nep-bec New Economics Papers
on Business Economics
Issue of 2024‒03‒25
eight papers chosen by
Vasileios Bougioukos, London South Bank University

  1. Come together: firm boundaries and delegation By Alfaro, Laura; Bloom, Nick; Conconi, Paola; Fadinger, Harald; Legros, Patrick; Newman, Andrew F.; Sadun, Raffaella; Van Reenen, John
  2. Do large firms generate positive productivity spillovers? By Mary Amiti; Cedric Duprez; Jozef Konings; John Van Reenen
  3. The Pro-competitive Effects of Trade Agreements By Meredith Crowley; Lu Han; Thomas Prayer
  4. Credit Supply Shocks and Firm Dynamics: Evidence from Brazil By Samuel Bazzi; Marc-Andreas Muendler; Raquel F. Oliveira; James Rauch
  5. Granular Sentiments By Rustam Jamilov; Alexandre Kohlhas; Oleksandr Talavera; Mao Zhang
  6. Payout-Based Asset Pricing By Goncalves, Andrei S.; Stathopoulos, Andreas
  7. Firm level expectations and macroeconomic conditions underpinnings and disagreement By Monique Reid; Pierre Siklos
  8. Breaking Barriers: The Impact of Employer Exposure to Immigrants By Lehrer, Steven; Lepage, Louis-Pierre; Sousa Pereira, Nuno

  1. By: Alfaro, Laura; Bloom, Nick; Conconi, Paola; Fadinger, Harald; Legros, Patrick; Newman, Andrew F.; Sadun, Raffaella; Van Reenen, John
    Abstract: We jointly study firm boundaries and the allocation of decision rights within them by confronting an incomplete-contracts model with data on vertical integration and delegation for thousands of firms around the world. Integration has an option value: it confers authority to delegate or centralize decision rights, depending on who can best solve problems that arise in the course of an uncertain production process. In line with the model’s predictions, we find that firms are more likely to integrate suppliers that produce more valuable inputs and operate in industries with more dispersed productivity, and that firms delegate more decisions to integrated suppliers that produce more valuable inputs and operate in more productive industries.
    JEL: D20 L20
    Date: 2024–02–01
  2. By: Mary Amiti; Cedric Duprez; Jozef Konings; John Van Reenen
    Abstract: The potentially negative effects of market concentration on consumers and workers has received much attention, but Mary Amiti, Cédric Duprez, Jozef Konings and John Van Reenen find that big firms can also promote productivity in the wider economy. Analysing data from Belgium, they find that being global is not necessary for such benefits, with large domestic firms generating spillovers of the same magnitude as multinationals.
    Keywords: productivity, fdi, spillovers
    Date: 2024–02–20
  3. By: Meredith Crowley; Lu Han; Thomas Prayer
    Abstract: How does trade policy affect competition? Using the universe of product exports by firms from eleven low and middle-income countries, we document that tariff reductions under trade agreements have strong procompetitive effects – they encourage entry and reduce the (tariff exclusive) price-cost markups of exporters. This finding, that markups fall with tariff cuts, contradicts a core prediction of standard oligopolistic competition models of trade. We extend a workhorse international pricing model of oligopolistic competition to include multiple countries and a rich preference structure. Our preference structure allows for fierce competition among firms from the same country and less intense competition among firms from different countries. We show a firm’s optimal markup after a tariff cut can rise or fall depending on the parameters of the preference structure and tariff-induced reallocation of market share among firms and across countries.
    Keywords: trade agreements, variable markups, markup elasticity, trade elasticity, competition policy, firm level data.
