nep-bec New Economics Papers
on Business Economics
Issue of 2022‒07‒18
fourteen papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Estimating Discrete Games with Many Firms and Many Decisions: An Application to Merger and Product Variety By Ying Fan; Chenyu Yang
  2. The Dynamics of Referral Hiring and Racial Inequality: Evidence from Brazil By Miller, Conrad; Schmutte, Ian
  3. The business response to Covid-19 one year on: findings from the second wave of the CEP-CBI survey on technology adoption By Juliana Oliveira-Cunha; Capucine Riom; Anna Valero
  4. Tax Evasion by Firms By Laszlo Goerke
  5. Were jobs saved at the cost of productivity in the Covid-19 crisis ? By Jaanika Merikyll; Alari Paulus
  6. Do Well Managed Firms Make Better Forecasts? By Nicholas Bloom; Takafumi Kawakubo; Charlotte Chunming Meng; Paul Mizen; Rebecca Riley; Tatsuro Senga; John Van Reenen
  7. Endogenous Liquidity and Capital Reallocation By Wei Cui; Randall Wright; Yu Zhu
  8. The impacts of Covid-19 and Brexit on the UK economy: early evidence in 2021 By Josh De Lyon; Swati Dhingra
  9. Artificial Intelligence and Firm-level Productivity By Dirk Czarnitzki; Gastón P Fernández; Christian Rammer
  10. Asset Pricing with Costly and Delayed Firm Entry By Lorant Kaszab; Ales Marsal; Katrin Rabitsch
  11. Raising EU productivity through innovation- Lessons from improved micro data By Reinhilde Veugelers; Frederic Warzynski
  12. The Secular Decline in Private Firm Leverage By Christine L. Dobridge; Erik P. Gilje; Andrew Whitten
  13. Strategic Real Option Exercising and Second-mover Advantage By Min Dai; Zhaoli Jiang; Neng Wang
  14. The Sale of Data :Learning Synergies Before M&As By Antoine Dubus; Patrick Legros

  1. By: Ying Fan; Chenyu Yang
    Abstract: This paper presents a new method for estimating discrete games based on bounds of conditional choice probabilities. The method does not require solving the game and is scalable to models with many firms and many discrete decisions. We apply the method to study merger effects on firm entry and product variety in the retail craft beer market in California. We simulate an acquisition of multiple craft breweries by a large brewery and find that the acquisition would induce firm entry and product entry by non-merging firms. However, these changes are insufficient to offset the negative welfare effects resulting from the higher prices and decreased product offerings by the merging firms.
    JEL: D43 L13 L41 L66
    Date: 2022–06
  2. By: Miller, Conrad; Schmutte, Ian
    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 non-referred 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: Social and Behavioral Sciences, firms and organizations, inequality
    Date: 2021–09–17
  3. By: Juliana Oliveira-Cunha; Capucine Riom; Anna Valero
    Abstract: We present new data from a survey of 425 UK businesses conducted in July 2021 in partnership with the Confederation of British Industry (CBI), which seeks to understand the ways in which firms have innovated one year on in response to the pandemic. We find that process innovation has been widespread since March 2020: 75% of firms have adopted digital technologies, 55% new digital capabilities and nearly 70% new management practices, and a large share of firms continued to innovate beyond the initial lockdowns. We find similar patterns in terms of the introduction of new products or services. We describe how the self-reported impacts of these technologies on firm performance and on workers differ across types of businesses, technologies adopted and business functions that these technologies relate to. We find that previous technology adoption is a strong predictor of a continued innovation response to the crisis, and that gaps in performance between more and less digitised firms might be expected to widen in the future.
    Keywords: Covid-19, Technological change, Productivity
    Date: 2021–11–10
  4. By: Laszlo Goerke (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University)
    Abstract: This contribution surveys theoretical analyses of tax evasion by firms. It uses a simple model in which the firm determines economic activity and the under-declaration of the tax base to integrate various approaches into a coherent analytical framework. Initially, the chapter characterises the basic features of the firm's decision. Subsequently, it considers the effects of firm-size heterogeneity, restrictions on evasion behaviour, the co-existence of tax evasion with other illegal activities, output market interactions, non-profit objectives, and corporate governance issues.
