nep-bec New Economics Papers
on Business Economics
Issue of 2023‒08‒21
fifteen papers chosen by
Vasileios Bougioukos, London South Bank University

  1. Cultural Distance, Firm Boundaries, and Global Sourcing By Yuriy Gorodnichenko; Bohdan Kukharskyy; Gerard Roland
  2. Firms and inequality By De Loecker, Jan; Obermeier, Tim; Van Reenen, John
  3. Opposing firm-level responses to the China shock : Output competition versus input supply By P. AGHION; A. BERGEAUD; M. LEQUIEN; M. MELITZ; T. ZUBER
  4. The Many Channels of Firm’s Adjustment to Energy Shocks: Evidence from France By Lionel Fontagné; Philippe Martin; Gianluca Orefice; Lionel Gérard Fontagné
  5. Optimal Ownership and Firm Performance: An Analysis of China’s FDI Liberalization By Peter Eppinger; Hong Ma
  6. Impacts of ownership changes on emissions and industrial production: Evidence from Europe By Chlond, Bettina; Germeshausen, Robert
  7. Selling Data to a Competitor (Extended Abstract) By Ronen Gradwohl; Moshe Tennenholtz
  8. The impact of ICT adoption on productivity: Evidence from Portuguese firm-level data By João Amador; Cátia Silva
  9. Voters, Bailouts, and the Size of the Firm By Schilling, Linda
  10. Backshoring, offshoring and staying at home: evidence from the UK textile and apparel industry By Casadei, Patrizia; Iammarino, Simona
  11. Mega Firms and Recent Trends in the U.S. Innovation: Empirical Evidence from the U.S. Patent Data By Serguey Braguinsky; Joonkyu Choi; Yuheng Ding; Karam Jo; Seula Kim
  12. Does Incentive Pay Substitute for Monitoring? The Role of Managerial Skills and Span of Control By Filippo Belloc; Stefano Dughera; Fabio landini
  13. Firms with Benefits? Nonwage Compensation and Implications for Firms and Labor Markets By Paige Ouimet; Geoffrey Tate
  14. How do managers form their expectations about working from home? Survey experiments on the perception of productivity By Erdsiek, Daniel; Rost, Vincent
  15. The real effects of banks nationalization–evidence from the UK By Spatareanu, Mariana; Manole, Vlad; Kabiri, Ali

  1. By: Yuriy Gorodnichenko; Bohdan Kukharskyy; Gerard Roland
    Abstract: Casual observation suggests that cultural differences play an important role in business transactions, yet systematic evidence on this relationship is scarce. This paper provides a novel investigation of the effect of cultural distance on multinational firms’ decisions to integrate their cooperation partners into firm boundaries, rather than transact with independent companies at arm’s-length. To guide our empirical analysis, we develop a simple theoretical model which suggests that (i) cultural distance between contracting parties decreases the relative attractiveness of integration, and (ii) this effect is mitigated in more productive firms. We test these predictions using extensive product-, industry-, and firm-level data. We find a robust negative relationship between cultural distance and the relative attractiveness of integration. In line with our theoretical predictions, we also find that the effect of cultural distance on firm boundaries is less pronounced the higher firm’s productivity.
    Keywords: cultural distance, firm boundaries, international make-or-buy decision, firm productivity
    JEL: F14 F23 L14 L23
    Date: 2023
  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 inquality; financial crisis
    JEL: J1 L81 N0
    Date: 2022–03–09
  3. By: P. AGHION (Collège de France, LSE and INSEAD); A. BERGEAUD (Banque de France and CEP); M. LEQUIEN (Insee); M. MELITZ (Harvard and NBER); T. ZUBER (Banque de France)
    Abstract: We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the output shock is detrimental to firms’ sales, employment, and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the input supply shock on firms’ sales, employment and innovation.
    Keywords: Competition shock, patent, firms, import
    JEL: F14 O19 O31 O33 O34
    Date: 2023
  4. By: Lionel Fontagné; Philippe Martin; Gianluca Orefice; Lionel Gérard Fontagné
    Abstract: Based on firm level data in the French manufacturing sector, we find that firms adapt quickly, strongly and through multiple channels to energy shocks, even though electricity and gas bills represent a very small share of their total costs. Over the period 1996-2019, faced with an idiosyncratic energy price increase, firms reduce their energy demand, improve their energy efficiency, increase intermediate inputs imports and optimize energy use across plants. Firms are also able to pass-through the cost shock fully on their export prices. Their production, exports and employment fall. A consequence of these multiple adjustment mechanisms is that the fall in profits is either non-significant, small or specific to only the most energy intensive firms. We also find that the impact of electricity shocks has weakened over time, suggesting that only firms able to adapt their production process to energy cost shocks have survived. Importantly, when faced with large electricity and gas price increases, firms are less able to reduce their consumption. These results shed light on the mechanisms of resilience of the European manufacturing sector in the context of the present energy crisis.
