nep-bec New Economics Papers
on Business Economics
Issue of 2021‒06‒21
seventeen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Dynamics of Markups, Concentration and Product Span By Helpman, Elhanan; Niswonger, Benjamin
  2. The Value of Luck in the Labor Market for CEOs By Amore, Mario Daniele; Schwenen, Sebastian
  3. Risk-Taking, Capital Allocation and Optimal Monetary Policy By Joel M. David; David Zeke
  4. Zombie Credit and (Dis-)Inflation: Evidence from Europe By Acharya, Viral V.; Crosignani, Matteo; Eisert, Tim; Eufinger, Christian
  5. How does market competition affect firm innovation incentives in emerging countries? Evidence from Latin American firms. By Benavente, Jose Miguel; Zuniga, Pluvia
  6. Sequential Exporting across Countries and Products By Facundo Albornoz; Héctor F. Calvo Pardo; Gregory Corcos; Emanuel Ornelas
  7. Backward Versus Forward Integration of Firms in Global Value Chains By Peter H. Egger; Katharina Erhardt; Gerard Masllorens
  8. A Simple Model of Buyer-Seller Networks in International Trade By Philipp Herkenhoff; Sebastian Krautheim; Philip Sauré
  9. Female managers and firm performance: Evidence from the Caribbean countries By Inmaculada Martínez-Zarzoso; Maria C. Lo Bue
  10. From Imitation to Innovation: Where Is all that Chinese R&D Going? By König, Michael; Song, Zheng; Storesletten, Kjetil; Zilibotti, Fabrizio
  11. Indian buyers in global markets: Quality, prices, and productivity By M.A. Anderson; M.H. Davies; J.E. Signoret; S.L.S. Smith
  12. Risk-Adjusted Capital Allocation and Misallocation By Joel M. David; Lukas Schmid; David Zeke
  13. Can You Teach an Old Dog New Tricks? New Evidence on the Impact of Tenure on Productivity By Nicola Gagliardi; Elena Grinza; François Rycx
  14. The Impact of IT on Firm TFP Growth and Resource Reallocation within Firms (Japanese) By KIM YoungGak; INUI Tomohiko
  15. How Does ESG Performance Affect Firm Values and Overinvestments? By Denny IRAWAN; OKIMOTO Tatsuyoshi
  16. Digital “is” Strategy: The Role of Digital Technology Adoption in Strategy Renewal By Nicolas van Zeebroeck; Tobias Kretschmer; Jacques Bughin
  17. Employment and Productivity Dynamics and Patent Applications Related to the Fourth Industrial Revolution (Japanese) By IKEUCHI Kenta

  1. By: Helpman, Elhanan; Niswonger, Benjamin
    Abstract: We develop a model with a finite number of multi-product firms that populate an industry together with a continuum of single-product firms, and study the dynamics of this industry that arises from investments in the invention of new products. Consistent with the available evidence, the model predicts rising markups and concentration and a declining labor share. We then examine the dynamics of market shares and product spans in response to improvements in the technologies of the multi-product and single-product firms, and the impact of these changes on the steady state distribution of market shares and product spans. Our model predicts the possibility of an inverted-U relationship between labor productivity and product span in the cross-section of firms, for which we provide suggestive evidence. It also predicts that rising entry costs of single-product firms may flatten the relationship between labor productivity and market shares of the large multi-product firms.
    Keywords: Firm Dynamics; industry dynamics; Market Share; markup; product span; single- and multi-product firms
    JEL: D43 L11 L13 L25
    Date: 2020–06
  2. By: Amore, Mario Daniele; Schwenen, Sebastian
    Abstract: It is well-known that luck increases the compensation of CEOs at their current firm. In this paper, we explore how luck affects CEOs' outside options in the labor market, and the performance of firms that hire lucky CEOs. Our results show that luck at their current firm makes CEOs move to a new firm and be appointed as both CEO and chairman. Lucky CEOs tend to match with firms subject to low analyst coverage and operating in less competitive industries. Moreover, lucky CEOs are able to obtain a higher pay at the new firm (both in absolute terms and compared to new industry peers). Finally, difference-in-differences results show that hiring lucky CEOs hurts firm performance, mostly due to a surge in operating costs and a poorer usage of corporate assets.