    Keywords: Firm, Tax Avoidance, Tax Evasion
    JEL: H25 H26 K34
    Date: 2022–05
  5. By: Jaanika Merikyll; Alari Paulus
    Abstract: Economic recessions can boost the productivity-enhancing reallocation of jobs, yet the Covid-19 crisis has provided limited and mixed evidence of that. The paper studies the link between productivity and reallocation and investigates the role of job retention schemes in it, using a rich administrative dataset for Estonia that covers the whole population of firms from 2004 to 2020. We find persistent evidence for the reallocation of jobs towards more productive sectors and firms. However, the within-sector reallocation was surprisingly unresponsive to productivity in the Covid-19 crisis, in sharp contrast to the experience in the previous major crisis, the Great Recession. We show that a generous job retention scheme supressed the acceleration of within-industry reallocation towards more productive firms, which had negative consequences for aggregate productivity during Covid-19. These estimates appear sufficiently large to imply that there are negative overall welfare effects that offset the positive employment effect.
    Keywords: job reallocation, productivity, Covid-19, cleansing effect, firm exit and entry, job retention scheme
    JEL: J62 D24 J68 D61
    Date: 2022–06–29
  6. By: Nicholas Bloom; Takafumi Kawakubo; Charlotte Chunming 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: expectations, forecasting, management, productivity
    JEL: L2 M2 O32 O33
    Date: 2021–12
  7. By: Wei Cui; Randall Wright; Yu Zhu
    Abstract: We study economies where firms acquire capital in primary markets then retrade it in secondary markets after information on idiosyncratic productivity arrives. Our secondary markets incorporate bilateral trade with search, bargaining and liquidity frictions. We distinguish between full and partial sales (one firm gets all or some of the other’s capital). Both exhibit interesting long- and short-run patterns in data that the model can match. Depending on monetary and credit conditions, more partial sales occur when liquidity is tight. Quantitatively, we find significant steady-state and business-cycle implications. We also investigate the impact of search, taxation and persistence in firm-specific shocks.
    Keywords: Business fluctuations and cycles; Monetary policy
    Date: 2022–06
  8. By: Josh De Lyon; Swati Dhingra
    Abstract: We use real-time firm survey data to describe trends in the UK economy in early 2021. As of April 2021, business activity and expectations for the future have improved. However, real wage growth is down and firms are reporting that average input costs have increased. Firms are reporting that Brexit has affected their operations, leading to a fall in exports to the EU for a quarter of exporters and a fall in imports from the EU for a third of importers. Increased border costs are the most cited Brexit-related issue. We discuss how policies can support workers and firms in adapting to the structural changes from Covid-19 and Brexit.
    Keywords: Covid-19
    Date: 2021–05–06
  9. By: Dirk Czarnitzki; Gastón P Fernández; Christian Rammer
    Abstract: Artificial Intelligence (AI) is often regarded as the next general-purpose technology with a rapid, penetrating, and far-reaching use over a broad number of industrial sectors. A main feature of new general-purpose technology is to enable new ways of production that may increase productivity. So far, however, only very few studies investigated likely productivity effects of AI at the firm-level; presumably because of lacking data. We exploit unique survey data on firms’ adoption of AI technology and estimate its productivity effects with a sample of German firms. We employ both a cross-sectional dataset and a panel database. To address the potential endogeneity of AI adoption, we also implement IV estimators. We find positive and significant effects of the use of AI on firm productivity. This finding holds for different measures of AI usage, i.e., an indicator variable of AI adoption, and the intensity with which firms use AI methods in their business processes.
