nep-bec New Economics Papers
on Business Economics
Issue of 2023‒07‒10
eleven papers chosen by
Vasileios Bougioukos
London South Bank University

  1. Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications By Miguel H. Ferreira; Timo Haber; Christian Rörig
  2. Minimum Wages, Productivity, and Reallocation By Haelbig, Mirja; Mertens, Matthias; Müller, Steffen
  3. FDI and superstar spillovers: Evidence from firm-to-firm transactions By Mary Amiti; Cédric Duprez; Jozef Konings; John Van Reenen
  4. Power, Scrutiny, and Congressmen's Favoritism for Friends' Firms By Quoc-Anh Do; Yen-Teik Lee; Bang D. Nguyen; Kieu-Trang Nguyen
  5. Firm-quasi-stability and re-equilibration in matching markets with contracts By Yi-You Yang
  6. SME Failures Under Large Liquidity Shocks: An Application to the COVID-19 Crisis By Pierre-Olivier Gourinchas; Şebnem Kalemli-Özcan; Veronika Penciakova; Nicholas Sander
  7. Who Is to Suffer? Quantifying the Impact of Sanctions on German Firms By Görg, Holger; Jacobs, Anna; Meuchelböck, Saskia
  8. When Immigrants Meet Exporters: A Reassessment of the Immigrant Wage Gap By Léa Marchal; Guzmán Ourens; Giulia Sabbadini
  9. Licensing a product innovation from an external innovator to a Stackelberg duopoly By Antelo, Manel; Bru, Lluís
  10. Matching Unskilled/Skilled Workers to Firms Facing Budget Constraints By Ahmadzadeh, Amirreza; Kamali-Shahdadi, Behrang
  11. Firm Heterogeneity and the Impact of Payroll Taxes By Anikó Bíró; Réka Branyiczki; Attila Lindner; Lili Márk; Dániel Prinz

