nep-bec New Economics Papers
on Business Economics
Issue of 2023‒02‒27
thirteen papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Globalization and Firm Performance By Catão, Luis A. V.; de Faria, Pedro; Martins, António; Portela, Miguel
  2. Immigrant workers and firm resilience on the export market By Léa Marchal; Giulia Sabbadini
  3. Anticompetitive bundling when buyers compete By Taylor, Greg
  4. Unemployment and Labor Productivity Co-movement: the Role of Firm Exit By Miroslav Gabrovski; Mario Rafael Silva
  5. Nexus among Corporate Governance, Intellectual Capital Disclosure and Firm Performance By Aliyu Muhammad Nasir
  6. Firms and inequality when unemployment is high By Bassier, Ihsaan
  7. Short-term Finance, Long-term Effects: Theory and Evidence from Morocco By Kenza Benhima; Omar Chafik; Min Fang; Wenxia Tang
  8. Firms’ Financing Dynamics around Lumpy Capacity Adjustments By Christoph Görtz; Plutarchos Sakellaris; John D. Tsoukalas
  9. Committing to Grow:Size-Dependent Regulations and Firm Dynamics in East Germany By Ufuk Akcigit; Harun Alp; André Diegmann; Nicolas Serrano-Velarde
  10. Measuring the share of imports in final consumption By Emmanuel Dhyne; Ayumu Ken Kikkawa; Magne Mogstad; Felix Tintelnot
  11. Come Together: Firm Boundaries and Delegation By Nick Bloom; Laura Alfaro; Paola Conconi; Harald Fadinger; Patrick Legros; Andrew A.F. Newman; Raffaella Sadun; John Van Reenen
  12. Export Entry and Network Interactions: Evidence from the Belgian Production Network By Emmanuel Dhyne; Philipp Ludwig; Hylke Vandenbussche
  13. Being at the core: firm product specialisation By Filippo Bontadini; Mercedes Campio; Marco Duenas

  1. By: Catão, Luis A. V. (Inter-American Development Bank); de Faria, Pedro (University of Groningen); Martins, António (ISEG); Portela, Miguel (University of Minho)
    Abstract: Using a new panel dataset of about 140 thousand Portuguese firms during 2006-2019, we measure the effects of globalization on firm-level performance along four dimensions: ownership of capital, employment of foreign-seasoned managers, and participation in export and import markets. Once at least one of these channels is active, firms are larger, less leveraged, employ better qualified workers, and pay higher hourly wages. We also uncover a pecking order of effects, with export-market participation having generally larger positive effects on productivity and negative effects on unit labor costs. All four channels interact, sometimes complementing, sometimes substituting one another. For instance, foreign ownership boosts exports at the extensive margin while being an importer and/or having a foreign-experienced manager help at the intensive margin; conversely, the marginal productivity gains of foreign-ownership are greatly reduced when the firm is already an exporter. Breaking down the effects of each channel by firm size, we show that smaller firms stand the most to gain from export market participation and foreign-ownership.
    Keywords: foreign direct investment, entrepreneurship, trade, productivity, wages, labor costs, leverage, firm size distribution
    JEL: D22 D24 F23 G34 J3 L20 M10
    Date: 2023–01
  2. By: Léa Marchal (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IC Migrations - Institut Convergences Migrations [Aubervilliers], UP1 - Université Paris 1 Panthéon-Sorbonne); Giulia Sabbadini (DICE - Düsseldorf Institute for Competition Economics - Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])
    Abstract: This paper studies whether firms employing immigrant workers are more resilient to an increase in competition in their export markets. Exploiting the surge of Chinese imports following its accession to the World Trade Organization and using a sample of French manufacturing exporters from 2002 to 2015, we find that an increase in the growth rate of Chinese competition in a foreign market has a negative effect on both the two-year survival and growth rate of sales of French exporters on that foreign market. This negative effect on firm performance is mitigated by the employment of immigrant workers.
    Keywords: Firm Heterogeneity Immigrant workers Import competition Productivity JEL Codes: F14 F22 F16, Firm, Heterogeneity, Immigrant workers, Import competition, Productivity JEL Codes: F14 F22 F16
    Date: 2022–11–04
  3. By: Taylor, Greg
    Abstract: We study the profitability of bundling by an upstream firm who licenses com-plementary technologies to downstream competitors, and who faces a superior competitor for one of its technologies. In an otherwise standard “Chicago-style” model, we show that the existence of downstream competition can make inefficient bundling profitable. Forcing downstream firms to use a less efficient technology can soften competition, thus allowing the upstream firm to extract more profit through the licensing of its monopolized technology. Bundling is more likely to be profitable if downstream competition is intense and if technologies are strongly complementary. The mechanism requires a public commitment to bundling (e.g. technical bundling) and the unobservability of the contracts offered to downstream firms. A similar logic can make it profitable for the upstream firm to degrade the interoperability between its technologies and those of its rivals, even without foreclosing competition.
