nep-bec New Economics Papers
on Business Economics
Issue of 2022‒07‒25
twelve papers chosen by
Vasileios Bougioukos
London South Bank University

  1. How Firms Survive in European Emerging Markets: A Survey By Eduard Baumohl; Evzen Kocenda
  2. The role played by large firms in generating income inequality: UK FTSE 100 pay practices in the late twentieth and early twenty-first centuries By Willman, Paul; Pepper, Alexander
  3. Business creation during Covid-19 By Bahaj, Saleem; Piton, Sophie; Savagar, Anthony
  4. Going Public and the Internal Organization of the Firm By Bias, Daniel; Lochner, Benjamin; Obernberger, Stefan; Sevilir, Merih
  5. The business response to Covid-19: the CEP-CBI survey on technology adoption By Capucine Riom; Anna Valero
  6. Do Firms Gain from Managerial Overconfidence? The Role of Severance Pay By Clara Graziano; Annalisa Luporini
  7. Firms, Agricultural Imports, and Tariff-Rate Quotas: An Assessment of China’s Wheat, Corn, and Rice Imports Using Firm-Level Data By Grant, Jason; Xie, Chaoping; Boys, Kathryn
  8. Structural Change Within Versus Across Firms: Evidence from the United States By Xiang Ding; Teresa C. Fort; Stephen J. Redding; Peter K. Schott
  9. War in Ukraine and Western sanctions: How vulnerable are German firms? By Görg, Holger; Jacobs, Anna; Meuchelböck, Saskia
  10. Favoritism and Firms: Micro Evidence and Macro Implications By Zareh Asatryan; Thushyanthan Baskaran; Carlo Birkholz; David Gomtsyan
  11. The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany By Johannes F. Schmieder; Till M. von Wachter; Jörg Heining
  12. The Sale of Data: Learning Synergies Before M&As By Antoine Dubus; Patrick Legros

  1. By: Eduard Baumohl (University of Economics in Bratislava & Faculty of Economics, Technical University of Kosice, Slovakia); Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & CESifo, Munich; IOS, Regensburg)
    Abstract: We survey the empirical evidence on corporate survival and its determinants in European emerging markets. We demonstrate that (i) institutional quality is a significant preventive factor for firm survival in all sectors of the economy, which holds for small, medium and large firms alike. On the other hand, (ii) the impact of financial performance indicators is lower than one would expect. However, (iii) other firm-level variables play more important roles in firm survival, and the most important preventive factors are the legal form of a limited liability company, the number of large shareholders, and the presence of a foreign owner.
    Keywords: firm survival, institutions, financial development, European emerging markets, survival and exit determinants, hazards model
    JEL: D22 G01 G33 G34 P34
    Date: 2022–07
  2. By: Willman, Paul; Pepper, Alexander
    Abstract: We examine the role of large firms in generating income inequality. Specifically, we consider the growth in the use of asset-based rewards for senior executives, combined with continued use of salaries and wages for other employees, and the impact this has on measures of inequality within firms. Our paper presents data on intra firm inequality from the UK FTSE 100 for the period 2000-2015. It looks at ratios of CEO to average earnings and attempts to explain both the growth in inequality on this measure and the extent of variance between firms. It distinguishes between a period of “administered inequality” up to the early 1980’s when intra-firm processes defined differential pay and a subsequent one of “outsourced inequality”, when capital market measures dominate executive pay. In the latter period, intra firm inequality measures are defined by upward movements in capital market measures and the extent of outsourcing of low paid work. We conclude by discussing a number of UK public policy proposals regarding executive pay.
