nep-bec New Economics Papers
on Business Economics
Issue of 2024‒01‒15
nine papers chosen by
Vasileios Bougioukos, London South Bank University

  1. Firm Heterogeneity in Skill Returns By Böhm, Michael Johannes; Esmkhani, Khalil; Gallipoli, Giovanni
  2. The Impact of Foreign Sanctions on Firm Performance in Russia By Luu Duc Toan Huynh; Khanh Hoang; Steven Ongena
  3. Supply Chain Shortages, Large Firms' Market Power, and Inflation By Francesco A. Franzoni; Mariassunta Giannetti; Roberto Tubaldi
  4. Firm Heterogeneity and the Aggregate Labour Share By Richiardi, Matteo; Valenzuela, Luis
  5. Zipf's Law without the Stationarity Assumption By ARATA Yoshiyuki
  6. Stairway to Heaven? Selection into Entrepreneurship, Income Mobility and Firm Performance By Jarkko Harju; Toni Juuti; Tuomas Matikka
  7. Quality upgrading and position in global value chains: Firm-level evidence from the French agri-food industry By Kossi Messanh Agbekponou; Angela Cheptea; Karine Latouche
  8. How Do Firms Attain Internal and External Flexibility of Employment? By FUKAI Taiyo; KAWAGUCHI Daiji; KONDO Ayako; YOKOYAMA Izumi
  9. The U-shaped Law of High-growth Firms By ARATA Yoshiyuki; MIYAKAWA Daisuke; MORI Katsuki