    Date: 2023–01–31
  4. By: Miroslav Gabrovski (University of Hawaii); Mario Rafael Silva (Hong Kong Baptist University)
    Abstract: The Diamond-Mortensen-Pissarides model implies a nearly perfect correlation between labor productivity and unemployment/vacancies, yet the relationship in the data is mild. We show that incorporating sunk entry costs and vacancy creation in an otherwise standard setup can reconcile the discrepancy. Sunk costs cause vacancies to be a positively valued, predetermined variable. If the destruction shock is infrequent, then most vacancies were created in the past, and hence the number of vacancies in the market correlate more closely with past than current labor productivity. Provided the destruction shock is calibrated to match either micro-level evidence on product destruction and firm exit rates or commonly used values in the growth literature, the model reproduces the empirically observed mild correlation between productivity and unemployment without breaking the strong negative co-movement between unemployment and vacancies.
    Keywords: job destruction, entry costs, unemployment, aggregate fluctuations
    JEL: E24 E32 J63 J64
    Date: 2023–01
  5. By: Aliyu Muhammad Nasir (Tunku Puteri Intan Shafinaz School of Accountancy, Universiti Utara Malaysia, Malaysia. Author-2-Name: Ifa Rizad Mustapa Author-2-Workplace-Name: Tunku Puteri Intan Shafinaz School of Accountancy, Universiti Utara Malaysia, Malaysia. Author-3-Name: Kashan Pirzada Author-3-Workplace-Name: Tunku Puteri Intan Shafinaz School of Accountancy, Universiti Utara Malaysia, Malaysia. Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - This study conceptually examines a link between corporate governance, intellectual capital disclosure, and firm performance. With the support of signaling theory, this paper develops propositions for the relationship among corporate governance, intellectual capital disclosure, and firm performance. Methodology/Technique - The development and conclusion of this discursive paper as a conceptual one point out the possible relationship among corporate governance, intellectual capital disclosure, and firm performance. The underlying methodology of institutional discourse and integration with dynamic parameters is formalized. Findings - The results of the conceptual framework of this paper on corporate governance are contrasted with the approach to corporate governance in mainstream literature. Also examined is the theoretical and philosophical background of corporate governance, intellectual capital disclosure, and firm performance. Novelty - Although the importance of intellectual capital to firm performance is well established, the triple relationship between the board nomination and governance committee and the board remuneration committee, intellectual capital disclosure, and firm performance is exposed based on the effect of one on another. Type of Paper - Empirical."
    Keywords: Corporate Governance, Intellectual Capital Disclosure, Nomination Committee, and Firm Performance.
    JEL: M40 M41 M49
    Date: 2022–12–31
  6. By: Bassier, Ihsaan
    Abstract: How important are firms for wage inequality in developing countries where structural unemployment is high? Research focused on contexts close to full employment has suggested a substantial role of firms in labor market inequality. Using matched employer-employee data from South Africa, I find that firms explain a larger share of wage variation than in richer countries. I consider drivers of this, documenting first a higher productivity dispersion as found for other developing countries. Secondly, I estimate the separations elasticity by instrumenting wages of matched workers with firm wages, and I find a low separations elasticity. This generates a high degree of monopsony, and the correspondingly high estimated rent-sharing elasticity helps explain the important role of firm wage policies in inequality. Monopsony may be driven by higher unemployment, and regional heterogeneity provides suggestive evidence for this. Such firm-level competitive dynamics may exacerbate inequality in developing countries more generally.
    Keywords: inequality; firm wage premia; unemployment; monopsony
    JEL: D31 J31 J42 J63 J64
    Date: 2022–10–07
  7. By: Kenza Benhima (Department of Economics, University of Lausanne); Omar Chafik (Bank Al-Maghrib); Min Fang (Department of Economics, University of Florida); Wenxia Tang (Department of Economics, University of Lausanne)
    Abstract: We study the effect of working capital loan guarantee programs on firm growth and their aggregate implications. Using a Moroccan firm-level dataset, we show that firms with guaranteed short-term loans (i) decrease their cash ratio, (ii) expand their production scale homogeneously and persistently, and that (iii) participation in the guarantee program is humped- shaped in firm size. We rationalize these findings in a heterogeneous-firm model with collateral and working capital constraints. First, we show that while relaxing collateral constraints on short-term loans always has a positive short-term effect on firm growth as firms reallocate cash to capital, persistent effects on firm scale depend on the existence and size of intertemporal distortions. Second, the combination of a flat fixed participation cost and size-dependent collateral constraints explain the non-monotonous participation rate. The interaction of the collateral constraint with these two frictions is crucial to determine the aggregate effect of a loan guarantee program. We parameterize the model to our Moroccan firm-level data. We show that the growth and welfare gains of expanding credit guarantee programs through a higher guaranteed amount or a lower participation cost are substantial, with the former generating relatively more growth while also increasing participation.