    Keywords: energy crisis, employment, production, competitiveness, electricity, gas
    JEL: L60 Q41 Q43
    Date: 2023
  5. By: Peter Eppinger; Hong Ma
    Abstract: Seminal theories of the firm posit that firm ownership is allocated to minimize contractual inefficiencies. Yet, it remains unclear how much the optimal ownership choice affects firm performance in practice. This paper provides a first quantification of the gains from optimal ownership within multinational firms, by exploiting a major liberalization of China’s policy restrictions on foreign ownership. The liberalization allowed previously restricted firms to become fully foreign owned. We find that these reoptimized ownership choices raise firm output by 40% and productivity by 7.5% on average. An extended property-rights theory of the multinational firm rationalizes these effects and their heterogeneity.
    Keywords: multinational firms, ownership, integration, firm performance, property-rights theory, China
    JEL: D23 F21 F23 L22 L23
    Date: 2023
  6. By: Chlond, Bettina; Germeshausen, Robert
    Abstract: Firm ownership is a major determinant for the economic performance of firms, and emissions of pollutants are often by-products of industrial production. We investigate the impact of ownership on pollutant emissions of firms and their in- dustrial facilities in Europe jointly with their output, productivity, and other key economic outcomes. To disentangle the influence of ownership from other firm characteristics, we analyse the effects of ownership changes in an event-study approach. We find that industrial facilities and firms decrease their emissions and industrial output after a change in ownership. Emissions intensity and productivity do not change suggesting that reductions in emissions follow proportional reductions in output rather than reflecting changes in pollution abatement technology. We find some evidence for positive spillover effects on productivity and profits of other facilities and firms owned by the acquiring parent company after a change in ownership.
    Keywords: Ownership changes, pollution, productivity, event study
    JEL: D22 D23 Q53
    Date: 2023
  7. By: Ronen Gradwohl (Ariel University); Moshe Tennenholtz (Technion)
    Abstract: We study the costs and benefits of selling data to a competitor. Although selling all consumers' data may decrease total firm profits, there exist other selling mechanisms -- in which only some consumers' data is sold -- that render both firms better off. We identify the profit-maximizing mechanism, and show that the benefit to firms comes at a cost to consumers. We then construct Pareto-improving mechanisms, in which each consumers' welfare, as well as both firms' profits, increase. Finally, we show that consumer opt-in can serve as an instrument to induce firms to choose a Pareto-improving mechanism over a profit-maximizing one.
    Date: 2023–07
  8. By: João Amador; Cátia Silva
    Abstract: In this paper we study the impact of ICT adoption on the level of labour productivity and TFP of Portuguese firms in the period 2004-2018. For this purpose we combine firm-level annual survey data for different dimensions of ICT adoption and balance sheet variables that allow for the computation of productivity and control for several dimensions of heterogeneity. The paper uses a Bartik (1991) shift-share type instrumental variable and results state that there is a positive and sizeable impact from ICT adoption on TFP and labour productivity. One standard deviation increase in the first principal component that captures overall ICT adoption by the firm leads to an increase of 25 percent in TFP and an increase of 58 percent in labour productivity. When the analysis is made separately, online sales and the creation of a website stand out as the most relevant dimensions for productivity gains.
    JEL: J24 O3 O4
    Date: 2023
  9. By: Schilling, Linda
    Abstract: I present a political economic theory, explaining bailouts for failing firms in the presence of non-voters (foreigners). The governing politician uses the bailout as a tool to sway voters for maximizing re-election chances. Bailouts partially leak to foreigners at the firm and are also financed by tax-paying foreigners outside the firm. I show, larger failing firms are granted larger bailouts even if the additional size is due to having more foreign stakeholders (``too-big-to-fail- lookalike''). Yet, among equally sized firms, the firm with more voting-stakeholders receives the larger bailout, contradicting social optimality. Besides firm size, also voting rights cause bailouts.
    Keywords: political finance, bailouts, economic voting, probabilistic voting, vote-share maximization, too-big-to-fail, socially optimal bailouts, partial suffrage
    JEL: D72 G3 G32 G33 G35 G38 P16
    Date: 2023–07–12
  10. By: Casadei, Patrizia; Iammarino, Simona
    Abstract: Despite the rising interest for backshoring strategies by mass media, policy makers and public debates, academic research on the topic is relatively recent and still characterised by significant research gaps. Empirical evidence is scarce and often anecdotal, with a lack of studies focusing on specific industries and small-sized firms. Theoretical explanations are also fragmented with many unanswered questions. In particular, much of the existing literature has explored backshoring as a stand-alone phenomenon, independently from other production location strategies. In an attempt to fill these research gaps, we rely upon data from an original survey with around 700 firms from the UK textile and apparel industry to investigate different interrelated factors that influence backshoring strategies relative to offshoring and staying at home choices, within an analytical framework drawn from different international business perspectives, including operations and supply chain management. The paper contributes to the extant literature on backshoring by providing new empirical evidence based on originally collected firm-level data and focused on a single country and industry where smaller (and less studied) firms tend to prevail. Moreover, it helps strengthen the understanding of the phenomenon from a perspective which takes into consideration internationalisation as a non-linear process where firms adjust production location strategies based on a variety of changing conditions.
