nep-bec New Economics Papers
on Business Economics
Issue of 2021‒06‒14
fourteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions By Acemoglu, Daron; Tahbaz-Salehi, Alireza
  2. Black Entrepreneurs, Job Creation, and Financial Constraints By Kim, Mee Jung; Lee, Kyung Min; Brown, J. David; Earle, John S.
  3. Barriers to Entry and Regional Economic Growth in China By Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
  4. Are importing and exporting complements or substitues in an emerging economy? The case of Colombia. By Andrés Mauricio Gómez-Sánchez; Juan A. Máñez; Juan A. Sanchis
  5. Going Bankrupt in China By Bo, Li; Ponticelli, Jacopo
  6. Patenting in 4IR Technologies and Firm Performance By BENASSI Mario; GRINZA Elena; RENTOCCHINI Francesco; RONDI Laura
  7. Identification of Firms' Beliefs in Structural Models of Market Competition By Aguirregabiria, Victor
  8. Can You Teach an Old Dog New Tricks? New Evidence on the Impact of Tenure on Productivity By Gagliardi, Nicola; Grinza, Elena; Rycx, François
  9. Do Firms with Specialized M&A Staff Make Better Acquisitions? By Gokkaya, Sinan; Liu, Xi; Stulz, Rene M.
  10. Authority in a theory of the firm By Deimen, Inga; Szalay, Dezso
  11. Relative Performance Evaluation, Sabotage and Collusion By Bloomfield, Matthew J.; Marvao, Catarina; Spagnolo, Giancarlo
  12. Is Public Equity Deadly? Evidence from Workplace Safety and Productivity Tradeoffs in the Coal Industry By Gilje, Erik P.; Wittry, Michael D.
  13. WP 05-21 - Business dynamism and productivity growth in Belgium By Michel Dumont
  14. How do Firms Respond to Long-term Political Tensions? Evidence from Chinese Food Importers By Li, Haoran; Wan, Xibo; Zhang, Wendong

  1. By: Acemoglu, Daron; Tahbaz-Salehi, Alireza
    Abstract: This paper studies how firm failures and the resulting disruptions to supply chains can amplify negative shocks. We develop a non-competitive model where customized supplier-customer relations increase productivity, and the relationship-specific surplus generated between firms and their suppliers is divided via bargaining. Changes in productivity alter the distribution of surplus throughout the economy and determine which firms are at the margin of failure. A firm's failure may spread to its suppliers and customers and to firms in other parts of the production network. We provide existence, uniqueness, and a series of comparative statics results, and show how the response of the equilibrium production network may propagate recessionary shocks.
    Keywords: Amplification; Bargaining; business cycles; Economic Fluctuations; production networks; relationship-specific surplus; Supply Chains
    JEL: D57 E23 E32
    Date: 2020–07
  2. By: Kim, Mee Jung (Sejong University); Lee, Kyung Min (George Mason University); Brown, J. David (U.S. Census Bureau); Earle, John S. (George Mason University)
    Abstract: Black-owned businesses tend to operate with less finance and employ fewer workers than those owned by Whites. Motivated by a simple conceptual framework, we document these facts and show they are causally connected using large firm-level surveys linked to universal employer data from the Census Bureau. We find that the racial financing gap is most pronounced at start-up and tends to narrow with firm age. At any age, Black-owned firms are less likely to receive bank loans, more likely to refrain from applying because they expect denial, and more likely to report that lack of finance reduces their profitability. Yet the observable characteristics of Black entrepreneurs are similar in most respects to Whites, and in some ways - higher education, growth-oriented motivations, and involvement in the business - would seem to imply higher, not lower, demand for finance. Concerning employment, we find that Black-owned firms have on average about 12 percent fewer employees than those owned by Whites, but the difference drops when controlling for firm age and other characteristics. However, when the analysis holds financial variables constant, the results imply that equally well-financed Black-owned firms would be larger than White-owned by about seven percent. Exploiting the credit supply shock of changing assignment to Community Reinvestment Act treatment through a Regression Discontinuity Design in a firm-level panel regression framework, we find that expanded credit access raises employment 5-7 percentage points more at Black-owned businesses than White-owned firms in treated neighborhoods.
    Keywords: business ownership, racial inequality, firm employment, Community Reinvestment Act
    JEL: J15 G20 H81
    Date: 2021–05
  3. By: Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
    Abstract: Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector.
    Keywords: capital distortions; China; convergence; Entry Barriers; Firm entry; growth; output distortions; SOE reform; transition
    JEL: D22 D24 E24 O11 O14 O16 O40 O53 P25 R13
    Date: 2020–06
  4. By: Andrés Mauricio Gómez-Sánchez (Universidad del Cauca and Universitat de València); Juan A. Máñez (Universitat de València and ERICES); Juan A. Sanchis (Universitat de València and ERICES)
    Abstract: The aim of this paper is investigating the impact of two firm trading strategies (exporting and importing) on total factor productivity (TFP) and the potential complementarity/substitutability effects of these strategies. To assess these effects, we obtain robust estimates of TFP using a GMM approach that explicitly reckons the ability of firms’ trading experience to affect productivity. We use data for Colombian manufacturing firms from the Annual Manufacturing Survey spanning from 2007-2016. Our estimations results suggest that, regardless of the technological intensity of the industry in which the firm operates, active trading strategies (only exporting, only importing, both importing and exporting) pay positive rewards in terms of productivity. Nevertheless, whilst we find positive synergies (complementary) between exporting and importing for firms in med-high tech sectors, for firms operating in low-tech and med-low tech sectors, importing and exporting appear to be substitutes.
