nep-bec New Economics Papers
on Business Economics
Issue of 2022‒10‒17
seven papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Misallocation and Inequality By Nezih Guner; Alessandro Ruggieri
  2. Persistence in firm growth: inference from conditional quantile transition matrice By Giulio Bottazzi; Taewon Kang; Federico Tamagni
  3. Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications By Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
  4. Once bitten, twice shy: Failed deals and subsequent M&A cautiousness By Campbell, Robert J.; Limbach, Peter; Reusche, Johannes
  5. Spillovers of PE Investments By Truong, Huynh Sang; Walz, Uwe
  6. Corporate Acquisitions and Bank Relationships By Steven Poelhekke; Razvan Vlahu; Vadym Volosovych
  7. The role of imports in the intensive margin of exports By Francisco Requena; Guadalupe Serrano; Raúl Mínguez

  1. By: Nezih Guner; Alessandro Ruggieri
    Abstract: For a large set of countries, we document how the labor earnings inequality varies with GDP per capita. As countries get richer, the mean-to-median ratio and the Gini coefficient decline. Yet, this decline masks divergent patterns: while inequality at the top of the earnings distribution falls, inequality at the bottom increases. We interpret these facts within a model economy with heterogeneous workers and firms, featuring industry dynamics, search and matching frictions, and skill accumulation of workers through learning-by-doing and on-the-job training. The benchmark economy is calibrated to the UK. We then study how the earnings distribution changes with distortions that penalize high-productivity firms and frictions that reduce match formation. Distortions and frictions reduce employment, average firm size, and GDP per capita. They also affect how much firms are willing to pay workers, how well high-skill workers are matched with high-productivity firms, and how much training workers receive. The model generates the observed cross-country relation between GDP per capita and earnings inequality, as well as a host of cross-country facts on firm size distribution, firms' training decisions, and workers' life-cycle and job tenure earnings profiles.
    Keywords: earnings inequality, Labor market frictions, correlated distortions, human capital, on-the-job training, productivity, firm size, life-cycle earning profiles
    JEL: E23 E24 J24 O11
    Date: 2022–03
  2. By: Giulio Bottazzi; Taewon Kang; Federico Tamagni
    Abstract: We propose a new methodology to assess the degree of persistence in firm growth, based on Conditional Quantile Transition Probability Matrices (CQTPMs) and well-known indexes of intra-distributional mobility. Improving upon previous studies, the method allows for exact statistical inference about TPMs properties, at the same time controlling for spurious sources of persistence due to confounding factors such as firm size, and sector-, country- and time-effects. We apply our methodology to study manufacturing firms in the UK and four major European economies over the period 2010-2017. The findings reveal that, despite we reject the null of fully independent firm growth process, growth patterns display considerable turbulence and large bouncing effects. We also document that productivity, openness to trade, and business dynamism are the primary sources of firm growth persistence across sectors. Our approach is flexible and suitable to wide applicability in firm empirics, beyond firm growth studies, as a tool to examine persistence in other dimensions of firm performance.
    Keywords: Firm growth persistence; Transition probability matrices; Mobility indexes; Non-parametric statistics.
    Date: 2022–09–23
  3. By: Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
    Abstract: We provide a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We start by using a newly created panel dataset of administrative data that merges Spanish credit register loan data, quasi-census firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth. We show evidence consistent with the hypotheses that there is selection of large firms into procurement, that procurement contracts provide useful collateral for firms -more so than sales to the private sector- and that procurement contracts facilitate firm growth beyond the contract duration. We next build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms. We use the calibrated model to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that granting procurement contracts to small firms, either by directly targeting them or by slicing large contracts into smaller ones, helps these firms grow and overcome financial constraints in the long run. However, we also find that reducing the average size of contracts |or making it less likely for large firms to access them| removes saving incentives for large firms, whose negative effects on capital accumulation can overcome the expansionary consequences for small firms and hence generate a drop in aggregate output.
