nep-bec New Economics Papers
on Business Economics
Issue of 2022‒09‒05
seven papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Immigration and Business Dynamics: Evidence from U.S. Firms By Parag Mahajan
  2. Aggregate Properties of Open Economy Models with Expanding Varieties By Saroj Bhattarai; Konstantin Kucheryavyy
  3. Local Information and Firm Expectations about Aggregates By Jonas Dovern; Lena Sophia Müller; Klaus Wohlrabe
  4. Board-level worker representation By Gregorič, Aleksandra
  5. Did the COVID-19 Pandemic Create More Zombie Firms in Japan? By Gee Hee HONG; ITO Arata; NGUYEN Thi Ngoc Anh; SAITO Yukiko
  6. Distressed firms, zombie firms and zombie lending: a taxonomy By Laura Álvarez; Miguel García-Posada; Sergio Mayordomo
  7. Supply Chain Dynamics and Resilience of the Economy during a Crisis By KAWAKUBO Takafumi; SUZUKI Takafumi

  1. By: Parag Mahajan
    Abstract: Prior literature on the economic impact of immigration has largely ignored changes to the composition of labor demand. In contrast, this paper uses a comprehensive collection of survey and administrative data to show that heterogeneous establishment entry and exit drive immigrant-induced job creation and a rightward shift of the productivity distribution in U.S. local industries. High-productivity establishments are more likely to enter and less likely to exit in high immigration environments, whereas low-productivity establishments are more likely to exit. These dynamics result in productivity growth. A general equilibrium model proposes a mechanism that ties immigrant workers to high-productivity firms and shows how accounting for changes to the employer distribution can yield substantially larger estimates of immigrant-generated economic surplus than canonical models of labor demand.
    Keywords: immigration, business dynamics, productivity, firm heterogeneity
    JEL: J23 J61 L11 F22
    Date: 2022
  2. By: Saroj Bhattarai; Konstantin Kucheryavyy
    Abstract: We present a unified dynamic framework to study the interconnections between international trade and business cycle models. We prove an aggregate equivalence between a competitive, representative firm model that has aggregate production externalities and dynamic trade models that feature monopolistic competition, endogenous entry, and heterogeneous firms. The production externalities in the representative firm model have to be introduced in the intermediate and final good sectors so that the model is isomorphic to dynamic trade models that embody love-of-variety and selection effects. In a quantitative exercise with multiple shocks, we show that to improve the fit of the dynamic trade models with the data, the most important ingredient is negative capital externality in the intermediate good sector. We conclude that this presents a puzzle for the literature as standard dynamic trade models provide micro-foundations for positive capital externality.
    Keywords: international business cycle, dynamic trade models, heterogeneous firms, production externalities, monopolistic competition, export costs, entry costs
    JEL: F12 F41 F44 F32
    Date: 2022
  3. By: Jonas Dovern; Lena Sophia Müller; Klaus Wohlrabe
    Abstract: Using new survey data on quantitative growth expectations of firms in Germany, we show that firms resort to local information when forming expectations about aggregate growth. Firms extrapolate from the economic situation in their county, industry growth and their individual business situation. The effect is particularly strong for small firms and explains part of the high expectation dispersion across firms. Furthermore, we show that growth expectations are correlated with employment and investment decisions of firms, highlighting that differences in expectations do indeed seem to lead to differences in actual firm decisions. Our results confirm predictions of theoretical models with rational inattention.
    Keywords: GDP expectations, expectation heterogeneity, disagreement, rational inattention, ifo business tendency survey
    JEL: D84 E20 E32
    Date: 2022
  4. By: Gregorič, Aleksandra
    Abstract: This chapter reviews the literature on board-level worker representation (BLWR). BLWR refers to workers' legally sanctioned rights to take part in the decisions of their employers' board of directors as full or consultative members, regardless of their underlying equity investments. It provides information about the incidence of BLWR across countries, and the factors that likely contributed to the establishment of this mechanism of employee voice. It reviews theory on the positive and negative impacts of BLWR for workers and firms, summarizes the related empirical evidence, and concludes by pointing to the open gaps as avenues for future research.
    Keywords: board-level worker representation,theoretical and empirical review,cross-country evidence,firm performance,boardroom
    JEL: J53 J54
    Date: 2022
  5. By: Gee Hee HONG; ITO Arata; NGUYEN Thi Ngoc Anh; SAITO Yukiko
    Abstract: The COVID-19 pandemic constituted a massive shock to the Japanese economy, as in other countries, posing a significant threat to the business continuity of firms. Bankruptcy rates remain low, partly thanks to large government support, but it is unclear whether the pandemic worsened business dynamism and generated more zombie firms in Japan. In this paper, using firm-level balance sheet and exit information, we find that firm exit rates declined in general, including firms with weak balance sheets, suggesting that the cleansing mechanism, whereby a less productive firm exits to allow for a more productive firm to enter, weakened during the pandemic. Overall firm borrowing also increased during the pandemic, with particular increases in long-term borrowing. The share of zombie firms rose especially in the manufacturing sector.
    Date: 2022–08
  6. By: Laura Álvarez (Banco de España); Miguel García-Posada (Banco de España); Sergio Mayordomo (Banco de España)
    Abstract: This papers develops a taxonomy of financially distressed and zombie firms using a rich dataset that combines detailed firm-level and bank-firm level information in Spain. A distressed firm exhibits both cash-flow and balance-sheet insolvency whereas a zombie firm is a distressed company that has received new credit. We carry out several analyses to test the validity of these definitions. For instance, we find that being distressed is negatively correlated with the probability of receiving new credit. However, the main bank of a distressed firm is more reluctant to restrict the supply of credit to such firm than a bank with no previous exposure to the company, which may reflect the incentives of the former to engage in loan evergreening. This financial support contributes to keeping zombie firms afloat for a longer period than distressed firms. Moreover, the contraction in capital, employment and sales is much larger in distressed firms than in zombie firms.
    Keywords: taxonomy of firms, distressed firms, zombie firms, credit supply, loan evergreening, real effects
    JEL: G21 G32 G33 L25
    Date: 2022–05
  7. By: KAWAKUBO Takafumi; SUZUKI Takafumi
    Abstract: Recently, supply chain disruptions are prevalent worldwide. When there are disruptions, firms restructure their supply chains to minimize negative impacts. The ability to restructure is the key for firms to be resilient against shocks. However, there is little evidence on how firms react to supply chain disruptions. We exploit large-scale firm-level transaction data and focus on the Great East Japan Earthquake in 2011. It was a massive but local shock in that only firms in the disaster area received direct negative impacts. First, we found a sudden shift of supplier choice diverting away from the disaster area. Second, although firms overall increased the number of suppliers, they geographically concentrated the supply chains outside the disaster area. This finding is robust across different measures of geographic concentration. Finally, we showed that firm productivity is a determinant of the ability to find alternative suppliers. These results suggest that supply chain disruptions would concentrate the spatial distribution of economic activities and that the effect would be driven by productive firms.
    Date: 2022–08

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