    Keywords: imports, export, productivity, complementarity, substitutability
    JEL: F14 D24
    Date: 2021–05
  5. By: Bo, Li; Ponticelli, Jacopo
    Abstract: Using new case-level data we document a set of stylized facts on bankruptcy in China and study how the staggered introduction of specialized courts across Chinese cities affected insolvency resolution and the local economy. For identification, we compare cases handled by specialized versus traditional civil courts within the same city. Specialized courts hire better-trained judges and cut case duration by 35%. State-owned firms experience larger declines in case duration relative to privately-owned firms, consistent with higher judicial independence. Cities introducing specialized courts experience faster firm entry, larger increase in average capital productivity and reallocation of employment out of "zombie" firms-intensive sectors.
    Keywords: Court efficiency; Political influence; Specialized Courts; Zombie firms
    JEL: G33 K22 O16
    Date: 2020–07
  6. By: BENASSI Mario; GRINZA Elena; RENTOCCHINI Francesco (European Commission - JRC); RONDI Laura
    Abstract: We investigate whether firm performance is related to the accumulated stock of technological knowledge associated with the Fourth Industrial Revolution (4IR) and, if so, whether the firm’s history in 4IR technology development affects such a relationship. We exploit a rich longitudinal matched patent-firm data set on the population of large firms that filed 4IR patents at the European Patent Office (EPO) between 2009 and 2014, while reconstructing their patent stocks from 1985 onwards. To identify 4IR patents, we use a novel two-step procedure proposed by EPO (2020), based on Cooperative Patent Classification (CPC) codes and on a full-text patent search. Our results show a positive and significant relationship between firms’ stocks of 4IR patents and labour and total factor productivity. We also find that firms with a long history in 4IR patent filings benefit more from the development of 4IR technological capabilities than later applicants. Conversely, we find that firm profitability is not significantly related to the stock of 4IR patents, which suggests that the returns from 4IR technological developments may be slow to be cashed in. Finally, we find that the positive relationship with productivity is stronger for 4IR-related wireless technology and for AI, cognitive computing and big data analytics.
    Keywords: Fourth Industrial Revolution (4IR); patent applications; technology development; firm performance; longitudinal matched patent-firm data; Industry 4.0
    Date: 2021–05
  7. By: Aguirregabiria, Victor
    Abstract: Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behavior of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency, and welfare. This paper studies the identification of firms' beliefs using their observed actions -- a revealed preference and beliefs approach. I consider a general structural model of market competition where firms have incomplete information and their beliefs and profits are nonparametric functions of decisions and state variables. Beliefs may be out of equilibrium. The framework applies both to continuous and discrete choice games and includes as particular cases models of competition in prices or quantities, auction models, entry games, and dynamic investment games. I focus on identification results that exploit a natural exclusion restriction in models of competition: an observable variable that affects a firm's cost (or revenue) but does not have a direct effect on other firms' profits. I present identification results under three scenarios --- common in empirical IO --- on the data available to the researcher.
    Keywords: identification; Non-equilibrium beliefs; Revealed beliefs approach; Structural models of competition
    JEL: C57 D81 D83 D84 L13
    Date: 2020–06
  8. By: Gagliardi, Nicola; Grinza, Elena; Rycx, François
    Abstract: In this paper, we explore the impact of workers’ tenure on firm productivity, using rich longitudinal matched employer-employee data on private Belgian firms. We estimate a production function augmented with a firm-level measure of tenure. We deal with endogeneity, which arises from unobserved firm heterogeneity and reverse causality, by applying a modified version of Ackerberg et al.’s (2015) control function method, which explicitly removes firm fixed effects. Consistently with recent theoretical predictions, we find that tenure exhibits an inverted-U-shaped relationship with respect to productivity. The existence of decreasing marginal returns to tenure is corroborated in our analysis on the tenure composition of the workforce. We also find that the impact of tenure differs widely across workforce and firm dimensions. Tenure is particularly beneficial for productivity in contexts characterized by a certain degree of routineness and lower job complexity. Along the same lines, our findings indicate that tenure exerts stronger (positive) impacts in industrial and high capital-intensive firms, as well as in firms less reliant on knowledge- and ICT-intensive processes.