    Keywords: CEO compensation; firms; inequality; pay ratios; International Inequalities Institute
    JEL: R14 J01
    Date: 2020–12–01
  3. By: Bahaj, Saleem (Bank of England); Piton, Sophie (Bank of England); Savagar, Anthony (University of Kent and Centre for Macroeconomics)
    Abstract: We use data on business registrations in the UK to study the response of firm entry to the Covid-19 pandemic. We find that firm entry increased during the pandemic, unlike typical recessions where firm entry declines. The rise in firm creation is driven by individual entrepreneurs creating companies for the first time, and particularly creating companies in online retail. We link the rise in firm creation to declines in brick-and-mortar retail footfall via Google mobility data, and show that it takes 10 weeks for a firm to be registered after a shock to footfall. To study the impacts of the newly created firms, we merge entry data with online job postings from Indeed and show that the rise in firm creation drives increased vacancy postings. However, we also show there is a higher probability of pandemic startups dissolving relative to pre-pandemic cohorts. Therefore, we conclude that booming firm creation aided the rapid recovery of the UK economy in the short run, but the long-run implications are more uncertain.
    Keywords: Firm dynamics; Covid-19; business dynamism; firm entry.
    JEL: E32 L25 L26
    Date: 2022–05–20
  4. By: Bias, Daniel (Swedish House of Finance at the Stockholm School of Economics); Lochner, Benjamin (Institute for Employment Research (IAB), Nuremberg, Germany ; FAU); Obernberger, Stefan (Erasmus School of Economics at Erasmus University Rotterdam); Sevilir, Merih (Kelley School of Business at Indiana University)
    Abstract: "We examine how firms adapt their organization when they go public. To conform with the requirements of public capital markets, we expect IPO firms to become more organized, making the firm more accountable and its human capital more easily replaceable. We find that IPO firms transform into a more hierarchical organization with smaller departments. Hiring is strongest in jobs requiring knowledge in finance, accounting, and management. New hires are better educated, but less experienced than incumbents, which reflects the staffing needs of a more hierarchical organization. Employee turnover is sizeable and directly related to changes in hierarchical layers. Wage inequality increases in public firms as they become more hierarchical. Overall, going public is associated with a comprehensive transformation of the firm’s organization which becomes geared towards operating efficiently and in accordance with capital market standards." (Author's abstract, IAB-Doku) ((en))
    Keywords: IAB-Open-Access-Publikation
    JEL: D20 G32 G34 M50
    Date: 2022–06–08
  5. By: Capucine Riom; Anna Valero
    Abstract: We present new data from a survey of 375 UK businesses conducted in July 2020 in partnership with the Confederation of British Industry (CBI), which seeks to understand the way in which firms have innovated in response to the crisis. We find that the pandemic has caused enormous business disruption, which has prompted many firms to focus on innovation. Over 60% of firms report that they have adopted new technologies or management practices since the onset of the pandemic, while a third have invested in new digital capabilities. We find similar patterns in terms of the introduction of new products or services. We describe how these responses differ across types of businesses and find that previous technology adoption is a strong predictor of a rapid innovation response to the crisis, even after controlling for other factors. Nearly all firms report that they expect the adoption of new technologies or practices to be permanent and to have a positive impact on firm performance. We will test these predictions with a follow-up survey one year on.
    Keywords: Covid-19, business performance, innovation, CBI, UK
    Date: 2020–09–30
  6. By: Clara Graziano; Annalisa Luporini
    Abstract: We analyze the effects of optimism and overconfidence when the manager’s compensation package includes severance pay and the CEO has bargaining power. We find that optimism does not affect incentive pay but increases severance pay with a negative effect on profit. Overconfidence, on the contrary, reduces incentive pay as shown by the previous literature, while its effect on severance pay depends on the intensity of the bias. High values of overconfidence yield an inefficient level of investment which in turn increases severance pay with a negative impact on firm profit. Thus, the attempt to exploit managerial overconfidence to reduce incentive pay may if the manager is replaced and severance agreements come into effect. Our model explains the large severance payments documented by empirical literature by showing that discretionary pay in excess of contractual severance pay may represent a form of efficient contracting when the manager is overconfident and optimist.