    Keywords: backshoring; reshoring; offshoring; production location strategies; survey research; textile & apparel; Springer deal
    JEL: R14 J01
    Date: 2023–07–14
  11. By: Serguey Braguinsky; Joonkyu Choi; Yuheng Ding; Karam Jo; Seula Kim
    Abstract: We use the U.S. patent data merged with firm-level datasets to establish new facts about the role of mega firms in generating “novel patents”—innovations that introduce new combinations of technology components for the first time. While the importance of mega firms in novel patents had been declining until about 2000, it has strongly rebounded since then. The timing of this turnaround coincided with the ascendance of firms that newly became mega firms in the 2000s, and a shift in the technological contents, characterized by increasing integration of Information and Communication Technology (ICT) and non-ICT components. Mega firms also generate a disproportionately large number of “hits”—novel patents that lead to the largest numbers of follow-on patents (subsequent patents that use the same combinations of technology components as the first novel patent)—and their hits tend to generate more follow-on patents assigned to other firms when compared to hits generated by non-mega firms. Overall, our findings suggest that mega firms play an increasingly important role in generating new technological trajectories in recent years, especially in combining ICT with non-ICT components.
    JEL: L10 O30 O32 O33
    Date: 2023–07
  12. By: Filippo Belloc; Stefano Dughera; Fabio landini
    Abstract: We model the conditions under which firm agency issues are tackled through incentive pay as opposed to monitoring. The model shows that a larger span of control makes labor surveillance less effective as an effort extraction mechanism, whereas managerial skills increase the opportunity cost of monitoring. As a result, the use of pay-for-performance schemes is more likely in firms with a lower staff-to-managers ratio and more skilled managers. An empirical analysis on firm-level Italian data produces results coherent with our theoretical predictions. Taken together, our results help to explain the highly heterogeneous use of incentive contracts among firms
    Keywords: Incentive pay, Managerial ability, Span of control
    JEL: L23 M52 C72 J33 J41
    Date: 2023–06
  13. By: Paige Ouimet; Geoffrey Tate
    Abstract: Using administrative data on health insurance, retirement, and leave benefits, we find within-firm variation accounts for a dramatically lower percentage of total variation in benefits than in wages. We also document sharply higher between-firm variation in nonwage benefits than in wages. We argue that this pattern can be a consequence of nondiscrimination regulations, fairness concerns, and the high administrative burden of managing too many or complex plans. Consistent with this mechanism, we show that the presence of high-wage workers in unrelated divisions of a firm as well as workers hired in high-benefit local labor markets positively predicts their colleagues’ benefits, controlling for occupation, wages, state, and industry. We find that the resulting high benefits reduce turnover, particularly among low-wage workers, for whom the benefits comprise a larger percentage of total compensation. Moreover, firms with more generous benefits attract and retain more high-wage workers, but also reduce their reliance on low-wage workers more than low-benefit peers. Our results suggest that benefits disproportionately matter for worker-firm matching and, hence, compensation inequality.
    JEL: G32 J01 J23 J32 J63
    Date: 2023–07
  14. By: Erdsiek, Daniel; Rost, Vincent
    Abstract: The recent shift towards working from home (WFH) has far-reaching implications for social and economic outcomes. While firms are gatekeepers for the ongoing diffusion of flexible work arrangements, there is little evidence on how firms decide to offer WFH. We leverage two survey experiments among nearly 800 knowledge-intensive services firms in Germany to analyse whether managers' beliefs about the productivity effects of WFH affect their adoption decisions. Exploiting exogenous variation in managers' information set, we find that managers update their beliefs about the productivity effects of WFH when they receive information on workers' self-assessed WFH productivity. In addition, the information treatment significantly increases managers' willingness to adopt or intensify WFH policies. Combining our main survey experiment with two follow-up surveys, we find persistent information treatment effects on both managers' beliefs about WFH productivity and firms' expected WFH intensity after the Covid-19 pandemic. A complementary survey experiment confirms our results pointing to a causal relationship between managers' beliefs about WFH productivity and the adoption of WFH practices. These findings have implications for potential policy measures targeting firms' WFH adoption.
    Keywords: working from home, survey experiment, information provision, firm-level, managers, expectations
    JEL: D22 D23 L22 O33 M54
    Date: 2023
  15. By: Spatareanu, Mariana; Manole, Vlad; Kabiri, Ali
    Abstract: How did the nationalization of UK operating banks as a result of the 2008 banking crisis impact their client firms’ performance? We use unique firm-bank data and a propensity score matching technique and find that firms that borrowed from nationalized banks show a slight decrease in the growth of investment and innovation relative to firms that borrowed from non-nationalized banks. Interestingly, we find that firms that borrowed from nationalized banks slightly increase employment, short-term debt and cash holdings. Overall, these firms were able to maintain performance as a result of policy intervention.
    Keywords: bank nationalization; financial crisis; Firm performance; United Kingdom
    JEL: G21 G34 O16 O30
    Date: 2022–01–19

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