nep-bec New Economics Papers
on Business Economics
Issue of 2024‒01‒01
nine papers chosen by
Vasileios Bougioukos, London South Bank University

  1. The Role of Export Incentives and Bank Credit on the Export Survival of Firms in India During COVID-19 By Radeef Chundakkadan; Subash Sasidharan; Ketan Reddy
  2. Demand and Supply Side Linkages in Exporting Multiproduct Firms By Carsten Eckel; Lisandra Flach; Ning Meng
  3. Does excess employment affect the relative performance evaluation usage in CEO turnover?Evidence from Chinese listed firms By Xinyi CAO; Norio SAWABE
  4. Does Monetary Policy Affect Non-mining Business Investment in Australia? Evidence from BLADE By Gulnara Nolan; Jonathan Hambur; Philip Vermeulen
  5. Mergers and Acquisitions in the Service Sector By Ylhäinen, Ilkka; Pajarinen, Mika
  6. The law of the strongest? Exploring the drivers of firm performance during the COVID-19 crisis By Guido Franco; Mauricio Hitschfeld; Álvaro Pina; Damien Puy
  7. Industry Agglomeration, Urban Amenities, and Regional Development in India By Subash Sasidharan; Shandre Thangavelu
  8. Monetary Policy in the Presence of Supply Constraints: Evidence from German Firm-level Data By Nöller, Marvin; Balleer, Almut
  9. Urban-Biased Structural Change By Chen, Natalie; Novy, Dennis; , Perroni, Carlo; Chern Wong, Horng Chern

