nep-bec New Economics Papers
on Business Economics
Issue of 2022‒03‒07
eight papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Financial Factors, Firm size and Firm Potential By Ferreira, M.; Haber, T.; Rörig, C.
  2. Do firms or workers drive the foreign acquisition wage premium? By Marcus Rösch; Michiel Gerritse; Bas Karreman; Frank van Oort; Bart Loog
  3. How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy By Ginger Zhe Jin; Mario Leccese; Liad Wagman
  4. Mapping intra firm trade in the automotive sector: a network approach By Matthew Smith; Yasaman Sarabi
  5. Private or Public Equity? The Evolving Entrepreneurial Finance Landscape By Ewens, Michael; Farre-Mensa, Joan
  6. Heterogeneous Effect of Uncertainty on Corporate Investment: Evidence from Listed Firms in the Republic of Korea By Kim, Cheonkoo; Park, Jungsoo; Park, Donghyun; Tian, Shu
  7. Profit Puzzles or: Public Firm Profits Have Fallen By Carter Davis; Alexandre Sollaci; James Traina
  8. Large Firms, Consumer Heterogeneity and the Rising Share of Profits By Robert C. Feenstra; Luca Macedoni; Mingzhi Xu

  1. By: Ferreira, M.; Haber, T.; Rörig, C.
    Abstract: Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firm size distribution, account for a larger total asset share compared to standard heterogeneous firms models, and exhibit a higher cyclical sensitivity, conditional on size. In light of these findings we reassess the importance of the firm distribution in shaping aggregate outcomes in the canonical model of heterogeneous firms with financial frictions. We augment the productivity process with ex-ante heterogeneity of firms, allowing us to match the distribution of constrained firms conditional on size. This, together with the fact that constrained firms have a higher capital elasticity, leads to up to four times larger aggregate fluctuations and capital misallocation.
    Keywords: Firm size, business cycle, financial accelerator
    JEL: E62 E22 E23
    Date: 2021–11–03
  2. By: Marcus Rösch (Erasmus University Rotterdam); Michiel Gerritse (Erasmus University Rotterdam); Bas Karreman (Erasmus University Rotterdam); Frank van Oort (Erasmus University Rotterdam); Bart Loog (Statistics Netherlands)
    Abstract: We decompose the wage premium after foreign acquisitions of Dutch domestic firms into the con- stituent firm- and worker-level premia. Firm-level premia grow up to 3.5%, accounting for the major- ity of the acquisition premium. Worker-level premia by contrast, grow up to 1% and only materialize with delay, as the acquired firms hire workers with higher earnings capacity than domestic firms. Within firms, premia are also higher for workers with a relatively high earnings capacity. Though in- dustry variation and firm size class heterogeneity is considerable, the dominance of firm-level premia suggests that foreign acquisitions change firms beyond a workforce reshuffling.
    Keywords: multinational firms, foreign acquisition, wage components, labor mobility, matched employer-employee data, AKM
    JEL: J31 F23 G34
    Date: 2022–02–14
  3. By: Ginger Zhe Jin; Mario Leccese; Liad Wagman
    Abstract: Some argue that large platforms, such as Alphabet/Google, Amazon, Apple, Facebook and Microsoft (or GAFAM), are unusual in their number, pace and concentration of technology mergers, with the potential to harm market competition. Using a unique taxonomy developed by S&P Global Market Intelligence, we compare the M&A activities of GAFAM to other top acquirers from 2010 to 2020. We find: (i) GAFAM completed more tech acquisitions per firm than other groups of top acquirers, and acquired younger and more consumer-facing firms on average. (ii) The top 25 private equity firms outpaced GAFAM in tech acquisitions per firm since 2018. (iii) GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups, due, in part, to an “acquire-adjacent-and-then-expand” strategy. (iv) Over time, more and more GAFAM and other top acquirers acquire in the same categories. (v) No evidence suggesting that a GAFAM acquisition in a category, compared to similar categories without GAFAM acquisitions, is correlated with a slowdown in the number of new acquirers acquiring in that category. Overall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.