    Keywords: Government procurement, financial frictions, capital accumulation, aggregate productivity
    JEL: E22 E23 E62 G32
    Date: 2022–02
  4. By: Campbell, Robert J.; Limbach, Peter; Reusche, Johannes
    Abstract: Companies occasionally are unable to finalize publicly announced M&A bids-a phenomenon we refer to as failed deals. Despite their commonality, the implications of failed deals for bidding firms are not well understood. We thus theorize about and empirically investigate the relationship between failed deals and subsequent M&A behavior. In doing so, we present multiple reasons for what we term "the once bitten, twice shy effect," whereby firms act more cautiously in the M&A context following failed deals. In a sample of M&As across North American and European firms, we find empirical support consistent with our theorizing suggesting the cautiousness following failed deals results in a longer time-period between M&A bids, smaller target firm size, and a greater likelihood of advisor usage.
    Keywords: mergers and acquisitions,corporate strategy,failed deals,risk and decision making,M&A activity
    Date: 2022
  5. By: Truong, Huynh Sang; Walz, Uwe
    Abstract: In this paper, we investigate a primary potential impact of leveraged buyout (LBOs) transactions: the effects of LBOs on the peers of the LBO target in the same industry. Using a data sample based on US LBO transactions between 1985 and 2016, we investigate the impact of the peer firms in the aftermath of the transaction, relative to non-peer firms. To account for potential endogeneity concerns, we employ a network-based instrumental variable approach. Based on this analysis, we find support for the proposition that LBOs do indeed matter for peer firms' performance and corporate strategy relative to non-peer firms. Our study supports a learning factor hypothesis: peers gain by learning from the LBO target to improve their operational performance. Conversely, we find no evidence to support the conjecture that peers lose due to the increased competitiveness of the LBO target firm.
    Keywords: LBO spillovers,peer effects,IV approach
    JEL: D45 L43 O33
    Date: 2022
  6. By: Steven Poelhekke; Razvan Vlahu; Vadym Volosovych
    Abstract: Using a large dataset of firm-bank and ownership information for 23 European countries over 2008-2015, we study the dynamics of bank relationships after corporate acquisitions and the effects of changing banks on firm performance. Foreign acquirers do not rely on internal capital markets but keep targets' domestic banks. With more domestic banks, firms increase fixed capital and trade credit. In contrast, domestic acquirers remove domestic but add foreign banks. The latter mainly help reduce the cost of financing. We further explore firm and bank heterogeneity and confirm cost of financing and information asymmetry as plausible reasons to change banks.Â
    Keywords: Acquisitions; Firm-bank relationships; Firm financing; Operating performance
    JEL: D82 E51 F36 G21 G34
    Date: 2021–09
  7. By: Francisco Requena (Universitat de València, Valencia, Spain); Guadalupe Serrano (Universitat de València, Valencia, Spain); Raúl Mínguez (Chamber of Commerce of Spain & Universidad Nebrija, Madrid, Spain)
    Abstract: We investigate the impact of imports of intermediate inputs on export value and scope among Spanish regular two-way trade manufacturing firms over the period 1997-2018. After controlling for firm characteristics and addressing endogeneity using an IV strategy, we find that firms that import intermediate inputs from non-EUEFTA countries enhance the volume and scope of their EU15 exports. The impact was higher when firms imported intermediate inputs from the high-income non-EUEFTA countries before the 2008 financial crisis. However, since 2008, purchase of intermediate inputs from the low-income non-EUEFTA countries become as relevant as those from high income countries. We interpret this apparently surprising result as the optimal response of Spanish firms to diversify their import portfolio as a consequence of an increase in the product upgrading and quality improvement of cheaper intermediate inputs from developing countries after the crisis.
    Keywords: Firm-level data, exports value, firm scope, imports of intermediate inputs, origin of imports, pre and post-crisis
    JEL: F23 F14 L25
    Date: 2022–09

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