nep-bec New Economics Papers
on Business Economics
Issue of 2023‒05‒08
eleven papers chosen by
Vasileios Bougioukos
London South Bank University

  1. FDI and Superstar Spillovers: Evidence from Firm-to-Firm Transactions By Mary Amiti; Cédric Duprez; Jozef Konings; John Van Reenen
  2. Renewal of Companies Through Product Switching By Kuosmanen, Natalia; Valmari, Nelli
  3. Entry Decision, the Option to Delay Entry, and Business Cycles By Ia Vardishvili
  4. Was Robert Gibrat right? By Guerzoni, Marco; Riso, Luigi; Vivarelli, Marco
  5. The Contribution of Digital Firms to Productivity Growth in the Manufacturing Sector: A Decomposition Approach By Simon Bruhn; Johanna Deperi
  6. Immigration and the Slope of the Labor Demand Curve: The Role of Firm Heterogeneity in a Model of Regional Labor Markets By Andrea Ariu; Tobias Müller; Tuan Nguyen
  7. Expert Network Calls By Cao, Sean; Green, T. Clifton; Lei, Lijun (Gillian); Zhang, Shaojun
  8. Carbon costs and industrial firm performance: Evidence from international microdata By Arjan Trinks; Erik Hille
  9. Firm heterogeneity and the impact of payroll taxes By Anikó Bíró; Réka Branyiczki; Attila Lindner; Lili Márk; Daniel Prinz
  10. Institutional Blockholders and Corporate Innovation By Bing Guo; Dennis C. Hutschenreiter; David Pérez-Castrillo; Anna Toldrà-Simats
  11. Analyst Bias and Mispricing By Mark Grinblatt; Gergana Jostova; Alexander Philipov