    Keywords: Artificial Intelligence, Productivity, CIS data
    Date: 2022–02–17
  10. By: Lorant Kaszab (Department of Economics, Vienna University of Economics and Business, Magyar Nemzeti Bank); Ales Marsal (Department of Economics, Vienna University of Economics and Business, National Bank of Slovakia); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business)
    Abstract: Survey evidence tells us that stock prices reflect the risks investors associate with long-run technological change. However, there is a shortage of models that can rationalise long-run risks. Unlike the previous literature assuming a fixed number of products our model allows for new product varieties that appear in the form of new firms which face entry costs and delay in the entry process. The fixed variety model has a significant limitation in translating macroeconomic volatility into asset return volatility. Our model with growing varieties induces endogenous low-frequency fluctuations in productivity driving large persistent variations in consumption growth and asset prices. It also changes the valuation of assets through the increase in the volatility of the pricing kernel (with a positive long-run component) and leads to higher excess returns. Our model is motivated with a simple recursively identifed VAR model containing quarterly US data 1992Q3-2019Q4 with the following list of variables: total factor productivity, consumption, a measure of firm entry, and the excess return on stocks.
    Keywords: ?rm entry, equity premium, Epstein-Zin, New Keynesian
    JEL: E13 E31 E43 E44 E62
    Date: 2022–05
  11. By: Reinhilde Veugelers; Frederic Warzynski
    Abstract: This Working Paper is an output from the MICROPROD project, which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390. Research and development is seen as a key contributor to growth because it generates knowledge, leading to new or improved products through product innovation, and makes firms more efficient at producing goods through process innovation. Firm level studies generally find evidence of strong positive...
    Date: 2022–06
  12. By: Christine L. Dobridge; Erik P. Gilje; Andrew Whitten
    Abstract: Using firm-level administrative tax data on the 43% of business liabilities in the United States tied to privately held firms, we document dramatic reductions in leverage since the Great Recession. Leverage for the average private firm fell fifteen percent between 2004 and 2018. In contrast, leverage among public firms rose during this period. The decline in leverage among private firms is inconsistent with theories that suggest firm leverage tracks pro-cyclical credit market conditions. Younger and smaller private firms see especially large declines in leverage, and we find that reduced leverage among private firms is correlated with lower investment. Our findings have important implications for theories on how firm leverage and investment relate to economic fluctuations.
    JEL: G3 G30 G31 G32
    Date: 2022–05
  13. By: Min Dai; Zhaoli Jiang; Neng Wang
    Abstract: Many real-world business opportunities feature second-mover advantages as there are often positive spillovers (externality) from early entrants to followers. We develop a tractable stochastic duopoly entry game with a second-mover advantage. We show that firms engage in a war-of-attrition game with the hope of becoming the follower, resulting in excessively delayed entry opposite to the predictions that competition causes firms to equalize rents (Fudenberg and Tirole, 1985) by exercising their entry options too soon (Grenadier, 1996). We obtain closed-form value functions and entry strategies for both mixed-strategy and pure-strategy equilibria. We develop a separation principle that decomposes the duopoly real-option game into a monopolist's real-option problem and a generalized easy-to-solve war-of-attrition game with stochastic payoffs. Quantitatively, our model predicts substantial option value erosion caused by excessively delayed firm entry.
    JEL: E22 G13 G31
    Date: 2022–06
  14. By: Antoine Dubus; Patrick Legros
    Abstract: Firms may share information to discover potential synergies between their data sets and algorithms, which eventually may lead to more efficient mergers and acquisitions (M&A) decisions. However, as pointed out by Arrow, information sharing also modifies the competitive balance when companies do not merge, and a firm may be reluctant to share information with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing information. Because more sharing of information may increase industry expected profits both when there is head-to-head competition and when there is an M&A, the presence of a regulator who can prevent or allow the M&A can decrease or increase the level of information sharing, as well as consumer surplus, with respect to the no-regulator case. A regulator who can also control the level of information sharing will allow firms to share information.
    Keywords: synergies, mergers, sale of data, incomplete information, antitrust, privacy
    Date: 2022–06

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