nep-bec New Economics Papers
on Business Economics
Issue of 2023‒05‒15
nine papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Theory and Evidence of Firm-to-firm Transaction Network Dynamics By Takafumi Kawakubo; Takafumi Suzuki
  2. Simple model of market structure evolution of service-providing firms By Joseph Hickey
  3. Technological Change, Firm Heterogeneity and Wage Inequality By Cortes, Guido Matias; Lerche, Adrian; Schönberg, Uta; Tschopp, Jeanne
  4. Store of value or speculative investment? market reaction to corporate announcements of cryptocurrency acquisition By Gimenes, André Dias; Colombo, Jéfferson A.; Yousaf, Imran
  5. Ownership concentration and firm risk: the moderating role of mid-sized blockholders By Silvia Rossetto; Nassima Selmane; Raffaele Stagliano
  6. Taxation and Supplier Networks: Evidence from India By Lucie Gadenne; Tushar K. Nandi
  7. Reconstructing firm-level input-output networks from partial information By Andrea Bacilieri; Pablo Austudillo-Estevez
  8. Employers' Demand for Personality Traits By Brenčič, Vera; McGee, Andrew
  9. The drivers of labour share and impact on pay inequality: A firm-level investigation By Roya Taherifar; Mark J. Holmes; Gazi M. Hassan

  1. By: Takafumi Kawakubo; Takafumi Suzuki
    Abstract: How are supply chains formed and restructured over time? This paper investigates firm-to-firm transaction network dynamics from theoretical and empirical perspectives, exploiting large-scale firm-level transaction data from Japan. First, we provide basic facts which show substantial churning in supply chains over time, even after excluding the cases where either supplier or customer firms exit from the market. Second, we empirically find that productivity positive assortative matching between firms exists. Firms are more likely to keep trading with more productive firms and instead stop trading with less productive ones. Alternatively, more productive firms start new transactions with more productive business partners. Lastly, we build a theoretical framework to rationalize these findings. Both supplier and customer firms are heterogeneous and choose their trading partners with many-to-many matching setting. We derive the implications for supply chain formation and restructuring in response to productivity shocks.
    Date: 2023–04
  2. By: Joseph Hickey
    Abstract: Service-providing firms compete for clients, creating market structures ranging from domination by a few giant companies to markets in which there are many small firms. These market structures evolve in time, and may remain stable for many years before experiencing a disruption in which a new firm emerges and rapidly obtains a large market share. We seek the simplest realistic model giving rise to such diverse market structures and dynamics. We focus on markets in which every client adopts a single firm, and can, from time to time, switch to a different firm. The markets of cell phone and Internet service providers are examples. In the model, the size of a particular firm, labelled i, is equal to its current number of clients, ni. In every step of the simulation, a client is chosen at random, and then selects a firm from among the full set of firms with probability pi = (beta + ni^alpha)/K, where K is the normalization factor. Our model thus has two parameters: alpha represents the degree to which firm size is an advantage (alpha > 1) or disadvantage (alpha
    Date: 2023–04
  3. By: Cortes, Guido Matias (York University, Canada); Lerche, Adrian (LMU Munich); Schönberg, Uta (University College London); Tschopp, Jeanne (University of Bern)
    Abstract: We argue that skill-biased technological change not only affects wage gaps between skill groups, but also increases wage inequality within skill groups, across workers in different workplaces. Building on a heterogeneous firm framework with labor market frictions, we show that an industry-wide skill-biased technological change shock will increase between-firm wage inequality within the industry through four main channels: changes in the skill wage premium (as in traditional models of technological change); increased employment concentration in more productive firms; increased wage dispersion between firms for workers of the same skill type; and increased dispersion in the skill mix that firms employ, due to more sorting of skilled workers to more productive firms. Using rich administrative matched employer-employee data from Germany, we provide empirical evidence of establishment-level patterns that are in line with the predictions of the model. We further document that industries with more technological adoption exhibit particularly pronounced patterns along the dimensions highlighted by the model.
    Keywords: skill-biased technological change, heterogeneous firms, between-firm inequality
    JEL: J31
    Date: 2023–04
  4. By: Gimenes, André Dias; Colombo, Jéfferson A.; Yousaf, Imran
    Abstract: We evaluate the stock market reaction following publicly-traded companies' announcements of cryptocurrency acquisition, selling, or acceptance as a means of payment. Focusing on firms whose core business is unrelated to blockchain or cryptocurrency (i.e., traditional firms), we analyze 35 events associated with 32 companies listed on stock exchanges from 7 countries. At the aggregate level, market reaction around such events is slightly positive but statistically indistinguishable from zero for most event windows. However, heterogeneity analyses reveal remarkable differences in market reaction between high (larger CARs) and low cryptocurrency exposure events (lower CARs). Multivariate regressions confirm that the extent to which a firm is exposed to cryptocurrency ("skin in the game") is a critical factor underlying abnormal returns around the event. Further analyses reveal that such an effect stems from economically meaningful acquisitions of BTC or ETH (relative to the firm's total assets). Our evidence is crucial to managers, investors, and analysts since it highlights how crypto adoption relates to firm value.
