nep-bec New Economics Papers
on Business Economics
Issue of 2021‒10‒25
nine papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Pay, Productivity and Management By Nicholas Bloom; Scott Ohlmacher; Cristina Tello-Trillo; Melanie Wallskog
  2. The Dynamics of Referral Hiring and Racial Inequality: Evidence from Brazil By Conrad Miller; Ian Schmutte
  3. How Do the Relative Superiority of a High-quality Good and Cost Inefficiency between Firms Affect Product Lines in Multiproduct Firms? By Tetsuya Shinkai; Ryoma Kitamura
  4. Does Performance-Sensitive Debt mitigate Debt Overhang? By Alain Bensoussan; Benoit Chevalier-Roignant; Alejandro Rivera
  5. Firm Heterogeneity, Market Power and Macroeconomic Fragility By Alessandro Ferrari; Francisco Queirós
  6. Corporate CO2 offsetting in small- and medium-sized firms in Germany By Daniel Engler; Gunnar Gutsche; Amantia Simixhiu; Andreas Ziegler
  7. Effects of business improvement districts on firm performance, place attractiveness, and urban safety By Daunfeldt, Sven-Olov; Mihaescu, Oana; Rudholm, Niklas
  8. Technological capacity and firms' recovery from Covid-19 By Sebastian Doerr; Magdalena Erdem; Guido Franco; Leonardo Gambacorta; Anamaria Illes
  9. Dropping diversity of products of large US firms: Models and measures By Ananthan Nambiar; Tobias Rubel; James McCaull; Jon deVries; Mark Bedau

  1. By: Nicholas Bloom; Scott Ohlmacher; Cristina Tello-Trillo; Melanie Wallskog
    Abstract: Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with more structured management practices, have substantially higher pay, both on average and across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst higher paid employees, with a doubling of firm productivity associated with 11% more pay for the highest-paid employee (likely the CEO) compared to 4.7% for the median worker. This pay-performance link holds in public and private firms, although it is almost twice as strong in public firms for the highest-paid employees. Top pay volatility is also strongly related to productivity and structured management, suggesting this performance-pay relationship arises from more aggressive monitoring and incentive practices for top earners.
    Keywords: inequality, productivity, CEO pay
    JEL: J24 J30 J31
    Date: 2021–09
  2. By: Conrad Miller (University of California-Berkeley and NBER); Ian Schmutte (University of Georgia)
    Abstract: We study how referral hiring contributes to racial inequality in firm-level labor demand over the firm’s life cycle using data from Brazil. We consider a search model where referral networks are segregated, firms are more informed about the match quality of referred candidates, and some referrals are made by nonreferred employees. Consistent with the model, we find that firms are more likely to hire candidates and less likely to dismiss employees of the same race as the founder, but these differences diminish as firms’ cumulative hires increase. Referral hiring helps to explain racial differences in dismissals, seniority, and employer size.
    Keywords: referral hiring, search model, match quality, racial differences, Brazil
    JEL: D83 J15 J23 J42 J63 L25
    Date: 2021–10
  3. By: Tetsuya Shinkai (School of Economics, Kwansei Gakuin University); Ryoma Kitamura (Faculty of Economics, Otemon Gakuin University)
    Abstract: We consider the product line strategies of duopolistic firms, each of which can supply two vertically differentiated products under nonnegative output constraints and expectations of their rival's product line reaction. Considering a game of firms with heterogeneous (homogeneous) unit costs for high- (low-) quality products, we derive the equilibria of the game and explore the effects of the relative superiority of the high-quality product and relative cost efficiency on the equilibrium outcomes and illustrate the result using the production substitution of differentiated goods within a firm and the high-quality good between firms.
    Keywords: Multiproduct firm; Product line; Vertical product differentiation
    JEL: D21 D43 L13 L15
    Date: 2021–10
  4. By: Alain Bensoussan (emlyon business school); Benoit Chevalier-Roignant; Alejandro Rivera
    Abstract: We model the expansion decision of a levered firm. Straight debt distorts both timing and scaling: the firm invests less and later than its all-equity financed counterpart. The inclusion of performance sensitivity in the debt contract mitigates such distortions. Moreover, performance sensitivity is consistent with firm value maximization within a standard trade-off theory of capital structure. As a result, our model rationalizes the widespread use of performance sensitive debt (PSD), especially amongst fast growth firms.
    Keywords: Capital Structure,Real Options,Performance-Sensitive Debt,Debt Overhang
    Date: 2021–10–01
  5. By: Alessandro Ferrari (University of Zurich); Francisco Queirós (Università di Napoli Federico II and CSEF)
    Abstract: We investigate how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long-lasting recessions. We propose a theory in which the positive interaction between firm entry, competition and factor supply can give rise to multiple steady-states. We show that when firm heterogeneity is large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm heterogeneity we find that, relative to 2007, an economy with the 1985 level of firm heterogeneity is 5 to 9 times less likely to experience a very persistent recession. We use our framework to study the 2008-09 recession and show that the model can rationalize the persistent deviation of output and most macroeconomic aggregates from trend, including the behavior of net entry, markups and the labor share. Post-crisis cross-industry data corroborates our proposed mechanism. Firm subsidies can be powerful in preventing quasi-permanent recessions and can lead to a 21% increase in welfare.