    JEL: E22 E27 E44 G28 G38
    Date: 2022–05
  8. By: Christoph Görtz; Plutarchos Sakellaris; John D. Tsoukalas
    Abstract: We study how firms adjust their financial positions around the times when they undertake lumpy adjustments in capital or employment. Using U.S. firm level data, we document systematic patterns of cash and debt financing around lumpy adjustment, remarkably similar across capital and employment. Firm-specific fundamentals reflected in Tobin’s Q, profitability and productivity are leading indicators of the lumpy adjustment. Cash and debt capacity are actively manipulated, and contribute significantly quantitatively, to increase financial resources in anticipation of the expansion of firm capacity. Lumpy contractions in productive capacity follow years where firms reduce cash balances and hold above average levels of debt. During and after contractions, firms rebuild cash and reduce debt growth significantly in a concerted effort to restore financial resources by adjusting their productive operations.
    Keywords: Lumpy Adjustment, Firm Capital and Employment Dynamics, Leverage, Debt, Cash
    JEL: G30 G32 E32
    Date: 2023–01
  9. By: Ufuk Akcigit; Harun Alp; André Diegmann; Nicolas Serrano-Velarde
    Abstract: We study the implications of employment targets on firm dynamics during the privatization of the East German economy. Exploiting novel contract-level data, we document three stylized facts. First, the policy distorted firm size choices and generated bunching of firms around their committed employment target. Second, exploiting heterogeneous labor preferences of privatizers, we how that assigning tight commitments to firms causes an increase in employment growth and leads to higher productivity growth. Finally, tighter commitments also result in significant costs by leading to increased firm exit. We interpret these results through the lens of a dynamic model with endogenous productivity growth at the firm level. The model highlights that while tight commitments distort the employment decision statically and lead to a higher exit probability, they also induce a “catch-up” increase in productivity growth. This is because although firm profits are lower under tight commitments, marginal profits with respect to productivity are higher. We calibrate the model to our data and find that the policy lead to a 3 percentage points higher aggregate TFP growth thanks to the productivity improvements of firms with tight contracts.
    Date: 2023
  10. By: Emmanuel Dhyne (Economics and Research Department, National Bank of Belgium and University of Mons); Ayumu Ken Kikkawa (University of British Columbia Sauder School of Business, 2053 Main Mall, Vancouver, BC V6T 1Z2, Canada); Magne Mogstad (University of Chicago, 1126 East 59th Street, Chicago, IL 60637, USA); Felix Tintelnot (University of Chicago, 1126 East 59th Street, Chicago, IL 60637, USA)
    Abstract: We use Belgian data on domestic firm-to-firm transactions and ask how the measurement of the share of imports in final consumption is affected when one uses data recorded at higher levels of aggregation. We find that aggregating detailed firm-to-firm transaction data to the firm level and imposing homogeneity assumptions in the composition of firms’ input and output do not substantially affect the measurement of the share of imports in final consumption. However, using the national IO tables alone may understate the share of imports in final consumption and, thereby, the gains from trade.
    Keywords: : Import content, firm-to-firm linkages, sectoral linkages
    JEL: F10 F14
    Date: 2023–01
  11. By: Nick Bloom; Laura Alfaro; Paola Conconi; Harald Fadinger; Patrick Legros; Andrew A.F. Newman; Raffaella Sadun; John Van Reenen
    Date: 2023–03–01
  12. By: Emmanuel Dhyne (Economics and Research Department, National Bank of Belgium and University of Mons); Philipp Ludwig (Department of Economics, KU Leuven); Hylke Vandenbussche (Department of Economics, KU Leuven)
    Abstract: Low export participation of firms across countries is typically related to high entry costs allowing only the most productive firms to serve foreign markets. In this paper, we move beyond individual firm characteristics to explain export participation and investigate whether firms’ domestic network linkages can facilitate export entry. Firms receive information from business interactions with experienced exporters which lowers sunk entry costs and allows them to enter the foreign market. Using rich data of buyer-seller linkages in the Belgian production network, we find that network heterogeneity is a key determinant of the extensive margin of trade. Each additional export signal received via network linkages increases the entry probability by 0.4 – 1.6 percentage points, giving firms with suitable networks a key advantage in accessing foreign markets. The marginal impact of network effects decreases in network size which we attribute to negative assortative matching in the underlying network formation process.
    Keywords: : export, learning about demand, networks
    JEL: F14
    Date: 2023–01
  13. By: Filippo Bontadini; Mercedes Campio; Marco Duenas
    Abstract: We propose a novel measure to investigate firms' product specialisation: product coreness, that captures the centrality of exported products within the firm's export basket. We study product coreness using firm-product level data between 2018 and 2020 for Colombia, Ecuador, and Peru. Three main findings emerge from our analysis. First, the composition of firms' export baskets changes relatively little from one year to the other, and products far from the firm's core competencies, with low coreness, are more likely to be dropped. Second, higher coreness is associated with larger export flows at the firm level. Third, such firm-level patterns also have implications at the aggregate level: products that are, on average, exported with higher coreness have higher export flows at the country level, which holds across all levels of product complexity. Therefore, the paper shows that how closely a product fits within a firm's capabilities is important for economic performance at both the firm and country level. We explore these issues within an econometric framework, finding robust evidence both across our three countries and for each country separately.
    Keywords: International Trade; Diversification; Capabilities; COVID-19.
    Date: 2023–02–06

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