nep-bec New Economics Papers
on Business Economics
Issue of 2021‒06‒28
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Can You Teach an Old Dog New Tricks? New Evidence on the Impact of Tenure on Productivity By Gagliardi, Nicola; Grinza, Elena; Rycx, Francois
  2. Employee training and firm performance: Evidence from ESF grant applications By Pedro S. Martins
  3. Plants in Space By Oberfield, Ezra; Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel; Trachter, Nicholas
  4. Capital-Reallocation Frictions and Trade Shocks By Lanteri, Andrea; Medina, Pamela; Tan, Eugene
  5. Competition Laws, Governance, and Firm Value By Ross Levine; Chen Lin; Wensi Xie
  6. Entrepreneurial Reluctance: Talent and Firm Creation in China By Chong-En Bai; Ruixue Jia; Hongbin Li; Xin Wang
  7. Management Practices and Takeover Decisions By Manthos D. Delis; Pantelis Kazakis; Constantin Zopounidis
  8. Taxation and Innovation: What Do We Know? By Akcigit, Ufuk; Stantcheva, Stefanie
  9. Black Entrepreneurs, Job Creation, and Financial Constraints By Mee Jung Kim; Kyung Min Lee; J. David Brown; John S. Earle
  10. Efficiency and effectiveness of the COVID-19 government support: Evidence from firm-level data By Lalinsky, Tibor; Pál, Rozália
  11. Trade and Innovation By Marc J. Melitz; Stephen J. Redding
  12. Intrapersonal price discrimination in a dominant firm model By Antelo, Manel; Bru, Lluís

  1. By: Gagliardi, Nicola (Free University of Brussels); Grinza, Elena (University of Milan); Rycx, Francois (Free University of Brussels)
    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: 2021–05
  2. By: Pedro S. Martins
    Abstract: As work changes, 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 many 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 (although not profits). These effects tend to be of at least 5% and, in some cases, 10% or more, and are robust in multiple dimensions.
    Keywords: productivity, Programme evaluation, Training subsidies
    JEL: J24 H43 M53
    Date: 2021–07–08
  3. By: Oberfield, Ezra; Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel; Trachter, Nicholas
    Abstract: We study the number, size, and location of a firm's plants. The firm's decision balances the benefit of delivering goods and services to customers using multiple plants with the cost of setting up and managing these plants, and the potential for cannibalization that arises as their number increases. Modeling the decisions of heterogeneous firms in an economy with a vast number of widely distinct locations is complex because it involves a large combinatorial problem. Using insights from discrete geometry, we study a tractable limit case of this problem in which these forces operate at a local level. Our analysis delivers clear predictions on sorting across space. Productive firms place more plants in dense locations that exhibit high rents compared with less productive firms, and place fewer plants in markets with low density and low rents. Controlling for the number of plants, productive firms also operate larger plants than those operated by less productive firms in locations where both are present. We present evidence consistent with these and several other predictions using U.S. establishment-level panel data.
    JEL: D24 L25 R3
    Date: 2020–05
  4. By: Lanteri, Andrea; Medina, Pamela; Tan, Eugene
    Abstract: What are the short- and medium-term effects of an import-competition shock on firm dynamics and aggregate productivity? We address this question by combining detailed data on investment dynamics of Peruvian manufacturing firms, data on trade flows from China, and a quantitative general-equilibrium model with heterogeneous firms subject to idiosyncratic shocks. In the data, we find evidence of substantial frictions that slow capital reallocation, by rendering disinvestment and firm exit costly. In our model, these frictions shape the transitional dynamics after a trade shock. On impact, a drop in output prices due to import competition induces a spike in inaction, and exit of some productive firms, consistent with our empirical evidence. These effects expand the aggregate productivity wedge relative to a frictionless benchmark. Overall, productivity gains materialize slowly over time, whereas welfare gains emerge early in the transition.
    Keywords: capital reallocation; Firm Dynamics; Investment Irreversibility; Trade Shocks
    Date: 2020–05
  5. By: Ross Levine; Chen Lin; Wensi Xie
    Abstract: Do antitrust laws influence corporate valuations? We evaluate the relationship between firm value and laws limiting firms from engaging in anticompetitive agreements, abusing dominant positions, and conducting M&As that restrict competition. Using firm-level data from 99 countries over the 1990-2010 period, we discover that valuations rise after countries strengthen competition laws. The effects are larger among firms with more severe pre-existing agency problems: firms in countries with weaker investor protection laws, with weaker firm-specific governance provisions, and with greater opacity. The results suggest that antitrust laws that intensify competition exert a positive influence on valuations by reducing agency problems.
    JEL: G3 K21 K22 L4
    Date: 2021–06
  6. By: Chong-En Bai; Ruixue Jia; Hongbin Li; Xin Wang
    Abstract: The theoretical literature has long noted that talent can be used in both the entrepreneurial and non-entrepreneurial sectors, and its allocation depends on the reward structure. We test these hypotheses by linking administrative college admissions data for 1.8 million individuals with the universe of firm registration records in China. Within a college, we find that individuals with higher college entrance exam scores – the most important measure of talent in this context – are less likely to create firms, but, when they do, their firms are more successful than those of their lower-score counterparts. Additional survey data suggest that higher-score individuals enjoy higher wages and are more likely to join the state sector. Moreover, the score-to-firm creation relationship varies greatly across industry, according to the size of the state sector. These findings suggest that the score is positively associated with both entrepreneurial ability and wage-job ability but higher-score individuals are attracted away by wage jobs, particularly those of the state sector.