    Keywords: overconfidence, optimism, managerial compensation, severance pay, entrenchment
    JEL: J33 D86 D90 L21
    Date: 2022
  7. By: Grant, Jason; Xie, Chaoping; Boys, Kathryn
    Keywords: Agricultural and Food Policy, International Relations/Trade
    Date: 2022–06
  8. By: Xiang Ding (Georgetown University); Teresa C. Fort (Dartmouth College); Stephen J. Redding (Princeton University); Peter K. Schott (Yale University)
    Abstract: We document the role of intangible capital in manufacturing firms' substantial contribution to non-manufacturing employment growth from 1977-2019. Exploiting data on firms' "auxiliary" establishments, we develop a novel measure of proprietary in-house knowledge and show that it is associated with increased growth and industry switching. We rationalize this reallocation in a model where firms combine physical and knowledge inputs as complements, and where producing the latter in-house confers a sector-neutral productivity advantage facilitating within-firm structural transformation. Consistent with the model, manufacturing firms with auxiliary employment pivot towards services in response to a plausibly exogenous decline in their physical input prices.
    Keywords: Intangible capital, Manufacturing, Employment Growth, Non-manufacturing employment, Firms
    JEL: D24 F14 L16 O47
    Date: 2022–06
  9. By: Görg, Holger; Jacobs, Anna; Meuchelböck, Saskia
    Abstract: Russia's invasion of Ukraine has led to a sudden reassessment of political and economic relations with Russia, including financial and trade relations. This policy brief analyzes a new firm-level dataset for Germany to examine the involvement of German firms in the Russian and Ukrainian markets. We analyse the impact of the annexation of Crimea and related sanctions in 2014 and identify the degree and shape of vulnerability of German trade with respect to these two markets on the firm level. The firm-level data reveals that Russia and Ukraine have become less important as trading partners at both the extensive margin and the intensive margin. So far, recovery effects have been observed merely for German-Ukrainian trade. Within the group of firms trading with Russia and Ukraine, we see a clear heterogeneity, which in turn is reflected in individual vulnerability towards the affected markets.
    Keywords: Russia,Ukraine,Sanctions,War,Vulnerability,International Trade,Firms,Russland,Ukraine,Sanktionen,Krieg,Verwundbarkeit,Internationaler Handel,Unternehmen
    Date: 2022
  10. By: Zareh Asatryan; Thushyanthan Baskaran; Carlo Birkholz; David Gomtsyan
    Abstract: We study the economic implications of regional favoritism, a form of distributive politics that redistributes resources geographically within countries. Using enterprise surveys from low- and middle-income countries, we document that firms located close to leaders’ birthplaces grow substantially in sales and employment after leaders assume office. Firms in favored areas also experience increases in sales per worker, wages, and measured total factor productivity. These effects are short-lived, and operate through rising (public) demand for the non-tradable sector. We calibrate a simple structural model of resource misallocation on our estimates. This exercise implies that favoritism reduces output by 0.5% annually.
    Keywords: regional favoritism, firm performance, enterprise surveys, resource misallocation
    JEL: D22 D72 O43 R11
    Date: 2022
  11. By: Johannes F. Schmieder; Till M. von Wachter; Jörg Heining
    Abstract: We document the sources behind the costs of job loss over the business cycle using administrative data from Germany. Losses in annual earnings after displacement are large, persistent, and highly cyclical, nearly doubling in size during downturns. A large part of the long-term earnings losses and their cyclicality is driven by declines in wages. Key to these long-lasting wage declines and their cyclicality are changes in employer characteristics, as displaced workers switch to lower-paying firms. Changes in characteristics of workers or displacing firms explain little of the cyclicality, though non-employment durations correlated with losses in employer effects play a role.
    JEL: J0 J2 J31 J60 J63 J64 J65
    Date: 2022–06
  12. By: Antoine Dubus (D-MTEC - Department of Management, Technology, and Economics [ETH Zürich] - ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]); Patrick Legros (ECARES - European Center for Advanced Research in Economics and Statistics - ULB - Université libre de Bruxelles)
    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.
    Date: 2022–06–17

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