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on Business Economics |
| By: | Nicholas Bloom; Scott W. Ohlmacher; Cristina J. 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: | Productivity |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1846&r= |
| By: | Stephen Michael Impink; Andrea Prat; Raffaella Sadun |
| Abstract: | This paper uses novel, firm-level measures derived from communications metadata before and after a CEO transition in 102 firms to study if CEO turnover impacts employees' communication flows. We find that CEO turnover leads to an initial decrease in intra-firm communication, followed by a significant increase approximately five months after the CEO change. The increase is driven primarily by vertical (i.e. manager to employee) communication. Greater increases in communication after CEO change are associated with greater increases in firm market returns. |
| Keywords: | CEO change, communication, alignment |
| Date: | 2021–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1796&r= |
| By: | Alessandro Ferrari; Francisco Queir\'os |
| Abstract: | We study 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 in the US economy, 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. We conclude by showing that firm subsidies can be powerful in preventing quasi-permanent recessions and can lead to up to a 21% increase in welfare. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.03908&r= |
| By: | Arroyos-Calvera, Danae (University of Birmingham); Powdthavee, Nattavudh (University of Warwick) |
| Abstract: | We examine whether a company's corporate reputation gained from their CSR activities and a company leader's reputation, one that is unrelated to his or her business acumen, can impact economic action fairness appraisals. We provide experimental evidence that good corporate reputation causally buffers individuals' negative fairness judgment following the firm's decision to profiteer from an increase in the demand. Bad corporate reputation does not make the decision to profiteer as any less acceptable. However, there is evidence that individuals judge as more unfair an ill-reputed firm's decision to raise their product's price to protect against losses. Thus, our results highlight the importance of a good reputation in protecting a firm against severe negative judgments from making an economic decision that the public deems unfair. |
| Keywords: | fairness, corporate reputation, CEO reputation, CSR, Halo effect |
| JEL: | C90 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15256&r= |
| By: | Nicholas Bloom; Takafumi Kawakubo; Charlotte Meng; Paul Mizen; Rebecca Riley; Tatsuro Senga; John Van Reenen |
| Abstract: | We link a new UK management survey covering 8,000 firms to panel data on productivity in manufacturing and services. There is a large variation in management practices, which are highly correlated with productivity, profitability and size. Uniquely, the survey collects firms' micro forecasts of their own sales and also macro forecasts of GDP. We find that better managed firms make more accurate micro and macro forecasts, even after controlling for their size, age, industry and many other factors. We also show better managed firms appear aware that their forecasts are more accurate, with lower subjective uncertainty around central values. These stylized facts suggest that one reason for the superior performance of better managed firms is that they knowingly make more accurate forecasts, enabling them to make superior operational and strategic choices. |
| Keywords: | management, productivity, expectations, forecasting |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1821&r= |
| By: | Kim, Jinhwan (Stanford U); Valentine, Kristen (U of Georgia) |
| Abstract: | We examine the spillover effect of public firm innovation disclosures on the patent trading market. Relative to equity markets, the patent market is decentralized and rife with information frictions, yet it serves as an important mechanism through which innovations reallocate to the most productive users. Using data on patent transactions, we find that going from the 25th percentile to the 75th percentile in innovation-relevant public firm disclosures – proxied by the number of innovation-relevant sentences in 10-K filings – is linked to a 13.0% to 14.9% increase in future patent sales by other parties that likely consume these disclosures. These results are consistent with financial statement disclosures generating positive information externalities useful for trading patents. The positive link between innovation-relevant firm disclosures is stronger where information asymmetry is likely greatest (transactions between public and private firms) and where information uncertainty likely prevails (transactions between private firms) relative to transactions less likely to suffer from information frictions (transactions between public firms). We corroborate that the positive link between public firm disclosures and other parties’ patent sales is likely due to the resolution of information frictions through several cross-sectional tests, the use of proprietary patent broker data, and the plausibly exogenous implementation of Edgar by public firms. Our results speak to an important, but previously underexplored, externality of financial statement disclosures – their contribution to a well-functioning patent market. |
| JEL: | D23 M40 M41 O30 O31 O32 O34 O39 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:4013&r= |
| By: | Yojiro Ito (Economist, Institute for Monetary and Economic Studies (currently, Personnel and Corporate Affairs Department), Bank of Japan (E-mail: youjirou.itou@boj.or.jp)); Daisuke Miyakawa (Associate Professor, Hitotsubashi University Business School (E-mail: dmiyakawa@hub.hit-u.ac.jp)) |