    Keywords: Tenure,Firm productivity,Semiparametric methods to estimate production functions,Longitudinal matched employer-employee data
    JEL: D24 M59
    Date: 2021
  9. By: Gokkaya, Sinan (Ohio U); Liu, Xi (Miami U); Stulz, Rene M. (Ohio State U and ECGI)
    Abstract: We open the black box of the M&A decision process by constructing a comprehensive sample of US firms with specialized M&A staff. We investigate whether specialized M&A staff improves acquisition performance or facilitates managerial empire building instead. We find that firms with specialized M&A staff make better acquisitions when acquisition performance is measured by stock price reactions to announcements, long-run stock returns, operating performance, divestitures, and analyst earnings forecasts. This effect does not hold when the CEO is powerful, overconfident, or entrenched. Acquisitions by firms without specialized staff do not create value, on average. We provide evidence on mechanisms through which specialized M&A staff improves acquisition performance. For identification, we use the staggered recognition of inevitable disclosure doctrine as a source of exogenous variation in the employment of specialized M&A staff.
    JEL: G14 G24 G30 G34
    Date: 2021–04
  10. By: Deimen, Inga; Szalay, Dezso
    Abstract: We study a simple model of the firm comprised of a production unit, a sales unit, and an owner with interests in both units. The owner has the right to adapt the production quantity to changes in demand and costs. Whether the owner effectively assumes this right or delegates decision-making depends on the relative uncertainty about demand and costs, on the division of surplus in the firm, and on the riskiness of the environment the firm faces. We characterize conditions that make acquiring ownership rights feasible and effcient. The same conditions determine the boundaries of the firm in our model.
    Keywords: authority; common and private values; delegation; Noisy information; organizations; ownership; Strategic communication
    JEL: D82 D83
    Date: 2020–07
  11. By: Bloomfield, Matthew J.; Marvao, Catarina; Spagnolo, Giancarlo
    Abstract: We examine whether the potential for costly sabotage is a deterrent to firms' use of relative performance evaluation ("RPE") in CEO pay plans. We exploit illegal cartel membership as a source of variation in the potential for costly sabotage and document that firms are more likely to use RPE if they are currently cartel members. Moreover, firms frequently drop RPE from their CEOs' pay plans immediately after their cartels are detected. We further provide suggestive evidence that the potential for costly sabotage explains these patterns; cartel membership severs the empirical association between RPE and competitive aggression.
    Keywords: cartels; Collusion; Compensation; Relative Performance Evaluation; Sabotage
    JEL: G34 L22
    Date: 2020–07
  12. By: Gilje, Erik P. (U of Pennsylvania); Wittry, Michael D. (Ohio State U)
    Abstract: We study how ownership structure, in particular public listing status, affects workplace safety and productivity tradeoffs. Theory offers competing hypotheses on how listing-related frictions affect these tradeoffs. We exploit detailed asset-level data in the U.S. coal industry and find that workplace safety deteriorates dramatically under public firm ownership, primarily in mines that experience the largest productivity increases. We find evidence consistent with information asymmetry between managers and share-holders of public firms, and ties of private firm ownership with local communities being first-order drivers of workplace safety and productivity tradeoffs.
    JEL: G30 G32 G34 J24 J38
    Date: 2021–04
  13. By: Michel Dumont
    Abstract: This paper considers the evolution in business dynamism and its potential link with productivity growth in Belgium. Statistics on business creation, the exit of enterprises and within-industry reallocation are presented. Data on Belgian firms, covering the period 2003-2017, are used for a decomposition of productivity growth. The paper provides robust indications of the substantial contribution of productivity growth of startups in the early years after entry.
    Keywords: Start-ups, Young firms, Reallocation, Efficiency, Productivity growth
    JEL: D22 D24 L25 L26 M13
    Date: 2021–05–28
  14. By: Li, Haoran; Wan, Xibo; Zhang, Wendong
    Abstract: Political and economic tensions, which often jeopardize trade, are rising among the world’s major powers, and countries like China are more frequently using food-related trade actions to deal with deteriorating political relations. Previous literature largely focuses on how brief, short-lived political tensions affect bilateral trade; however, little is known about firm-level trade responses to long-termpolitical tensions. This paper investigates how importers respond to long-term political tensions by examining the six-year Norway-China political tensions that ended in 2016. In particular, we use an event study approach to examine China’s seafood importers’ responses to China’s 2010 sanction on Norwegian fresh salmon imports after Norway awarded Liu Xiaobo, a Chinese political dissident, a Nobel Peace Prize. Our results reveal firm-level responses at both the extensive and intensive margins. At the intensive margin, firms that imported Norwegian fresh salmon before the sanction saw a 20% persistent decline in their fresh salmon import value and an 80% decrease in import share of Norwegian fresh salmon products over our study period. At the extensive margin, we not only find a trade diversion effect on firms importing from other countries and less firms importing fresh salmon from Norway, but also a permanent "political hedging" effect with a 20% decline in the maximum import share from any particular country, even if not Norway. We also provide evidence of persistent sanction effects even after China-Norway relations unfroze. Our findings emphasize the need to consider the long-term sanction consequences in foreign policy using food-related trade sanctions.
    Date: 2021–06–02

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