nep-bec New Economics Papers
on Business Economics
Issue of 2022‒10‒31
six papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Earnings Dynamics, Inequality and Firm Heterogeneity By Paul Bingley; Lorenzo Cappellari
  2. Dynamics of First-Time Patenting Firms By Nilsen, Øivind Anti; Raknerud, Arvid
  3. Fintech Entry, Firm Financial Inclusion, and Macroeconomic Dynamics in Emerging Economies By Federico S. Mandelman; Victoria Nuguer; Alan Finkelstein Shapiro
  4. Beyond Political Connections : A Measurement Model Approach to Estimating Firm-levelPolitical Influence in 41 Economies By Francis,David C.; Kubinec ,Robert
  5. Sparse Production Networks By Andrew B. Bernard; Yuan Zi
  6. Firm-Level Input Distortion in Indian States By Chaurey,Ritam; Manghnani,Ruchita; Perego,Viviana Maria Eugenia; Sharma,Siddharth

  1. By: Paul Bingley; Lorenzo Cappellari
    Abstract: Studies of individual earnings dynamics typically ignore firm heterogeneity, whereas worker and firm decompositions of earnings inequality abstract from the life-cycle. We study firm effects in individual earnings dynamics for the Italian private sector population, leveraging the covariance structure of co-workers earnings for identification. Our model allows for dynamics of both worker and firm effects, worker-firm sorting, worker segregation and correlation of firm effects among connected firms. While firms explain most of the earnings inequality when workers are young, workers explain most over the life cycle. Sorting of workers across firms is substantial, especially for younger workers. Standard earnings dynamics models overstate the relevance of individual heterogeneity.
    Keywords: earnings inequality; earnings dynamics; co-workers' covariance
    JEL: J24 J31
    Date: 2022–10
  2. By: Nilsen, Øivind Anti (Norwegian School of Economics); Raknerud, Arvid (Statistics Norway)
    Abstract: This paper investigates firm dynamics in the period before, during, and after an event consisting of a first published patent application. The analysis is based on patent data from the Norwegian Industrial Property Office merged with data from several business registers covering a period of almost 20 years. We apply an event study design and use matching to control for confounding factors. The first patent application by a young firm is associated with significant growth in employment, output, assets and public research funding. Moreover, our results indicate that economic activity starts to increase at least three years ahead of the first patent application. However, we find no evidence of additional firm growth after patent approval for successful applicants. Our findings indicate that the existence of a properly functioning patenting system supports innovation activities, especially early in the life cycle of firms.
    Keywords: patenting, firm performance, panel data, event study design
    JEL: C33 D22 O34
    Date: 2022–08
  3. By: Federico S. Mandelman; Victoria Nuguer; Alan Finkelstein Shapiro
    Abstract: We build a model with a traditional banking system, endogenous entry of firms and fintech intermediaries, and firm heterogeneity in credit access and usage to study the credit-market, macroeconomic, and business cycle implications of the recent sizable growth in the number of fintech intermediaries in emerging economies. Our analysis delivers three findings. First, the impact of greater fintech entry on firm financial inclusion depends on whether greater entry is driven by lower entry costs for fintech intermediaries or lower barriers to fintech credit for unbanked firms. Second, greater fintech entry can have positive long-term macroeconomic effects. Third, greater fintech entry leads to a reduction in output volatility but results in greater relative volatility in bank credit and consumption. The effects of fintech entry on macro outcomes and volatility hinge critically on the interaction between domestic financial shocks and the reduction in fintech lending rates stemming from greater fintech entry. Unless greater fintech entry leads to lower fintech credit costs for firms, greater fintech entry will have no meaningful credit-market or business-cycle consequences.
    Keywords: financial access and participation; endogenous firm entry; banking sector; fintech entry; emerging economy business cycles
    JEL: E24 E32 E44 F41 G21
    Date: 2022–01–31
  4. By: Francis,David C.; Kubinec ,Robert
    Abstract: This paper considers the political influence of private firms. While such influence isfrequently discussed, there is limited analysis of how firms combine political interactions, and under what conditions,to gain influence. The exception is the large literature on firms with political connections, with findings generallyshowing large gains to firms with those direct relationships. This paper extends the discussion ofinfluence beyond political connections alone and uses a rich firm-level data set from 41 economies, which includesinformation on several interactions with political actors. Using a Bayesian item response theory (IRT) measurementmodel, an index of Political Influence is estimated, with the prior assumption that political connections yield moreinfluence. Membership in a business association is found to enhance influence, while such influence is offset by bribes,state ownership, firm size, and a reliance on collective lobbying. Political Influence is found to be broadly higherin economies with poorer governance but more dispersed in those with better governance. Within economies, higherinfluence is associated with a higher likelihood of reporting a small number of competitors, higher sales, andlower labor inputs relative to sales. These findings are robust across several models that incorporatehigh-dimensional fixed effects, incorporating measurement error in the index, and varying these relationships overseveral governance measures.
    Date: 2022–07–05
  5. By: Andrew B. Bernard; Yuan Zi
    Abstract: Firm-to-firm connections in domestic and international production networks play a fundamental role in economic outcomes. Firm heterogeneity and the sparse nature of firm-to-firm connections implicitly discipline network structure. We find that a large group of well-established statistical relationships are not useful in improving our understanding of production networks. We propose an ``elementary" model for production networks based on random matching and firm heterogeneity and characterize the families of statistics and data generating processes that may raise underidentification concerns in more complex models. The elementary model is a useful benchmark in developing ``instructive" statistics and informing model construction and selection.
    JEL: F11 F14
    Date: 2022–09
  6. By: Chaurey,Ritam; Manghnani,Ruchita; Perego,Viviana Maria Eugenia; Sharma,Siddharth
    Abstract: This paper measures trends in factor misallocation in India between 1999 and 2014, using datafrom a rich panel of Indian firms. The misallocation of a factor is modeled as an adjustment cost, that is, animplicit variable cost incurred by a firm when using that factor. Trends in the adjustment cost are estimated using anew adaptation of the firm-level cost-minimization approach. The paper documents these trends for four factors ofproduction (permanent labor, contract labor, land, and fixed capital) across Indian states and by firm size. Overall, thefindings show that adjustment costs declined over time for labor and land but with significant heterogeneity withrespect to state growth rate and firm size. Using these stylized facts on trends in factor adjustment costs, as wellas in-depth field interviews with firms in two Indian states, the paper also discusses potential policydevelopments behind these trends, including a preliminary examination of the role of state-level governance in theimplementation of relevant factor market policies.
    Date: 2022–05–17

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