    JEL: H11 J24 O12 O15
    Date: 2021–05
  7. By: Manthos D. Delis; Pantelis Kazakis; Constantin Zopounidis
    Abstract: Firms with good management practices optimize and synthesize human resources, leadership, and technical and conceptual skills to enhance firm value. In this paper, we examine the role of management practices in merger and acquisition (M&A) decisions. M&A decisions are among the most important corporate decisions, on which firms spend a lot of resources and managerial qualities. We estimate management practices as a latent variable using a structural equation production model and Bayesian techniques. The key advantage of the Bayesian approach is the use of informative priors from survey-based management estimation methods, which are however available for a limited number of firms. Subsequently, we examine the effect of management practices on takeover events. We first show that management practices, on average, increase the probability of M&A deals. However, we also uncover a nonlinear U-shaped effect, which is consistent with the theoretical premise that poor management leads to many value-decreasing M&A deals, whereas good management leads to many value-increasing M&A deals.
    Keywords: OR in corporate finance; Management practices; Bayesian methods; Mergers and acquisitions; Nonlinear models
    JEL: G14 G34 C11 C30
    Date: 2021–06
  8. By: Akcigit, Ufuk; Stantcheva, Stefanie
    Abstract: Tax policies are a wide array of tools, commonly used by governments to influence the economy. In this paper, we review the many margins through which tax policies can affect innovation, the main driver of economic growth in the long-run. These margins include the impact of tax policy on i) the quantity and quality of innovation; ii) the geographic mobility of innovation and inventors across U.S. states and countries; iii) the declining business dynamism in the U.S., firm entry, and productivity; iv) the quality composition of firms, inventors, and teams; and v) the direction of research effort, e.g., toward applied versus basic research, or toward dirty versus clean technologies. We give ideas drawn from research on how the design of policy can allow policy makers to foster the most productive firms without wasting public funds on less productive ones.
    Keywords: entrepreneurship; growth; Innovation; inventors; patents; productivity; R&D; taxation
    JEL: H20 O30 O38 O43
    Date: 2020–05
  9. By: Mee Jung Kim; Kyung Min Lee; J. David Brown; John S. Earle
    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 rms 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.
    Date: 2021–05
  10. By: Lalinsky, Tibor; Pál, Rozália
    Abstract: We utilize several unique firm-level datasets in order to assess the efficiency and effectiveness of the government support aiming to curb the economic consequences of the coronavirus (COVID19) pandemic. The results, drawing on the experience of a small open European country (Slovakia), suggest the distributed COVID-19 subsidies save non-negligible number of jobs and sustain economic activity during the first wave of the pandemic. General distribution rules designed on the fly may bring close to optimal results, as relatively more productive, privately owned, foreign-demand oriented firms are prioritized and firms with a higher environmental footprint or zombie firms record a relatively lower chance of obtaining government funding. By assuming constant cost elasticities to sales, we show that the pandemic deteriorates strongly firm profits and increases significantly the share of illiquid and insolvent firms. Government wage subsidies somewhat mitigate firm losses and have statistically significant effect, but relatively mild compared to the size of the economic shock. Our estimates also confirm that larger firms, receiving smaller relative size of the support, have more space to cover their additional liquidity needs by increasing trade liabilities or liabilities to affiliated entities, while SMEs face higher risk of insolvencies.
    Keywords: coronavirus,COVID-19,firm-level,policy measures,wage subsidies,profit,liquidity,solvency
    JEL: D22 H20 G32 G33 J38
    Date: 2021
  11. By: Marc J. Melitz; Stephen J. Redding
    Abstract: Two central insights from the Schumpeterian approach to innovation and growth are that the pace of innovation is endogenously determined by the expectation of future profits and that growth is inherently a process of creative destruction. As international trade is a key determinant of firm profitability and survival, it is natural to expect it to play a key role in shaping both incentives to innovate and the rate of creative destruction. In this paper, we review the theoretical and empirical literature on trade and innovation. We highlight four key mechanisms through which international trade affects endogenous innovation and growth: (i) market size; (ii) competition; (iii) comparative advantage; (iv) knowledge spillovers. Each of these mechanisms offers a potential source of dynamic welfare gains in addition to the static welfare gains from trade from conventional trade theory. Recent research has suggested that these dynamic welfare gains from trade can be substantial relative to their static counterparts. Discriminating between alternative mechanisms for these dynamic welfare gains and strengthening the evidence on their quantitative magnitude remain exciting areas of ongoing research.
    JEL: F1 F43 O4
    Date: 2021–06
  12. By: Antelo, Manel; Bru, Lluís
    Abstract: The standard dominant firm (DF)-competitive fringe model, in which all firms sell the good through linear pricing, is extended to the use of nonlinear contracts in the form of two-part tariffs (2PT). We show that under general conditions, the DF practices intrapersonal price discrimination, and supplies to fewer consumers than under linear pricing. As a consequence, nonlinear pricing leads to an inefficient result and consumers are worse off than when the DF uses linear prices; on the contrary, fringe firms are better off as they end up charging a higher price for the good.
    Keywords: Dominant firm, fringe firms, linear and nonlinear contracts, intrapersonal price discrimination
    JEL: L13
    Date: 2021–06

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