nep-bec New Economics Papers
on Business Economics
Issue of 2023‒02‒13
eight papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Managing export complexity: the role of service outsourcing By Berlingieri, Giuseppe; Pisch, Frank
  2. Firms and Inequality By De Loecker, Jan; Obermeier, Tim; Van Reenen, John
  3. Acquisitions, management and efficiency in Rwanda's coffee industry By Macchiavello, Rocco; Morjaria, Ameet
  4. What’s Driving the Decline in Entrepreneurship? By Nicholas Kozeniauskas
  5. Quantifying Consumer Taste in Trade: Evidence from the Food Industry By Bee Yan Aw; Yi Lee; Hylke Vandenbussche
  6. Firm Expectations and News: Micro v Macro By Benjamin Born; Zeno Enders; Manuel Menkhoff; Gernot J. Müller; Knut Niemann; Gernot Müller
  7. Measuring the digitalisation of firms: A novel text mining approach By Axenbeck, Janna; Breithaupt, Patrick
  8. Global payment disruptions and firm-level exports By Haas, Ralph$cde; Kirschenmann, Karolin; Schultz, Alison

  1. By: Berlingieri, Giuseppe; Pisch, Frank
    Abstract: Exporting involves sunk and fixed costs in the form of service inputs, and whether such services are 'made' in-house or 'bought' from external agencies is a key organizational margin: it is not a core-competence of manufacturing companies and has far-reaching implications for the costs of exporting. We study such outsourcing decisions both conceptually and empirically. For guidance, we propose a theoretical framework in which firms trade off managerial strain (internal provision) and ex-post adaptation costs (external provision). Using confidential firm-level data from France and a novel instrumental variables strategy, we document the precise service inputs needed to access foreign markets and provide empirical evidence that these are typically outsourced. In line with the model, this pattern is strong for services with high costs of adaptation, and when firms have little managerial capability available. Finally, we discuss the implications of our findings for servitization and inequality.
    Keywords: adaptation; complexity; core competencies; firm boundaries; firm capabilities; sunk and fixed export costs; professional and business services; structural transformation
    JEL: D23 F10 L22 L23 L24 L84
    Date: 2022–04–06
  2. By: De Loecker, Jan; Obermeier, Tim; Van Reenen, John
    Abstract: In the last few decades, dramatic changes have been documented in the US business landscape. These include rising productivity and pay dispersion between firms, higher aggregate markups (of price over variable costs), growing dominance of big companies ("superstar firms"), a fall in the labour share of GDP and a decline in business dynamism. We review the existing literature and present a new analysis using comprehensive firm level panel data, to show that qualitatively, these trends are also apparent in the UK. This similarity suggests that common trends in technology (or globalisation) have been the driving force behind these changes, rather than country-specific institutions (such as weaker US antitrust enforcement). Since (at least) the mid-1990s, there has been a large increase in UK firm-level inequality (especially in the upper tails) of productivity, wages, markups, and labour shares. Of course, inequality between firms is much less of a concern than inequality between people. However, it can signal economic problems, such as a slowdown in the diffusion of ideas between leading and laggard firms and can foster higher wage inequality. Indeed, there has been little aggregate UK productivity growth since the Global Financial Crisis, and this has been a serious drag on median and mean real wages. We suggest a simple theoretical framework for understanding some of these trends and quantitatively analyse why, despite increasing markups, the, the UK labour share has not fallen as sharply as that in the US. Finally, we suggest some policy options in response to these worrying trends, include modernising competition rules to deal with the growth of superstar firms and strengthening worker bargaining power.
    Keywords: firms inequality; financial crisis
    JEL: R14 J01 J1 N0
    Date: 2022–03–09
  3. By: Macchiavello, Rocco; Morjaria, Ameet
    Abstract: Well-functioning markets allocate assets to owners that improve firms' management and performance. We study the effects of ownership changes on coffee mills in Rwanda - an industry in which managing relationships with farmers and seasonal workers is important and that has seen many ownership changes in recent years. We combine administrative data, a survey panel of mills and an original survey of acquirers that allows us to construct acquirer-specific and target-specific control groups. A difference-in-differences design reveals that ownership changes do not improve performance unless the mill is acquired by a foreign firm. Our preferred interpretation - supported by detailed survey evidence that considers alternative hypotheses - is that foreign firms successfully implement management changes in key operational areas. Upon acquisition, both domestic and foreign owned mills attempt to implement similar changes, but domestic firms face resistance from workers and farmers. Domestic owners have relationships with their local communities, which can create opportunities to establish new mills and acquire existing ones. However, these same relationships create pressure to maintain status-quo relational arrangements, which makes it harder to implement managerial changes.