  1. By: Radeef Chundakkadan (Indian Institute of Technology Bombay, Mumbai, India); Subash Sasidharan (Indian Institute of Technology (IIT), Madras); Ketan Reddy (Indian Institute of Management Raipur, India)
    Abstract: The aim of this study is threefold. First, we analyse the relationship between export incentives on firm survival during the coronavirus disease (COVID-19) crisis; second, we explore the nexus between bank dependency and survival in the export market; and finally, we test the complementarity and substitutability effect of export incentives and bank dependency on export market survival. We use firm-level information on Indian firms from 2016 to 2022, covering 4 years of the pre-pandemic period and 2 years of the post-pandemic period. We find that both export incentives and bank dependency improve the probability of export market survival in the post-pandemic period. These results are applicable to both the manufacturing and services sector, stand-alone firms, and business group affiliates. Our results remain robust while employing alternative proxies for the primary variable of interest and different methodologies.
    Keywords: Export incentives; bank dependency; survival; export
    Date: 2023–08–29
  2. By: Carsten Eckel (LMU Munich, CESifo, CEPR); Lisandra Flach (LMU Munich, ifo Institute, CESifo, CEPR); Ning Meng (Nanjing University, CESifo)
    Abstract: Products produced by a multiproduct firm can be linked through demand linkages or supply linkages. On the demand side, changes in the price of one product can affect the demand for a firm's other products through shifts in consumer expenditures. This is commonly referred to as the cannibalization effect. On the supply side, joint inputs can create a dependency of one product's marginal costs on the output of other products. The existence of these linkages is important for how firms respond to shocks and has major implications for several performance measures, such as productivity and markups. This paper provides first empirical evidence for the existence of cannibalization linkages in presence of supply linkages, which is implied evidence for market power.
    Keywords: multiproduct firms; cannibalization effect; demand linkages; supply linkages; anti-dumping tariffs; quality; mark-ups;
    JEL: D21 D24 F12 F13 F14 L11 L15 L25
    Date: 2023–11–17
  3. By: Xinyi CAO; Norio SAWABE
    Abstract: This study investigates the application of Relative Performance Evaluation (RPE) theory on forced CEO turnover decisions in the context of Chinese listed firms. Using CEO dismissal data spanning from 2009 to 2019, we observe a negative correlation between industry peer performance and the likelihood of forced CEO turnover, which contradicts the assumption of RPE theory. Furthermore, we emphasize the significance of considering Non-Financial Performance Measures (NFPMs) in CEO turnover research. Our research reveals that the extent of excess employment is negatively associated with the probability of forced CEO dismissal, and it also affects how a firm responds to peer performance. Specifically, when firms exhibit high social performance, proxied by excess employment, they tend not to lay off more CEOs due to industry downturns. This study offers a potential explanation for Jenter and Kanaan (2015)’s puzzle of why firms terminate more CEOs when their industry experiences a recession. We argue that prior literature, which predominantly focuses on the relationship between financial performance and CEO turnover, may be incomplete. It is imperative to also account for the impact of NFPMs.
    Keywords: Consistency, Relative performance evaluation, excess employment, forced CEO turnover, Chinese listed firms
    JEL: G32 M21 M41
    Date: 2023–12
  4. By: Gulnara Nolan (Reserve Bank of Australia); Jonathan Hambur (Reserve Bank of Australia); Philip Vermeulen (University of Canterbury, New Zealand)
    Abstract: We provide new evidence on the effect of monetary policy on investment in Australia using firm-level data. We find that contractionary monetary policy makes firms less likely to invest and lowers the amount they invest if they do so. The effects are similar for young and old firms, indicating that the decline in the number of young firms in Australia over time is unlikely to have weakened the effect of monetary policy. The effects are also broadly similar for smaller and larger firms. This suggests that evidence that some, particularly large, firms have sticky hurdle rates does not mean that they do not respond to monetary policy. It also suggests that overseas findings that expansionary monetary policy lessens competition by supporting the largest firms likely do not apply to Australia. We find evidence that financially constrained firms, and sectors that are more dependent on external finance, are more responsive to monetary policy, highlighting the important role of cash flow and financing constraints in the transmission of monetary policy. Finally, we find evidence that monetary policy affects firms' actual and expected investment contemporaneously, suggesting that expectations are reactive and will tend to lag over the cycle.
    Keywords: investment; monetary policy; financial constraints
    JEL: E22 E52
    Date: 2023–12
  5. By: Ylhäinen, Ilkka; Pajarinen, Mika
    Abstract: Abstract We examined mergers and acquisitions in the service sector and the effects of the transition to foreign ownership. We analyzed firm-level data encompassing 1, 243 service sector acquisitions that occurred from 2009–2018. The most foreign acquisitions occurred in the health and social services, business services, and trade; the largest shares were noted in health and social services, IT services, and communication. Larger firms with lower levels of cash flow and firms characterized by a growth-resource imbalance were most likely to be the targets of foreign acquisitions. After an acquisition, the target company’s equity ratio and profit before taxes decreased; however, effects on growth and employment remained limited.
    Keywords: Mergers and acquisitions, Service sector, Foreign ownership, Foreign company
    JEL: F23 F61 G34 L80
    Date: 2023–11–30
  6. By: Guido Franco; Mauricio Hitschfeld; Álvaro Pina; Damien Puy
    Abstract: Using data on more than 150.000 non-financial companies operating in both manufacturing and services sectors around the world, we analyse the drivers of firm performance throughout the whole COVID cycle (until end 2021). We highlight three key results. First, if anything, larger and older firms did worse than smaller and younger ones in terms of revenues and investment spending, both during COVID-19 and the subsequent recovery. Even in sectors that were under scrutiny from a competition standpoint, such as technology and healthcare, larger firms did not systematically over-perform. Second, ex-ante financial strength attenuated the effects of the shock on revenues during the COVID cycle. Third, there is some evidence of debt overhang: firms that entered the crisis with a higher leverage ratio invested less than others, including on R&D, both in 2020 and in 2021, while firms that became more debt-burdened during the pandemic tended to record weaker investment spending during the recovery. These insights shed light on market power, competition, and more generally on the performance of the corporate sector since the start of COVID-19 pandemic.
    Keywords: competition, corporate sector, COVID-19, debt overhang, financial fragility, firm performance, firm size, investment, market power
    JEL: D25 G01 G32 L25
    Date: 2023–12–12
  7. By: Subash Sasidharan (Indian Institute of Technology (IIT), Madras); Shandre Thangavelu (Jeffrey Cheah Institute of Southeast Asia, Sunway University and Institute for International Trade, University of Adelaide)
    Abstract: Industrial agglomeration is an important component to create efficiency and externalities for industrial growth and competitiveness for the Indian economy. In this paper, we examine the spatial location of Indian firms and industry agglomeration at district and township level for the Indian economy. Particularly, we examine the impact of urban amenities in driving the industrial agglomeration in the Indian economy using firm-level data. We carefully control for township-level urban amenities, as well as firm level characteristics in affecting the industry agglomeration. As opposed to previous stateand district-level studies, we examine the impact of urban amenities at a more disaggregated township level for 2011. The study also examines the impact of urban amenities on manufacturing, as well as the services sector. The empirical analysis findings indicate a positive correlation between town-level disparities in industry agglomeration and various amenities, including education, healthcare, energy, transportation, finance, and cultural resources. These results remain consistent when considering alternative measures of agglomeration and conducting sub-sample analyses.
    Keywords: Industrial Agglomeration; Urban Amenities
    JEL: F15 O15
    Date: 2023–09–13
  8. By: Nöller, Marvin; Balleer, Almut
    JEL: E31 E52 C22
    Date: 2023
  9. By: Chen, Natalie (University of Warwick); Novy, Dennis (University of Warwick); , Perroni, Carlo (University of Warwick); Chern Wong, Horng Chern (Stockholm University)
    Abstract: Using firm-level data from France, we document that the shift of economic activity from manufacturing to services over the last few decades has been urban-biased : structural change has been more pronounced in areas with higher population density. This bias can be accounted for by the location choices of large services firms that sort into big cities and large manufacturing firms that increasingly locate in suburban and rural areas. Motivated by these findings, we estimate a structural model of city formation with heterogeneous firms and international trade. We find that agglomeration economies have strengthened for services but weakened for manufacturing. This divergence is a key driver of the urban bias but it dampens aggregate structural change. Rising manufacturing productivity and falling international trade costs further contribute to the growth of large services firms in the densest urban areas, boosting services productivity and services exports, but also land prices.
    Keywords: Agglomeration ; Cities, Export ; Firm Sorting ; Manufacturing ; Productivity ; Services ; Trade Costs
    Date: 2023

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