| Abstract: | Studies on firm performance have found that exiting firms in Japan persistently show better performance than surviving firms, and this persistence adversely affects aggregate productivity. We use the panel data of business enterprises along with unique information on their exit modes (i.e., default, voluntary closure, and merger) to show that a large part of such a "negative exit effect" is attributed to the firms exiting through mergers. Further, we confirm that the causal effect of those mergers results in positive growth in the productivity of merging firms. Given that the size of such a positive causal effect overwhelms the negative exit effect, resource reallocation through mergers positively contributes to the aggregate growth in productivity for Japanese firms. |
| Keywords: | Productivity dynamics, Exit effects, Mergers |
| JEL: | D24 G33 G34 O47 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:22-e-07&r= |
| By: | Jan Eeckhout; Laura Veldkamp |
| Abstract: | Might firms' use of data create market power? To explore this hypothesis, we craft a model in which economies of scale in data induce a data-rich firm to invest in producing at a lower marginal cost and larger scale. However, the model uncovers much richer interactions between data, welfare and market power. Data affects risk, firm size and the composition of the goods firms produce, all of which affect markups. The tradeoff between these forces depends on the level of aggregation at which markups are measured. Empirical researchers who measure markups at the product level, firm level or industry level come to different conclusions about trends and cyclical fluctuations in markups. Our results reconcile and re-interpret these facts. The divergence between product, firm and industry markups can be a sign that firms are using data to reallocate production to the goods consumers want most. |
| JEL: | D8 E3 L0 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30022&r= |
| By: | Domenico Colucci; Nicola Doni; Giorgio Ricchiuti; Vincenzo Valori |
| Abstract: | We analyze the market dynamics in a model in which one dominant firm and a large number of small, not fully rational firms coexist. The dominant firm announces a reference price, but the market price can diverge from such reference price: this is due to the dominant firm taking advantage of the bounded rationality of the fringe firms. In the baseline model, we find that the dominant firm has an incentive to announce a very low price and in the steady state the market price is usually higher than the reference price. In a more complex model, where a fraction of small firms employ an evolutionary mechanism to adjust their expectations, we find that the lower the reference price the higher the period-by-period fluctuations of the market prices. We show that both mean profits and their volatility are decreasing in the reference price and that the optimal choice is positively correlated with the degree of risk aversion of the dominant firm. In general, socially preferable outcomes can be achieved when the dominant firm behaves as strongly risk averse. We draw some policy implications from this conclusion. |
| Keywords: | market dynamics, competitive fringe, dominant firm, switching mechanism |
| JEL: | D21 D25 D84 D91 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2022_05.rdf&r= |
| By: | Matej Bajgar; Chiara Criscuolo; Jonathan Timmis |
| Abstract: | This paper presents new evidence on the growing scale of big businesses in the United States, Japan and 11 European countries. It documents a broad increase in industry concentration across the majority of countries and sectors over the period 2002 to 2014. The rising concentration is strongly associated with intensive investment in intangibles, particularly innovative assets, software and data, and this relationship is magnified in more globalized and digital-intensive industries. The results are consistent with intangibles disproportionately benefiting large firms and enabling them to scale up and raise their market shares, increasingly over time. |
| Keywords: | competition, industry and entrepreneurship, innovation |
| Date: | 2021–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1806&r= |
| By: | Giuseppe Berlingieri; Frank Pisch |
| Abstract: | Exporting involves sunk and fixed costs in the form of service inputs, and whether such services are 'made' in-house or 'bought' from external agencies is a key organizational margin: it is not a core-competence of manufacturing companies and has far-reaching implications for the costs of exporting. We study such outsourcing decisions both conceptually and empirically. For guidance, we propose a theoretical framework in which firms trade off managerial strain (internal provision) and ex-post adaptation costs (external provision). Using confidential firm-level data from France and a novel instrumental variables strategy, we document the precise service inputs needed to access foreign markets and provide empirical evidence that these are typically outsourced. In line with the model, this pattern is strong for services with high costs of adaptation, and when firms have little managerial capability available. Finally, we discuss the implications of our findings for servitization and inequality. |
| Keywords: | adaptation, complexity, core competencies, firm boundaries, firm capabilities, sunk and fixed export costs, professional and business services, structural transformation. |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1843&r= |
| By: | Carlsson, Mikael (Uppsala University); Clymo, Alex (University of Essex); Joslin, Knut-Eric (Kristiania University College) |
| Abstract: | We characterize the dispersion of firm-level productivity and demand shocks using Swedish microdata including prices and utilization and analyse the consequences for firms and the aggregate economy. Demand dispersion increases by more than TFPQ dispersion in recessions. Productivity shocks pass through incompletely to prices and have limited effect on sales dispersion. Demand shocks explain most of the variation in sales dispersion. In a heterogeneousfirm model matching the micro facts, demand dispersion has unambiguously negative effects on output via a “wait and see” channel. Productivity dispersion does not generate “wait and see” effects, but affects output negatively by inducing markup dispersion. |