    Keywords: CEO Mobility; Compensation; corporate governance; firm performance; luck
    JEL: D86 G34 J33 M12
    Date: 2020–06
  3. By: Joel M. David; David Zeke
    Abstract: We study the role of firm heterogeneity in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their degree of cyclicality, and hence, exposure to aggregate risk, leading to firm-specific risk premia that influence resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation, but where total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP. Inefficiencies distort this tradeoff and result in either excessive volatility or depressed output, implying a role for corrective policy. Embedding this mechanism into a workhorse New Keynesian model, we show that allocational considerations can strengthen the incentives for leaning against the wind, i.e., optimal policy is more strongly countercyclical than in an observationally equivalent economy that abstracts from heterogeneity. A quantitative exercise suggests that the losses from ignoring heterogeneity can be substantial, which stem largely from a less productive allocation of resources and so depressed TFP and output.
    Keywords: monetary policy; heterogeneous firms; misallocation; productivity
    JEL: D24 E23 E32 E44 E52 E62
    Date: 2021–01–13
  4. By: Acharya, Viral V.; Crosignani, Matteo; Eisert, Tim; Eufinger, Christian
    Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, "zombie credit" can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in ...
    Keywords: Disinflation; eurozone crisis; Firm productivity; Under-capitalized Banks; zombie lending
    JEL: E31 E44 G21
    Date: 2020–06
  5. By: Benavente, Jose Miguel (Inter-American Development Bank (IADB)); Zuniga, Pluvia (UNU-MERIT)
    Abstract: The role of market competition on firm innovation remains a controversial policy question, especially in the context of developing countries. This paper presents new empirical evidence about the impact of market competition on firm innovation engagement in Colombian and Chilean manufacturing industries. We correct for the endogeneity of market competition using instruments proxying entry costs and policy interventions (i.e. competition decisions and entry law reforms), our results are like those of developed countries. Market competition increases firm propensity to invest in innovation in manufacturing enterprises and this relationship is linear in Chilean while in Colombian industries it takes the form of an inversed-U shape relation. The impact of competition is decreasing with the level of sector asymmetry -as preconised in the literature, while the impact of firm distance to the frontier affects firm innovation engagement differently in the two countries. In Chile, competition raises innovation incentives for the third and fourth productivity quartiles while no impact is found for firms in the first (bottom) two quartiles. In contrast, in Colombia market competition raises innovation engagement across regardless their firm productivity position but effects are stronger in the medium range (second and third quartiles). Our main results are robust to controlling for past innovation engagement, import competition and business dynamics.
    Keywords: Market Competition, Innovation, Technology Purchasing, Productivity, Latin American Firms
    JEL: O32 D41 O47 D24
    Date: 2021–05–19
  6. By: Facundo Albornoz; Héctor F. Calvo Pardo; Gregory Corcos; Emanuel Ornelas
    Abstract: How do exporters expand their product scope and geographical presence? We argue that new exporters are uncertain about their profitability in different countries and products, but learn it as they start to export. As a consequence, exporters add products and countries sequentially, in an interdependent process. Exploiting disaggregated data on French exporters, we find empirical support consistent with such a mechanism, where firms learn from their initial export experiences and then adjust their sales, number of products and destination countries accordingly. Our results indicate that part of the learning is firm-specific, and not merely product- or market-specific. Furthermore, we find that firms tend to expand in the sub-extensive margin first by widening product scope within a destination and later by entering new destinations; and that firms’ core products are particularly resilient despite being used to “test the waters” when entering additional countries.