    Keywords: Firm heterogeneity, Competition, Market power, Poverty traps, Great recession.
    JEL: E22 E24 E25 E32 L16
    Date: 2021–10–07
  6. By: Daniel Engler (University of Kassel); Gunnar Gutsche (University of Kassel); Amantia Simixhiu (University of Kassel); Andreas Ziegler (University of Kassel)
    Abstract: Voluntary CO2 offsetting by individuals, firms, and organizations is increasingly considered as a direction of climate policy that is complementary to traditional approaches such as subsidies or CO2 taxes. Based on data from a large-scale survey among corporate decision makers, this paper empirically examines corporate CO2 offsetting and its determinants in small- and medium-sized firms in Germany. Our descriptive analysis shows both a rather limited engagement in corporate CO2 offsetting as well as a strong lack of knowledge about its mechanism. The econometric analysis reveals that some firm-specific characteristics like the average age of the employees, firm size, and firm age matter for CO2 offsetting. However, the main estimation results refer to the relevance of general environment-related variables like the implementation of environmental product and service innovations or the share of employees that carry out environment-related tasks and especially of climate-related factors and activities. In particular, the implementation of climate targets and the participation in the EU Emissions Trading System (EU ETS) are strongly significantly positively correlated with CO2 offsetting. In line with similar findings at the individual level, these estimation results imply that corporate CO2 offsetting also does not substitute or crowd out other climate protection and further pro-environmental activities, but rather complements them.
    Keywords: Corporate CO2 offsetting, corporate climate protection and pro-environmental activities, small- and medium-sized firms
    Date: 2021
  7. By: Daunfeldt, Sven-Olov (Institute of Retail Economics (Handelns Forskningsinstitut)); Mihaescu, Oana (Institute of Retail Economics (Handelns Forskningsinstitut)); Rudholm, Niklas (Institute of Retail Economics (Handelns Forskningsinstitut))
    Abstract: : Business improvement districts (BIDs) have emerged as possible solutions for the revitalization of urban areas characterized by economic decline. Using a difference-in differences model, we investigate the effects of a voluntary Swedish BID programme in five cities on firm performance, urban safety, and place attractiveness – both within and outside the BID. We find that the BID programme increased labour productivity for incumbent firms within the BID by 7.62%, mainly through an increase in revenues. However, the positive effect of the BID programme on firm performance is largely transitory, decreasing sharply during the third year and then becoming insignificant. We find no statistically significant impacts on firm performance outside the geographical boundaries of the BIDs. The results also suggest that fewer crimes were committed in the BIDs, as the estimates for all years are negative, though they are significant only for the fourth year after BID implementation. Finally, we detect no statistically significant effects of the BID programme on property values either within or outside the designated BIDs.
    Keywords: : Business improvement district; public–private partnerships; firm performance; labour productivity; property values; crime; difference-in-differences
    JEL: H44 L11 L25 R11 R12
    Date: 2021–10–15
  8. By: Sebastian Doerr; Magdalena Erdem; Guido Franco; Leonardo Gambacorta; Anamaria Illes
    Abstract: Can higher technological capacity help firms to recover quicker from recessions? Analyzing the effects of the Covid-19 pandemic on firm revenues in several countries, we find that firms headquartered in jurisdictions with better digital infrastructure generated relatively higher revenue during the shock period. Improving a country's technological capability by one standard deviation is associated with a relative increase in revenues of the average firm by around 4%. The positive effect of technology is more pronounced among smaller firms, suggesting that it could have helped the recovery of SMEs.
    JEL: E23 G10 G38 O30
    Date: 2021–10
  9. By: Ananthan Nambiar; Tobias Rubel; James McCaull; Jon deVries; Mark Bedau
    Abstract: It is widely assumed that in our lifetimes the products available in the global economy have become more diverse. This assumption is difficult to investigate directly, however, because it is difficult to collect the necessary data about every product in an economy each year. We solve this problem by mining publicly available textual descriptions of the products of every large US firms each year from 1997 to 2017. Although many aspects of economic productivity have been steadily rising during this period, our text-based measurements show that the diversity of the products of at least large US firms has steadily declined. This downward trend is visible using a variety of product diversity metrics, including some that depend on a measurement of the similarity of the products of every single pair of firms. The current state of the art in comprehensive and detailed firm-similarity measurements is a Boolean word vector model due to Hoberg and Phillips. We measure diversity using firm-similarities from this Boolean model and two more sophisticated variants, and we consistently observe a significant dropping trend in product diversity. These results make it possible to frame and start to test specific hypotheses for explaining the dropping product diversity trend.
    Date: 2021–10

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