    Date: 2023–04–25
  5. By: Silvia Rossetto (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Nassima Selmane (Unknown); Raffaele Stagliano (Unknown)
    Abstract: This study analyzes the relationship between mid-sized blockholders and firm risk. We show that ownership structure matters for firm risk beyond the first largest blockholder. Firms with multiple blockholders take more risk than firms with just one blockholder, even when controlling for the stake of the largest blockholder. Consistent with the diversification argument, we find that firm risk increases by 22% when the number of blockholders increases from one to two. Our results are robust to controlling for blockholder type and firm characteristics. We carry out various robustness checks to tackle endogeneity issues. More generally, we provide evidence that firms' decisions are affected by mid-sized blockholders and not merely the largest blockholder. This is in line with theoretical predictions.
    Date: 2022–05–31
  6. By: Lucie Gadenne (QMUL); Tushar K. Nandi (Indian Institute of Science Education and Research (IISER); CREST and CEPR)
    Abstract: Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supply chains in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier clientpairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ decision to pay VAT. Finally, we test the model’s predictions using variations over time within firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and evidence of strategic complementarities in firms’ tax choices within supplier networks. A hypothetical reform exempting all firm-to-firm transactions from the VAT would lead to growth of small- and medium-sized firms at the cost of a smalldecrease in tax revenues.
    JEL: O23 H25 L14
    Date: 2023–03–01
  7. By: Andrea Bacilieri; Pablo Austudillo-Estevez
    Abstract: There is a large consensus on the fundamental role of firm-level supply chain networks in macroeconomics. However, data on supply chains at the fine-grained, firm level are scarce and frequently incomplete. For listed firms, some commercial datasets exist but only contain information about the existence of a trade relationship between two companies, not the value of the monetary transaction. We use a recently developed maximum entropy method to reconstruct the values of the transactions based on information about their existence and aggregate information disclosed by firms in financial statements. We test the method on the administrative dataset of Ecuador and reconstruct a commercial dataset (FactSet). We test the method's performance on the weights, the technical and allocation coefficients (microscale quantities), two measures of firms' systemic importance and GDP volatility. The method reconstructs the distribution of microscale quantities reasonably well but shows diverging results for the measures of firms' systemic importance. Due to the network structure of supply chains and the sampling process of firms and links, quantities relying on the number of customers firms have (out-degrees) are harder to reconstruct. We also reconstruct the input-output table of globally listed firms and merge it with a global input-output table at the sector level (the WIOD). Differences in accounting standards between national accounts and firms' financial statements significantly reduce the quality of the reconstruction.
    Date: 2023–03
  8. By: Brenčič, Vera (University of Alberta); McGee, Andrew (University of Alberta)
    Abstract: We measure firms' demand for workers' personality traits expressed in job ads and find that firms primarily demand workers who are extroverted, conscientious, and open-to-experience. The personality demand measures are correlated with the soft skills required on the job and produce intuitively plausible rankings of occupations in terms of personality requirements. Consistent with firms needing more time to fill vacancies with more requirements, ads requiring extroversion and conscientiousness remain posted online longer. Using the personality demand measures and wage information in the ads, we show theoretically and empirically that firms seeking conscientious workers are less likely to offer incentive pay.
    Keywords: personality, job ads, method of pay
    JEL: D22 J23 J24 J33 M51
    Date: 2023–04
  9. By: Roya Taherifar (University of Waikato); Mark J. Holmes (University of Waikato); Gazi M. Hassan (University of Waikato)
    Abstract: Income inequality and labour share have followed divergent trends in Australia. Empirical studies have attempted to explain their movement and their relationship using macro data. However, what is lacking is a firm-level study to capture the determinants of labour share specific to the firm’s production technology and market structures with an investigation into the impact on pay inequality inside firms. Hence, we conduct the first Australian firm-level study using a sample of Australian listed firms over the period 2004-2019. First, we examine the impact of technological progress, product market power and labour market power on the labour share. The results show that the decline in Australian labour share is mainly driven by technological progress and increasing product market power. However, labour market power does not have a significant impact on labour share. These findings are robust to an array of sensitivity tests. Second, we examine the impact of labour share on pay inequality within firms. We find robust evidence that declining labour share is a significant driving force in the evolution of pay inequality. Moreover, a 10 per cent decline in labour share rises pay inequality by 4.19 per cent. Additional tests show that technological progress and product market power can moderate the negative impact of labour share on pay inequality.
    Keywords: Income Distribution;Mark-up;Labour Share;Pay Inequality;Total Factor Productivity
    JEL: D33 J31 D42
    Date: 2023–04–17

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