  1. By: Böhm, Michael Johannes (TU Dortmund); Esmkhani, Khalil (Simon Fraser University); Gallipoli, Giovanni (University of British Columbia, Vancouver)
    Abstract: We quantify firm heterogeneity in skill returns and present direct evidence of worker–firm complementarities. Within a model of firms' demand for cognitive and noncognitive attributes we show that identification depends on the availability of skill measures. Linking administrative data to test scores we document worker sorting and convex earnings–skill relationships. We find that: (1) Both skills' returns vary substantially across employers and correlate weakly within-firm. (2) Workers with large endowments of a skill populate firms with higher returns to it. Sorting intensifies with the cross-sectional dispersion of returns. (3) Complementarities and sorting significantly influence the earnings distribution.
    Keywords: firm heterogeneity, skill return, sorting, earnings distribution
    JEL: D3 J23 J24 J31
    Date: 2023–12
  2. By: Luu Duc Toan Huynh (Queen Mary University of London); Khanh Hoang (Lincoln University); Steven Ongena (University of Zurich; Swiss Finance Institute; KU Leuven; NTNU Business School; CEPR)
    Abstract: We assess the economic effects of two decades of recent sanctions on Russian firms. We find that foreign sanctions leave energy firms in Russia unaffected but do undermine firm performance in the other (non‐energy) sectors. While firms with connections to Russian oligarchs linked to Putin are unaffected, sanctions do not differentiate in their impact between firms with Russian and foreign origins. Interestingly, Russian firms seem to be prepared for the Crimea event and the Ukraine war. Ultimately, we find that increasing export to China at country‐level helps alleviate the negative impact of sanctions on firm performance in Russia.
    Keywords: firm performance; sanctions; Russia; political connection
    JEL: G20 O16
    Date: 2023–11
  3. By: Francesco A. Franzoni (Universita della Svizzera italiana; Swiss Finance Institute; CEPR); Mariassunta Giannetti (Stockholm School of Economics; Swedish House of Finance; CEPR; ECGI); Roberto Tubaldi (BI Norwegian Business School)
    Abstract: We suggest an equilibrium mechanism for the widely debated argument that “greedflation” has fostered widespread price hikes. We construct firm and industry-level measures of supply chain backlogs and delivery delays and provide evidence that supply chain shortages lead to a decrease in competition at the industry level. We show that “star” firms acquire market shares and increase their markups and profitability relative to the smaller firms in the industry. We also show that the large increase in supply chain backlogs during the COVID-19 pandemic can help explain about 19% of the US inflation in industries with more asymmetric firm size distribution, where supply chain shortages are more likely to benefit large firms at the expense of smaller firms. Economic magnitudes are comparable in the international sample.
    Keywords: Supply Chains, Market Power, Inflation, Production Networks
    JEL: D2 E31 L11 G3
    Date: 2023–11
  4. By: Richiardi, Matteo; Valenzuela, Luis
    Abstract: We propose a model-based decomposition method for the aggregate labour share in terms of the first moments of the joint distribution of TFP, market power, wages and prices, and apply it to UK manufacturing using firm-level data for 1998-2014. Contrary to a narrative focussing on increasing disparities between firms, the observed decline in the aggregate labour share over the period is driven entirely by the decline in the labour share of the representative firm, mostly due to an increasing disconnect between average productivity and real wages. Changes in the dispersion of firm-level variables have contributed to slightly contain this decline.
    Date: 2023–12–13
  5. By: ARATA Yoshiyuki
    Abstract: This paper analyzes one of the classic empirical regularities in the literature on firm growth: Zipf's law of the firm size distribution. Firstly, using firm-level data and decomposing the sample by the age of the firms, I found that the Pareto tail is observed within each age cohort. In particular, Zipf's law is observed only among younger firms (e.g., firms under 50 years of age). This empirical finding contradicts previous research which assumes that Zipf's law is observed only when the size distribution of firms from each age cohort is aggregated. To address this empirical inconsistency, this paper provides another explanation for Zipf's law. Specifically, Zipf's law is explained by two assumptions: the random walk assumption (i.e., the log of a firm’s sales follows a random walk) and the heavy-tailed assumption that the growth rate distribution has a heavier tail than an exponential. In my analysis, the stationarity assumption (i.e., the firm size distribution is at the stationary state) is not needed. This new explanation resolves the empirical inconsistency and implies that a large firm arises from a few large jumps in size within a short period. Zipf's law reflects this property of firm growth dynamics.
    Date: 2023–12
  6. By: Jarkko Harju (Tampere University and Finnish Center of Excellence in Tax Systems Research); Toni Juuti (Labour Institute for Economic Research LABORE, Tampere University and Finnish Center of Excellence in Tax Systems Research); Tuomas Matikka (VATT Institute for Economic Research and Finnish Center of Excellence in Tax Systems Research)
    Abstract: Using detailed full-population data from Finland, we provide evidence on selection into entrepreneurship and the dynamic implications of establishing a new business. Individuals at the very top of the personal income distribution are much more likely to start a new incorporated business compared to others. There is no similar selection based on parental income, but more than half of new entrepreneurs have entrepreneurial parents. Entrepreneurship is associated with a similar average income gain of 20% relative to comparable wage earners throughout both personal and parental income distributions. However, key firm-level outcomes such as productivity and job creation are positively linked with personal income. This suggests that high-income individuals do not only benefit from entrepreneurship personally, but their businesses are associated with the largest positive spillovers in the economy. In contrast, we find no significant differences in the outcomes of new firms by parental income or parental background in entrepreneurship.
    Keywords: entrepreneurship; income mobility; inequality; productivity
    JEL: L26 J24 J3
    Date: 2023–12
  7. By: Kossi Messanh Agbekponou (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement); Angela Cheptea (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement); Karine Latouche (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)
    Abstract: This paper analyzes how the quality of produced goods affects firms' position in global value chains (GVCs). Extending the theoretical framework of Chor et al. (2021), we find that quality upgrading increases the span of production stages performed by the firm: it imports more upstream (less transformed) intermediate products and exports more downstream (more highly processed) products. Expansion along GVCs through quality upgrading is accompanied by an increase in input purchases, assets, value added, and profits. These theoretical predictions are tested using 2000-2018 firm-level data on French agri-food industries (from French customs and the AMADEUS database). In line with recent work, we identify firms that participate in GVCs with those that jointly import and export, and measure firms' position in value chains through the level of transformation (upstreamness) of goods they use and produce. We use several ways to measure product quality at firm level, all inspired by the commonly accepted assumption that, at equal prices, higher quality products are sold in larger quantities. Our findings confirm the prediction that higher-quality firms use more upstream inputs produced by other firms to produce more transformed outputs, and perform a larger span of intermediate production stages in-house. We find limited empirical evidence in support of other predictions.
    Keywords: International trade, Global value chains, Quality, Firm strategies, Agrifood industry
    Date: 2023–06–08
  8. By: FUKAI Taiyo; KAWAGUCHI Daiji; KONDO Ayako; YOKOYAMA Izumi
    Abstract: Firms increasingly rely on workers with nonstandard contracts, but the underlying economic factors that distinguish workers on standard contracts from those on nonstandard contracts is poorly understood. We study their asymmetric employment and wage adjustments to examine whether the differences in the importance of firm-worker relation specificity between the two types of workers is a fundamental source of heterogeneity. Leveraging the exogenous shock that stems from exchange rate fluctuation and heterogeneous trade exposure between firms, we find that firms absorb temporary shocks by adjusting the number of dispatched workers from temporary help agencies and adjusting bonuses of in-house workers instead of reducing the number of in-house workers employed.
    Date: 2023–12
  9. By: ARATA Yoshiyuki; MIYAKAWA Daisuke; MORI Katsuki
    Abstract: This paper investigates firm growth dynamics by using the theory of stochastic processes and data on corporate tax records covering almost all firms in Japan. We show that the growth path of high-growth firms (HGFs) is characterized by a single large jump rather than a gradual increase. Specifically, before the jump occurs, the growth path of a HGF is similar to that of non-HGFs, but then it experiences a rapid increase in size. This growth pattern with a jump is typical (i.e., most likely) for HGFs. To provide further empirical evidence, we consider the ratio of the growth rate in the first period to the entire growth rate over two periods. The histogram of this ratio exhibits a U-shaped curve for HGFs, indicating that high growth over the two periods is explained by high growth either in the first or second period (but not both). This U-shaped curve is consistent with the idea that a single large jump determines the growth path of HGFs.
    Date: 2023–12

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