    Keywords: export dynamics, experimentation, uncertainty, multiproduct firms, market interdependence
    JEL: F10 F14 D22 L25
    Date: 2021
  7. By: Peter H. Egger; Katharina Erhardt; Gerard Masllorens
    Abstract: Production processes are increasingly organized in international value-chain networks. The involved firms can be operating at arm’s length or be vertically integrated. Both the incidence and the direction of integration (backward or forward in the value chain) depend on specific characteristics of the firms and their economic environment. We propose a simple model of vertical integration in a supplier-producer relationship that is rooted in the property-rights theory to learn about the determinants of forward versus backward integrations. Generally, the profitability and direction of integration depend on the relative investment intensity of the producer and the supplier so as to align investment incentives and maximize joint surplus. Moreover, the organizational form depends on the fixed costs of firm integration and the market environment in the input market as well as the relative importance of the specific input for the final output. These results are strongly confirmed in a large panel of worldwide directed ownership linkages.
    Keywords: firm integration, global value chains, investment
    JEL: L14 L22 L23 L24
    Date: 2021
  8. By: Philipp Herkenhoff; Sebastian Krautheim; Philip Sauré
    Abstract: The recent literature on firm-to-firm trade has documented salient empirical regularities of the buyer-seller network. We propose a simplistic re-interpretation of the classical Krugman (1980) model that accounts for surprisingly many of the empirical regularities. This re-interpretation relies on randomized bundling of Krugman-varieties into heterogeneous firms, economically neutral “sales units” that import foreign varieties but belong to local firms, and a statistical reporting threshold that applies to firm-to-firm transactions. We argue that our model provides an important benchmark for the assessment of theoretical models that aim to identify the determinants of firm-to-firm networks in international trade.
    Keywords: firm-to-firm, buyer-seller, trade, network, random matching
    JEL: F10 F12 F14
    Date: 2021
  9. By: Inmaculada Martínez-Zarzoso; Maria C. Lo Bue
    Abstract: This paper investigates whether firm performance differs significantly when comparing firms with female and male top managers in the Caribbean region. We use survey data with detailed information on gender for firms in 13 Caribbean countries. Our methodology is based on Blinder-Oaxaca decomposition and propensity score matching econometric techniques.
    Keywords: The Caribbean, Firm performance, Gender gap, Propensity score matching
    Date: 2021
  10. By: König, Michael; Song, Zheng; Storesletten, Kjetil; Zilibotti, Fabrizio
    Abstract: We construct a model of firm dynamics with heterogenous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007-2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.
    Keywords: China; Imitation; Innovation; Misallocation; productivity; R&D; Subsidies; Taiwan; TFP growth; Traveling Wave
    JEL: O31 O33 O47
    Date: 2020–06
  11. By: M.A. Anderson; M.H. Davies; J.E. Signoret; S.L.S. Smith
    Abstract: We examine import prices paid by direct-sourcing Indian manufacturing firms in the early 2000s using a unique data set that matches firm characteristics with product and source-country trade data, offering a theoretical and empirical extension of Halpern and Koren (2007). We find that import prices are positively associated with firm productivity, distance from source-country, and source-country GDP per capita, and negatively associated with source-country remoteness, an effect we attribute to the higher scope for quality differentiation in less remote locations. Further, we find that source-country characteristics matter more, and cost factors less, for differentiated than for non-differentiated goods.
    Keywords: Importers, Firm-level data, Pricing, Input quality, productivity, India
    JEL: F1 F10 F12 F14
    Date: 2021–04
  12. By: Joel M. David; Lukas Schmid; David Zeke
    Abstract: We develop a theory linking “misallocation,” i.e., dispersion in marginal products of capital (MPK), to macroeconomic risk. Dispersion in MPK depends on (i) heterogeneity in firm-level risk premia and (ii) the price of risk, and thus is countercyclical. We document strong empirical support for these predictions. Stock market-based measures of risk premia imply that risk considerations explain about 30% of observed MPK dispersion among US firms and rationalize a large persistent component in firm-level MPK. Risk-based MPK dispersion, although not prima facie inefficient, lowers long-run aggregate productivity by as much as 6%, suggesting large “productivity costs” of business cycles.