    JEL: G34 L40 O33 O38
    Date: 2022–01
  4. By: Matthew Smith; Yasaman Sarabi
    Abstract: Intra-firm trade describes the trade between affiliated firms and is increasingly important as global production is fragmented. However, statistics and data on global intra-firm trade patterns are widely unavailable. This study proposes a novel multilevel approach combining firm and country level data to construct a set of country intra-firm trade networks for various segments of the automotive production chain. A multilevel network is constructed with a network of international trade at the macro level, a firm ownership network at the micro level and a firm-country affiliation network linking the two, at the meso level. A motif detection approach is used to filter these networks to extract potential intra-firm trade ties between countries, where the motif (or substructure) is two countries linked by trade, each affiliated with a firm, and these two firms linked by ownership. The motif detection is used to extract potential country level intra-firm trade ties. An Exponential Random Graph Model (ERGM) is applied to the country level intra-firm trade networks, one for each segment of the automotive production chain, to inform on the determinants of intra-firm trade at the country level.
    Date: 2022–02
  5. By: Ewens, Michael (California Institute of Technology); Farre-Mensa, Joan
    Abstract: The U.S. entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs raising their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage startups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public—and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both startups and investors that help explain how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.
    Date: 2021–11–07
  6. By: Kim, Cheonkoo (Korea Chamber of Commerce and Industry); Park, Jungsoo (Sogang University); Park, Donghyun (Asian Development Bank); Tian, Shu (Asian Development Bank)
    Abstract: In this paper, we analyze the effect of financial uncertainty on corporate investment using firm-level panel data from the Republic of Korea. We find that financial uncertainty has a significant negative effect on corporate investment, and that the effect is heterogeneous across firms of different sizes. Small firms and large firms are more exposed to the negative effect of uncertainty than are medium-sized firms. The negative effect of uncertainty on large firms slightly declined after the global financial crisis, but it increased for small and medium-sized enterprises (SMEs). Financial constraints and investment irreversibility amplify the negative effect of uncertainty. The inverted U-shaped curve of the uncertainty effect along the firm-size spectrum can be understood as follows: Small firms are more financially constrained and large firms’ investments are more irreversible in nature. Lastly, contrary to widespread belief, uncertainty has waned since 1990, dampening the trend of declining investment ratios. To counter the negative effect of uncertainty on SMEs, policies need to be directed toward the development of capital markets and bond markets for SMEs. Furthermore, SME policies should be redirected to target competitiveness, not protection.
    Keywords: uncertainty; corporate investment; financial constraints; investment irreversibility
    JEL: E22 G31
    Date: 2022–02–21
  7. By: Carter Davis; Alexandre Sollaci; James Traina
    Abstract: We show that public firm profit rates fell by half since 1980. Inferred as the residual from the rise of US corporate profit rates in aggregate data, private firm profit rates doubled since 1980. Public firm financial returns matched their fall in profit rates, while public firm representativeness increased from 30% to 60% of the US capital stock. These results imply that time-varying selection biases in extrapolating public firms to the aggregate economy can be severe.
    Date: 2022–01
  8. By: Robert C. Feenstra; Luca Macedoni; Mingzhi Xu
    Abstract: We examine the relationship between large firms and the rising profit share in a model that features oligopolistic competition and consumer heterogeneity. Conditional on the sales distribution, the presence of consumer heterogeneity increases the profit share because it increases firm-level markups. Using data on purchases at the household-barcode level from Nielsen, we quantify the role of consumer heterogeneity, finding that the aggregate markup and the profit share are 8 and 3 percentage points larger than those predicted by a model of a representative consumer. Furthermore, we find that the profit share has been increasing over time and that firm targeting of consumer types plays a role in explaining this rise.
    JEL: D12 L11 L25 O51
    Date: 2022–01

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