| Keywords: | demand estimation; productivity; variable markups; business cycles; dispersion; uncertainty; passthrough; adjustment costs |
| JEL: | D21 D22 D81 E32 L11 |
| Date: | 2022–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0414&r= |
| By: | Inderst, Roman; Sartzetakis, Eftichios S.; Xepapadeas, Anastasios |
| Abstract: | We analyze firms incentives to coordinate on the introduction of a more sustainable product variant when consumers preferences for greater sustainability depend on the perceived social norm, which in turn is shaped by average consumption behavior. Such preferences lead to multiple equilibria. If the more sustainable variant allows firms to sufficiently expand their aggregate market share, when a lenient legal regime makes this feasible they will coordinate on the more sustainable outcome. If their aggregate market share however does not expand sufficiently under the more sustainable variant, coordination can forestall a more sustainable outcome. Our analysis thus both confrms and qualifies the notion of a sustainability first-mover disadvantage as a justification for an agreement between competitors, which has gained traction in antitrust. We also provide empirical evidence for norm-based sustainability preferences. |
| Keywords: | Sustainability,Antitrust,Firm Cooperation |
| JEL: | A13 D11 D22 K21 L11 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:254323&r= |
| By: | Kaus, Wolfhard; Zimmermann, Markus |
| Abstract: | This paper analyses the effect of offshoring (i.e., the relocation of activities previously performed in-house to foreign countries) on various firm outcomes (domestic employment, production, and productivity). It uses data from the International Sourcing Survey (ISS) 2017 for Germany, linked to other firm level data such as business register and ITGS data. First, we find that offshoring is a rare event: In the sample of firms with 50 or more persons employed, only about 3% of manufacturing firms and 1% of business service firms have performed offshoring in the period 2014-2016. Second, difference-in-differences propensity score matching estimates reveal a negative effect of offshoring on domestic employment and production. Most of this negative effect is not because the offshoring firms shrink, but rather because they don't grow as fast as the non-offshoring firms. We further decompose the underlying employment dynamics by using direct survey evidence on how many jobs the firms destroyed/created due to offshoring. Moreover, we do not find an effect on labour productivity, since the negative effect on domestic employment and production are more or less of the same size. Third, the German data confirm previous findings for Denmark that offshoring is associated with an increase in the share of 'produced goods imports', i.e. offshoring firms increase their imports for the same goods they continue to produce domestically. In contrast, it is not the case that offshoring firms increase the share of intermediate goods imports (a commonly used proxy for offshoring), as defined by the BEC Rev. 5 classification. |
| Keywords: | international sourcing,offshoring,productivity |
| JEL: | D24 L60 O30 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:142022&r= |
| By: | Du, Jun (Aston University); Girma, Sourafel (University of Nottingham); Görg, Holger (Kiel Institute for the World Economy); Stepanok, Ignat (Institute for Employment Research (IAB), Nuremberg) |
| Abstract: | China is perceived to rely on subsidizing firms in targeted industries to improve their performance and stay competitive. We implement an approach that allows for the joint estimation of direct and indirect effects of subsidies on subsidized and non-subsidized firms. We find that firms that receive subsidies experience a boost for productivity. However, our approach highlights the importance of indirect effects, which are generally neglected in the literature. We find that, in general but not always, non-subsidized firms experience reductions in their productivity growth if they operate in a cluster where other firms are subsidized. These negative externalities depend on the share of firms that receive subsidies in the cluster. Aggregating direct and indirect effects into a (weighted) total effect shows that this negative indirect effect tends to dominate. We interpret our results in the light of a simple heterogenous firm type model, which highlights that subsidization, in a competitive environment of firms, may potentially harm non-subsidized firms. |
| Keywords: | subsidies, firm performance, treatment effects, externalities, China |
| JEL: | H25 H32 L25 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15249&r= |
| By: | Xinwei Dong (Graduate School of Economics, The University of Tokyo); Dean R. Hyslop (Motu Economic and Public Policy Research); Daiji Kawaguchi (Faculty of Economics, The University of Tokyo) |
| Abstract: | Firms frequently provide general skill training to workers at the firm's cost. Theories proposed that labor market frictions entails wage compression, larger productivity gain than wage growth to skill acquisition, and motivates a firm to offer opportunities for skill acquisition, but few studies directly test the hypothesis. We use unusually rich data from a temporary help service firm that records both workers' wages and their productivity as measured by the fees charged to client firms. We first document that the firm provides upfront training, and show that both workers' tenure and the initial fee charged to clients are positively related to the length of training, but the initial wage paid to workers is not. We then demonstrate that the fees charged to clients grow faster over workers' tenure than the wages paid to workers. Finally, we find that about one-quarter of the fee growth is associated with client quality upgrading, but that workers receive none of this growth. Each of these results are consistent with wage compression that skills acquired through training and learning-by-doing increases productivity more than wages. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2022cf1195&r= |