's productivity growth, while at the same time accounting for persistent productivity dispersion within industries. This dynamic model allows us to differentiate the potential effects of the EU ETS on total factor productivity (TFP) depending on the level of firms' technological advancement. The identification approach is based on a difference-in-difference approach exploiting the incomplete participation requirements of the EU ETS and the rich panel structure of firm-level data for eight EU countries from 2002 to 2012. We find evidence that the policy effects on TFP are highly heterogeneous and depend on the distance to the technological frontier, measured as the highest TFP in each year-industry. Productivity effects are positive for firms that are close to the frontier, but they turn negative for firms operating far behind the frontier. |
| Keywords: | Environmental regulation,EU ETS,productivity,competitiveness |
| JEL: | D22 Q54 Q58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:904&r= |
| By: | Harju, Jarkko; Jäger, Simon; Schoefer, Benjamin |
| Abstract: | How does boosting worker voice affect worker separations, job quality, wages, and firm performance? We study the 1991 introduction of a right to worker voice in Finland. The law granted workers in firms with at least 150 employees the right to elect representatives to company boards. The size-dependent introduction permits a difference-in-differences design. In contrast to exit-voice theory, we find no effects on voluntary job separations as a revealed-preference measure of job quality. We can also rule out small increases in the labor share or rent sharing, with some evidence for small pay premia increases, in particular at the bottom of the wage distribution. We detect a small reduction in involuntary separations, zero effects on worker health, and a moderate increase in survey-based subjective job quality. Regarding firm performance, we find, if anything, small positive effects on survival, productivity, and capital intensity. An additional 2008 introduction of shop-floor representation in smaller firms had similar, limited effects. Interviews and surveys indicate that worker representation facilitates information sharing and cooperation rather than shifting power or rents to labor. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15874&r= |
| By: | Hyejin Lee; Johan Swinnen; Patrick Van Cayseele |
| Abstract: | Agricultural cooperatives have often been promoted as a way to increase their market power and to obtain stability of profit against uncertainty. This paper estimates the firm-level markups and markup volatility to identify the countervailing market power of cooperatives in the Italian fruits and vegetable sector and the dairy sector. We use the firm-level data of Italian firms for the period 2007-2014. We find that, overall, there is a tradeoff in cooperatives’ role between obtaining market power and stability. Farmer cooperatives in both sectors gain stability in their markups but their markups are lower, on average, than those for non-cooperatives. For processor cooperatives, the fruits and vegetable sector obtains more market power. This appears to arise from the product differentiation strategy of the processors cooperative. |
| Date: | 2021–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:ete:licosp:674093&r= |
| By: | Hans-Theo Normann (Heinrich Heine University, Düsseldorf); Martin Sternberg (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | We investigate collusive pricing in laboratory markets when human players interact with an algorithm. We compare the degree of (tacit) collusion when exclusively humans interact to the case of one firm in the market delegating its decisions to an algorithm. We further vary whether participants know about the presence of the algorithm. We find that threefirm markets involving an algorithmic player are significantly more collusive than human-only markets. Firms employing an algorithm earn significantly less profit than their rivals. For four-firm markets, we find no significant differences. (Un)certainty about the actual presence of an algorithm does not significantly affect collusion. |
| Keywords: | algorithms, collusion, human-computer interaction, laboratory experiments |
| JEL: | C90 L41 |
| Date: | 2021–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2021_11&r= |
| By: | Jörn Kleinert (University of Graz) |
| Abstract: | Most theory treats productivity as exogenously given by technological capabilities. Moreover, technology is very often assumed to be freely tradable. It is therefore puzzling to observe the huge differences in productivity as we find in empirical studies even of firms working in the same market environment. To reconcile the heterogeneity, I deviate from a purely technological view and stress the organizational function of a firm. Firms are vehicles to facilitate the division of labor between people with different skills who join forces to produce a particular good. A firm’s management decides about technology jointly with investment projects and changes in the labor force, thereby determining productivity. If a firm is managed well, productivity increases with a larger labor force, because gains from specialization can be exploited. Moreover, as result of the decisions by the management, firms grow over time, shrink or even exit. The growth process is necessarily stochastic, since the future is uncertain and many effects influence the outcome of management’s decisions. Stochastic firm growth, in turn, yields a stationary firm size distribution which reflects large heterogeneity of the firms. |
| Keywords: | Productivity; firm heterogeneity; firm size distribution. |
| JEL: | D23 D24 J24 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2021-03&r= |
| By: | Harrigan, James; Resheff, Ariell; Toubal, Farid |
| Abstract: | We study the impact of firm-level choices on ICT, R&D, exporting and importing on the evolution of productivity, its bias towards skilled workers, and implications for labor demand. We use a novel measure of firm-level R&D and ICT adoption: employment of "techies" who perform these tasks. We develop methodology for estimating nested-CES production functions and for measuring both Hicks-neutral and skill-augmenting technology differences at the firm level. Using administrative data on French firms we find that techies, exporting and importing raise skill-biased productivity. In contrast, only ICT techies raise Hicks-neutral productivity. On average, higher firm-level skill biased productivity hardly affects low-skill employment, even as it raises relative demand for skill, due to the cost-reducing effect. ICT accounts for large increases in aggregate demand for skill, mostly due to the effect on firm size, less so through within-firm changes. Exporting, importing, and R&D have smaller aggregate effects. |
| Keywords: | Globalization; ICT; labor demand; Outsourcing; productivity; R&D; skill augmenting; Skill bias; STEM skills; techies |
| JEL: | D2 D24 F1 F16 F6 F66 J2 J23 J24 O52 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15815&r= |
| By: | Florence Kondylis (Italian Ministry of Economy and Finance Department of Finance); Mattea Stein (Università di Napoli Federico II and CSEF) |
| Abstract: | Can procedural reforms improve judicial efficiency? And do improvements in judicial efficiency benefit firms? We study a reform that gave judges in Senegal the powers to desk reject cases and the responsibility to complete pre-trials within four months. We combine three years of hearing-level caseload data and monthly firm tax filings with the staggered roll-out of the reform to produce three key results. First, the reform improved judicial efficiency, with no detrimental effect on quality. Second, firm monthly revenues drop by 8-11 percent upon entering pre-trial, with the effect concentrated on slower pre-trials. Third, monthly firm revenues decline by on average 3.2-5.0 percent for every 100 days a case spends in pre-trial. Survey results show firms are willing to pay higher legal fees to achieve post-reform speed, suggesting net positive benefits of the reform on firms. |
| Keywords: | Economic development, Firms, Judicial efficiency. |
| JEL: | K41 D73 O12 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:609&r= |