  1. By: Mary Amiti; Cédric Duprez; Jozef Konings; John Van Reenen
    Abstract: Despite competition concerns over the increasing dominance of global corporations, many argue that productivity spillovers from multinationals to domestic firms justify pro- FDI policies. For the first time, we use firm-to-firm transaction data in a developed country to examine the impact of forming a new relationship with a multinational, and find a TFP increase of about 8% three or more years after the event. Sales to other buyers, trade and customer quality also increase. However, we also document that starting to supply other “superstar firms” such as those who heavily export or are very large also increases performance by similar amounts, even if the superstar is a non-multinational. Placebos on starting relationships with smaller firms and novel identification strategies relying solely on demand shocks to superstar firms support a causal interpretation. A model of technology transfer rationalizes these effects and also correctly predicts (i) falls in post-event markups; (ii) the type of firms who form superstar relationships and (iii) bigger treatment effects from superstars intensive in R&D, IT and/or human capital. In addition to productivity spillovers, we document the transmission of “relationship capabilities” and “dating agency” effects as the increase in new buyers is particularly strong within the superstar firm’s existing network. These results suggest an important role for raising productivity through the supply chains of superstar firms regardless of their multinational status.
    JEL: F21 F23 O30
    Date: 2023–04
  2. By: Kuosmanen, Natalia; Valmari, Nelli
    Abstract: Abstract The past few decades have witnessed a slowdown in productivity growth in many advanced economies, including Finland. Against this backdrop, this study investigates product switching in Finnish manufacturing firms during the period of 2009–2019. The findings indicate a growing trend towards specialization, with more firms focusing on a single product. In general, product diversity has decreased over time. Multi-product firms and those with diverse output tend to be larger in terms of value added, sales, and employment. Additionally, these firms are also more likely to export their products compared to single-product firms. While single-product firms outperform multi-product firms in productivity, the study shows that product diversity is positively related to productivity. Furthermore, the study demonstrates that there is a positive relationship between product scope expansion and contraction and an increase in firm size, as compared to firms where product scopes remain unchanged. These findings suggest that product switching is closely related to the economic outcomes of Finnish manufacturing firms.
    Keywords: Manufacturing firms, Multi-product firms, Product switching
    JEL: D22 D24 L11 L25 O14
    Date: 2023–04–21
  3. By: Ia Vardishvili
    Abstract: I show that firms' ability to postpone entry has important implications for our understanding of the observed business cycle behavior of start-ups. I use a model that closely replicates the main features of the US firm dynamics to explore and quantify the mechanism. I find that the option to wait endogenously generates a countercyclical opportunity cost of entry: during recessions, a higher risk of failure increases the value of waiting, hence the cost of entry. The mechanism increases the elasticity of entrants to aggregate shocks five times. It is responsible for three-fourths of the observed persistent differences in the recessionary and expansionary cohorts' productivity, survival, and employment. Without the channel, existing models require either large shocks that generate excessive aggregate fluctuations or exogenous mechanisms to reconcile the observed dynamics of entrants. Overlooking this channel may also result in misleading predictions about entrants' responses to different shocks or policies.
    Keywords: Entry Decision; Delay; Option Value; Firm Dynamics; Business Cycles
    JEL: D25 E22 E23 E32 E37 L25
    Date: 2023–04
  4. By: Guerzoni, Marco; Riso, Luigi; Vivarelli, Marco
    Abstract: Using both regression analysis and an unsupervised graphical model approach (never applied before to this issue), we confirm the rejection of the Gibrat’s law when our firm-level data are considered over the entire investigated period, while the opposite is true when we allow for market selection. Indeed, the growth behavior of the re-shaped (smaller) population of the survived most efficient firms is in line with the Law of Proportionate Effect; this evidence reconciles early and current literature testing Gibrat’s law and may have interesting implications in terms of both applied and theoretical research.
    JEL: L11 D92
    Date: 2023–03–09
  5. By: Simon Bruhn (Ilmenau University of Technology, Ilmenau, Germany); Johanna Deperi (Universita degli Studi di Brescia, Italy; Université Côte d'Azur, CNRS, GREDEG, France)
    Abstract: We show that digital and non-digital firms differ significantly with respect to their contribution to productivity growth. Conducting a decomposition analysis on panel data of publicly listed U.S. manufacturing firms covering the 1990-2015 period, we demonstrate that (i) firmlevel productivity improvements of digital firms consistently exceed those of non-digital firms; (ii) the market selection process works more efficiently for digital firms; and (iii) the negative correlation between productivity changes and changes in market shares is decisively less pronounced for digital than for non-digital firms. We show that these observed differences in productivity growth can be linked to the idiosyncratic characteristics of digital firms, namely the profound exploitation of digital technologies, the scalability of digital business models and the complementarity of digital and labor investments.
    Keywords: Digital firms, industry dynamics, productivity growth, decomposition, labor reallocation
    JEL: E24 J24 L11 L25 O33 O47
    Date: 2022–12
  6. By: Andrea Ariu; Tobias Müller; Tuan Nguyen
    Abstract: In this paper, we provide new explanations for the puzzling findings in the literature that migrants do not decrease natives’ wages, and that skilled immigration can actually increase them. We develop a model with regional labor markets and heterogeneous firms in which workers of different skill levels are imperfect substitutes, but for a given skill level, natives and migrants are perfect substitutes within a firm. In this setting, a skilled labor supply shock due to immigration has two consequences. First, it induces skill-intensive firms and skill-abundant regions to expand. These across-firm and across-region reallocations reduce the within-firm and within-region substitution between skilled and unskilled workers, thus limiting relative wage adjustments. Second, the average native’s wage can be partially sheltered from the negative effect of immigration depending on the geographical settlement patterns of immigrants. Both mechanisms make natives and migrants appear as imperfect substitutes at the aggregate level. Quantitatively, our simulations show that the negative impact of immigration on natives' wage is halved when the across-firm and across-region reallocation mechanisms are at work. Finally, both theory and simulations show that when these mechanisms are coupled with human-capital externalities that are skill-neutral at the firm level but skill-biased on aggregate, skilled immigration can increase absolute and relative skilled wages. Therefore, firm heterogeneity, local labor markets, and human-capital externalities are crucial for understanding the impact of immigration on natives’ wages.
    Keywords: immigration, firm heterogeneity, wages
    JEL: F22 J61 J31
    Date: 2023
  7. By: Cao, Sean (U of Maryland); Green, T. Clifton (Emory U); Lei, Lijun (Gillian) (U of North Carolina at Greensboro); Zhang, Shaojun (Ohio State U)
    Abstract: Expert networks provide investors with in-depth discussions with subject matter experts. Expert call demand is higher for younger, technology-oriented firms and those with greater intangible assets, consistent with demand for information on hard-to-value firms. Expert calls are more (less) likely to emphasize technology and operational (financial) topics relative to earnings calls. We find that expert call volume is associated with hedge fund position changes and greater price efficiency. The relation is asymmetric, with call volume preceding hedge fund sales, greater short interest, and negative firm performance. The evidence suggests that expert networks help investors discern complicated bad news.
    JEL: G11 G12 G14
    Date: 2022–11
  8. By: Arjan Trinks (CPB Netherlands Bureau for Economic Policy Analysis); Erik Hille (HHL Leipzig Graduate School of Management)
    Abstract: Entrepreneurs seem to be adapting their business operations to climate policy, instead of relocating their business to countries without or with less stringent climate policies. There is little to no evidence that climate policy has depressed the profit, productivity or turnover of an average industrial firm. This follows from a CPB study into the effect of carbon costs for approximately 3 million firms in 32 countries between 2000 and 2019.
    JEL: D22 H23 Q41 Q48 Q52 Q58
    Date: 2023–04
  9. By: Anikó Bíró (Institute for Fiscal Studies); Réka Branyiczki; Attila Lindner (Institute for Fiscal Studies); Lili Márk; Daniel Prinz (Institute for Fiscal Studies)
    Date: 2022–11–24
  10. By: Bing Guo; Dennis C. Hutschenreiter; David Pérez-Castrillo; Anna Toldrà-Simats
    Abstract: Institutional investors’ ownership in public firms has become increasingly concentrated in the last decades. We study the heterogeneous effects of large versus more dispersed institutional owners on firms’ innovation strategies and their innovation output. We find that large institutional investors induce managers to increase spending in internal R&D by reducing short-term pressure. However, to avoid empire building and dilution, large institutional investors prevent acquisitions, which reduces firms’ investment in external innovation. The overall effect on firms’ future patents and citations is negative. By acquiring less innovation from external sources, firms reduce the returns of their investment in internal R&D, jeopardizing their total innovation output. We use the mergers of financial institutions as exogenous shocks on firms’ institutional ownership concentration. Our findings complement the previously found positive effects of institutional ownership on firm innovation and indicate that the effects become negative when institutional investors become large owners.
    Keywords: institutional ownership, blockholders, innovation, acquisitions
    JEL: G32 G24 O31
    Date: 2023–04
  11. By: Mark Grinblatt; Gergana Jostova; Alexander Philipov
    Abstract: Cross-sectional forecasts of conservative and optimistic biases in analyst earnings estimates predict a stock's future returns, especially for firms that are hard to value. Trading strategies—whether based on the component of analyst bias that is correlated with major return anomalies or the component that is orthogonal to these anomalies—earn abnormal profits. The prevalence of optimistic analyst earnings estimates and rarity of conservative estimates emerges as a common link between anomaly-generating firm characteristics and subsequent negative alphas. For the vast majority of anomaly strategies, profitability disappears once we control for analyst bias.
    JEL: G12 G13 G14 G24 G41
    Date: 2023–03

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