    Keywords: management; performance; market reforms; coffee; Rwanda
    JEL: D24 O12 O16 G32 G34 L25 N57
    Date: 2022–07–21
  4. By: Nicholas Kozeniauskas
    Abstract: Why has there been a steady decline in entrepreneurship in the US in recent decades? To answer this question, I develop a general equilibrium occupation choice model and combine it with data on these choices. Skill-biased technical change can account for much of the decline in the relative entrepreneurship rate of more educated people, but cannot explain the decline in the aggregate level of entrepreneurship. The major factors in the decline in the share of people who are entrepreneurs, the firm entry rate, and the size of the entrepreneur sector are rising entry costs and outsized productivity gains by large non-entrepreneur firms.
    JEL: E23 E24 J24 J31
    Date: 2022
  5. By: Bee Yan Aw; Yi Lee; Hylke Vandenbussche
    Abstract: This paper develops an empirical model of consumer taste in twenty-nine Belgium food industries for the period from 1998-2005 to generate a “taste distance” measure of over 1, 800 firm-product exports to 53 country destinations. We estimate consumer taste using a control function approach and perform a decomposition of export revenues of firm-products to establish the importance of representative consumer taste relative to quality and marginal cost in export success. We find substantial taste heterogeneity in food exports across destination countries. Overall, in the large majority of food exports, consumer taste is an important and separate demand determinant to explain export revenues. Depending on the product, taste for a product explains between 4-30% of export revenues. Thus, any taste shock due to events such as pandemics or climate change, may induce substantial changes in export profitability of firms.
    Keywords: Consumer taste, quality, productivity, exports, firm-product, food
    JEL: F12 F14
    Date: 2023
  6. By: Benjamin Born; Zeno Enders; Manuel Menkhoff; Gernot J. Müller; Knut Niemann; Gernot Müller
    Abstract: In this study, we investigate how firm expectations about their own developments respond to different types of news. We classify news as either micro or macro, with micro news being information about firm-specific developments and macro news being information about the aggregate economy. Our analysis of firm surveys from Germany and Italy shows that both types of news consistently predict forecast errors, contradicting the idea of full-information rational expectations. Yet while firm expectations overreact to micro news, they underreact to macro news. We propose a model in which firms suffer from “island illusion” to explain these patterns in the data.
    Keywords: firm expectations, survey, overreaction, underreaction, micro news, macro news, island illusion, business cycle
    JEL: D84 C53 E71
    Date: 2022
  7. By: Axenbeck, Janna; Breithaupt, Patrick
    Abstract: Due to the omnipresence of digital technologies in the economy, measuring firm digitalisation is of high importance. However, current indicators show several shortcomings, e.g., they lack timeliness and regional granularity. In this study, we show that advances in text mining and comprehensive firm website content can be leveraged to generate real-time and large-scale estimates of firm digitalisation. We use a transfer learning approach to capture the latent definition of digitalisation. For this purpose, we train a random forest regression model on labeled German newspaper articles and apply it on firm's website content. The predictions are used as a continuous indicator for firm digitalisation. Plausibility checks confirm the link to established digitalisation indicators at the firm and sectoral level as well as for firm size classes and regions. Lastly, we illustrate the indicator's potential for giving timely answers to pressing economic issues by analysing the link between digitalisation and firm resilience during the Covid-19 shock.
    Keywords: web-mining, text as data, machine learning, digitalisation
    JEL: C53 C81 O30
    Date: 2022
  8. By: Haas, Ralph$cde; Kirschenmann, Karolin; Schultz, Alison
    Abstract: We exploit proprietary information on severed correspondent banking relationships - due to the stricter enforcement of financial crime regulation - to assess how payment disruptions impede cross-border trade. Using firm-level export data from emerging Europe, we show that when local respondent banks lose access to correspondent banking services, their corporate borrowers start to export less. This trade decline occurs on both the extensive and intensive margins and firms do not substitute foregone exports with higher domestic sales. As a result, total firm revenues and employment shrink. These findings highlight an often overlooked function of global banks: providing the payment infrastructure that enables firms in less-developed countries to export to richer parts of the world.
    Keywords: Correspondent banking, payment infrastructure, global banks, international trade, anti-money laundering
    JEL: F14 F15 F36 G21 G28
    Date: 2022

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