  1. By: Miguel H. Ferreira (QMUL and CEPR); Timo Haber (De Nederlandsche Bank); Christian Rörig (QuantCo)
    Abstract: Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firm size distribution, even in the top 1%. Incorporating a richer, empirically supported, productivity process into a standard heterogeneous firms model generates a joint distribution of size and credit constraints in line with the data. The presence of large constrained firms in the economy, together with their elevated capital share, explains about 66% of the response of output to a financial shock. We conclude by providing micro-evidence in support of the model mechanism.
    Keywords: Firm size, business cycle, financial accelerator
    JEL: E62 E22 E23
    Date: 2023–06–14
  2. By: Haelbig, Mirja (IWH Halle); Mertens, Matthias (IWH Halle); Müller, Steffen (IWH Halle)
    Abstract: We study the productivity effect of the German national minimum wage by applying administrative firm data. At the firm level, we confirm positive effects on wages and negative employment effects and document higher productivity even net of output price increases. We find higher wages but no employment effects at the level of aggregate industry×region cells. The minimum wage increased aggregate productivity in manufacturing. We do not find that employment reallocation across firms contributed to these aggregate productivity gains, nor do we find improvements in allocative efficiency. Instead, the productivity gains from the minimum wage result from within-firm productivity improvements only.
    Keywords: minimum wage, firm productivity, output prices, factor reallocation
    JEL: L11 L25 J31 D24
    Date: 2023–05
  3. By: Mary Amiti (Federal Reserve Bank of New York. 33 Liberty Street, New York, NY 10045); Cédric Duprez (National Bank of Belgium and University of Mons); Jozef Konings (Nazarbayev University Graduate School of Business and KULeuven); John Van Reenen (London School of Economics and MIT.)
    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.
    Keywords: Productivity, FDI, spillovers.
    JEL: F23 O30 F21
    Date: 2023–06
  4. By: Quoc-Anh Do (Monash University and CEPR. Monash Business School); Yen-Teik Lee (National University of Singapore, NUS Business School); Bang D. Nguyen (University of Cambridge. Judge Business School, Cambridge); Kieu-Trang Nguyen (Northwestern University. Kellogg School of Management)
    Abstract: Does higher office always lead to more favoritism? The usual affirmative answer overlooks scrutiny's role in shaping the pattern of favoritism: It is possible that politicians who attain higher-powered po- sitions under stricter scrutiny may reduce quid-pro-quo favors towards connected firms. Around close Congress elections, we find RDD-based evidence of this adverse effect that a politician's win reduces his former classmates' firms stock value by 1.9% after a day and 3.2% after a week. This effect varies by cross-state level of scrutiny, politician's power, firm size and governance, and connection strength, and diminishes as a politician's career concern fades over time.
    Keywords: Favoritism, Power, Scrutiny, Political connection, Congressmen
    JEL: D72 D73 D85 G14 G32
    Date: 2023–06
  5. By: Yi-You Yang
    Abstract: We study firm-quasi-stability in the framework of many-to-many matching with contracts under substitutable preferences. We establish various links between firm-quasi-stability and stability and give new insights into the existence and lattice property of stable allocations. Moreover, we show that firm-quasi-stable allocations appears naturally when the stability of the market is disrupted by the entry of new firms or the retirement of some workers, and introduce a generalized deferred acceptance algorithm to show that the market can regain stability from firm-quasi-stable allocations by a decentralized process of offers and acceptances.
    Date: 2023–05
  6. By: Pierre-Olivier Gourinchas; Şebnem Kalemli-Özcan; Veronika Penciakova; Nicholas Sander
    Abstract: We study the effects of financial frictions on firm exit when firms face large liquidity shocks. We develop a simple model of firm cost-minimization that introduces a financial friction that limits firms’ borrowing capacity to smooth temporary shocks to liquidity. In this framework, firm exit arises from the interaction between this financial friction and fluctuations in cash flow due to aggregate and sectoral changes in demand conditions, as well as more traditional shocks to productivity. To evaluate the implications of our model, we use firm-level data on small and medium-sized enterprises (SMEs) in 11 European countries. We confirm that our framework is consistent with official failure rates in 2017–2019, a period characterized by standard business cycle fluctuations in demand. To capture a large liquidity shock, we apply our framework to the COVID-19 crisis. We find that, in the absence of government support, SME failure rates would have increased by 6.01 percentage points, putting 3.1 percent of employment at risk. Our results are consistent with the premise that financial frictions lead to inefficient exit as, without government support, the firms failing due to COVID-19 have similar productivity and past growth to firms that survive the COVID-19 crisis.
    Keywords: Firm dynamics; International topics; Coronavirus disease (COVID-19)
    JEL: D22 E65 H81
    Date: 2023–06
  7. By: Görg, Holger (Kiel Institute for the World Economy); Jacobs, Anna (University of Bielefeld); Meuchelböck, Saskia (Kiel Institute for the World Economy)
    Abstract: In this paper, we use a novel firm level dataset for Germany to investigate the effect of sanctions on export behaviour and performance of German firms. More specifically, we study the sanctions imposed by the EU against Russia in 2014 in response to the annexation of Crimea and Russia's countermeasures. We find a substantial negative effect on both the extensive and intensive margin of German exports. While the negative effects are strongest for firms exporting products subject to trade restrictions, we provide further evidence on the indirect effects of sanctions. Analysing the impact on broader measures of firm performance, we document that the cost of sanctions is heterogeneous across firms but overall modest. Our results reveal that the negative impact of the shock was concentrated primarily among a small number of firms that were highly dependent on Russia as an export market and those directly affected by the sanctions.
    Keywords: sanctions, foreign policy, trade, firm behaviour, Germany
    JEL: F1 F14 F51 L25
    Date: 2023–05
  8. 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); Guzmán Ourens (Tilburg University [Tilburg] - Netspar); Giulia Sabbadini (DICE - Düsseldorf Institute for Competition Economics - Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])
    Abstract: This article shows that wage inequalities between native and immigrant workers depends on the export activity of the employing firm. We build a model with heterogeneous firms and workers showing that white-collar immigrants capture an informational rent in exporting firms that help them close the wage gap with natives. We use French employer-employee data for the manufacturing sector from 2005 to 2015 to support this mechanism. We show that wages react to changes in export intensity when the export destination coincides with the region of origin of immigrant workers.
    Keywords: Export, Firm, Immigrants, Wage inequality
    Date: 2023–05
  9. By: Antelo, Manel; Bru, Lluís
    Abstract: We study the licensing of a product innovation from an external innovator in a duopoly of firms that compete sequentially with each other through quantities or prices. We find that the innovation is only licensed to a single firm, regardless of market competition. However, both the licensee and contractual terms under quantity competition differ from those under price competition. In the first case, the innovation is licensed to the market-leading firm through a non-distorting contract, and in the second case, to the market-following firm by means of a two-part tariff (distorting) contract involving a per-unit royalty.
    Keywords: Product innovation, licensing, Stackelberg duopoly, quantity competition, price competition
    JEL: D43 D45
    Date: 2023
  10. By: Ahmadzadeh, Amirreza; Kamali-Shahdadi, Behrang
    Abstract: We study a matching model in which firms face budget constraints. If the pro-duction function only depends on a firm’s technology, a weak stable matching always exists; furthermore, when a strong stable matching does not exist, there is a nearby budget vector for firms such that a strong stable matching exists for the problem with perturbed budgets. If the production function is multiplicative, one can reach a strong stable matching by changing the budget of firms such that the total budget remains the same and each firm’s budget change is bounded by the value of at most one worker for that firm.
    Keywords: Matching Theory; Market Design; Labor Market
    JEL: D47 C78 C71
    Date: 2023–06–12
  11. By: Anikó Bíró (Centre for Economic and Regional Studies); Réka Branyiczki (CEU, TÁRKI); Attila Lindner (UCL); Lili Márk (CEU); Dániel Prinz (World Bank)
    Abstract: We study the impact of a large payroll tax cut for older workers in Hungary. Motivated by the predictions of a standard equilibrium job search model, we examine the heterogeneous impact of the policy. Employment increases most at low-productivity firms offering low-wage jobs, which tend to hire from unemployment, while the effects are more muted for high-productivity firms offering high-wage jobs. At the same time, wages only increase at high-productivity firms. These results point to important heterogeneity in the incidence of payroll tax cuts across firms and highlight that payroll taxes have a significant impact on the composition of jobs in the labor market.
    Keywords: payroll tax, tax incidence, firm heterogeneity
    JEL: H24 H32 J23 J31
    Date: 2022–11

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