    Keywords: misallocation; productivity; costs of business cycles; risk premia
    JEL: D24 D25 E22 E32 G12 O47
    Date: 2020–12–21
  13. By: Nicola Gagliardi; Elena Grinza; François Rycx
    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 Q15
    Date: 2021–06–07
  14. By: KIM YoungGak; INUI Tomohiko
    Abstract: This paper examines the relationship between firm's IT adaptation and its TFP improvement by using Japanese firms and establishment level data. Our estimation results indicate that the rate of TFP growth is higher in firms and their manufacturing establishments (in the manufacturing industry) when the firms advance the IT adaptation. Our estimation results also show that there is a positive relationship between firm's IT adaptation and the expansion of its overseas activity, such as international trade between headquarters and its overseas affiliates, the number of employees, and R&D activities in the overseas affiliates. In addition, our results suggest that higher IT adaptation of a firm leads to the increased production of domestic high-productivity manufacturing establishments, and conversely decreases the production of low-productivity establishments. These estimation results imply that firms with greater IT adaptation improves its TFP through reorganizing domestic and overseas production.
    Date: 2021–03
  15. By: Denny IRAWAN; OKIMOTO Tatsuyoshi
    Abstract: Examining the relationship between environmental, social, and governance (ESG) performance and firm value has attracted significant attention, as ESG investing has grown rapidly over the last decade. In this study, we examine this issue by investigating the structural change in the effects of ESG scores and firm value, as proxied by Tobin's Q. The results indicate that ESG scores have a more positive impact on Tobin's Q only after 2011, and social and controversial pillars are the most significant in explaining firm valuation. Concerning firm investment, our results also suggest that firms with better ESG have more investment opportunities through higher Tobin's Q. Given these results, this study also investigates whether firms with higher ESG performance have a higher tendency to overinvest. The overall results suggest that although ESG performance has significant positive effects on the firms' opportunity to invest after 2011, this does not necessarily imply that firms with higher ESG performance have a higher tendency to overinvest.
    Date: 2021–04
  16. By: Nicolas van Zeebroeck; Tobias Kretschmer; Jacques Bughin
    Abstract: As digital technologies emerge and improve rapidly, firms face changing tradeoffs in terms of their technology infrastructure and strategic direction. Hence, many of them adopt new digital technology and develop new business models and strategies. The literature on strategic alignment of IT suggests that firms need to synchronize these different domains of choice. We therefore, ask how far firms renew their strategy as they adopt new technologies. In this article, we study this question empirically by assessing if the adoption of new digital technologies is associated with, or even leads to, changes to firm strategy using a detailed survey-based dataset on firms’ strategy renewal and their adoption of digital technologies. We observe a strong positive association between the extent of strategy change and the stage of adoption of advanced digital technologies overall, suggesting a tight coupling between (technological) structure and strategy. Further, using instrumental variable regressions to disentangle the two effects, we find that the adoption of new technologies may lead to a large and robust effect on strategy change: the more extensive the adoption, the larger the change in strategy. This result is robust to various specifications and across industries. However, we notice substantial differences across technologies, potentially pointing at heterogeneity in their strategic nature or maturity level.
    Date: 2021–06–11
  17. By: IKEUCHI Kenta
    Abstract: In recent years, the development of new digital-related technologies such as artificial intelligence (AI) and Internet-of Things (IoT) and their industrial applications have been attracting attention. These technological developments collectively are called the "Fourth Industrial Revolution" which is set to bring about major changes in industrial structure. On the other hand, previous research using national / industrial level data has pointed out that progress in digitization widens the productivity gap between companies and reduces the dynamics of the market. Therefore, this research analyzes the relationship between the development of technologies related to the Fourth Industrial Revolution such as artificial intelligence and IoT and market dynamics using Japanese firm-level micro datasets. The patent data is combined with the Basic Survey of Japanese Business Structure and Activities, Census of Manufacture, Economic Census for Business Frame, Economic Census for Business Activity and Establishment and Enterprise Census of Japan to build firm-level panel data and to examine how the research and development activities related to the Fourth Industrial Revolution, such as artificial intelligence and IoT, are associated with the productivity and employment growth of business establishments and firms, and discuss the policy implications. The results of this study show that the development of technologies related to the Fourth Industrial Revolution such as AI and IoT are associated with the dynamics of productivity and employment in firms. The development of AI-related technologies has particularly benefited large firms, with limited benefits to small and medium-sized firms.
    Date: 2021–03

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