    JEL: F13 F14 F15
    Date: 2022–07
  4. By: Samuel Bazzi; Marc-Andreas Muendler; Raquel F. Oliveira; James Rauch
    Abstract: This paper explores how financial constraints distort entry decisions among otherwise productive en- trepreneurs and limit growth of promising young firms. A model of liquidity-constrained entrepreneurs suggests that the easing of credit constraints can induce more entry of firms with greater long-run growth potential than the easing of conventional entry barriers would bring about. We study this growth mecha- nism using a large-scale program to expand the supply of credit to small and medium enterprises in Brazil. Local credit supply shocks generate greater firm entry but also greater exit with no effect on short-run employment growth in the formal sector. However, credit expansions increase average capability among entering firms, which enter at larger size, survive longer, and grow faster. These firm dynamics are more pronounced in areas with ex ante weaker credit markets and consistent with local bank branches using cheap targeted credit lines to expand lending more broadly. Our findings provide new evidence on the general equilibrium effects of credit supply expansions.
    Date: 2024–02
  5. By: Rustam Jamilov; Alexandre Kohlhas; Oleksandr Talavera; Mao Zhang
    Abstract: We propose an empirically-motivated theory of business cycles, driven by fluctuations in sentiment towards a small number of firms. We measure firm-level sentiment with computational linguistics and analyst forecast errors. We find that 50 firms can account for over 70% of the unconditional variation in U.S. sentiment and output over the period 2006-2021. The “Granular Sentiment Index”, measuring sentiment towards the 50 firms, is dominated by firms that are closer to the final consumer, i.e. are downstream. To rationalize our findings, we embed endogenous information choice into a general equilibrium model with heterogeneous upstream and downstream firms. We show that attention centers on downstream firms because they act as natural “information agglomerators”. When calibrated to match select moments of U.S. data, the model shows that orthogonal shocks to sentiment of the 20% most downstream firms explain more than 90% of sentiment-driven (and 20% of total) aggregate fluctuations.
    Date: 2024–02–16
  6. By: Goncalves, Andrei S. (Ohio State U); Stathopoulos, Andreas (U of North Carolina at Chapel Hill)
    Abstract: Firms' payout decisions respond to expected returns: everything else equal, firms invest less and pay out more when their cost of capital increases. Given investors' demand for firm payout, market clearing implies that the dynamics of productivity and payout demand fully determine equilibrium asset prices and returns. We use this logic to propose a payout-based asset pricing framework and we illustrate the analogy between our approach and consumption-based asset pricing in a simple two-period model. Then, we introduce a quantitative payout-based asset pricing model and calibrate the productivity and payout demand processes to match aggregate U.S. corporate output and payout empirical moments. We find that model-implied payout yields and firm returns go a long way in reproducing key attributes of their empirical counterparts.
    JEL: E10 E13 G10 G11 G12 G35
    Date: 2023–09
  7. By: Monique Reid; Pierre Siklos
    Abstract: There is abundant evidence that financial analysts inflation expectations differ in economically important ways from those of non-financial specialists. As a result, there is an increasing demand for firm-level data to more accurately capture the views of price setters. The unusually rich firm-level survey data from South Africa allow us to explore some of the ways in which the expectations of firms differ from those of other groups surveyed. We focus specifically on forecast disagreement, which can offer insights into the level of uncertainty reflected in the data and the degree to which expectations are anchored. We find that the divergence in inflation forecasts among respondents is partly explained by differences in how respondents believe the broader macroeconomy is evolving. The effect of aggregating the data in different ways is also considered. When we construct a new measure of macroeconomic disagreement that combines all the variables being forecast, we are able to see that forecasters responded sharply in early 2020 as the COVID-19 pandemic emerged.
    Date: 2024–03–08
  8. By: Lehrer, Steven (Queen's University); Lepage, Louis-Pierre (Swedish Institute for Social Research, Stockholm University); Sousa Pereira, Nuno (University of Porto)
    Abstract: We study how exposure of employers to immigrants, both at the market and at the individual firm level, mitigates immigrant-native disparities. We use administrative employee-employer matched data from Portugal, which provides a unique setting given that it experienced almost no immigration until the early 2000s followed by substantial immigration waves. Focusing on the evolution of market wages across successive immigration cohorts, we find that increased employer exposure to immigrant groups can account for up to 25% of the wage convergence between immigrants and natives over the last two decades. We also document that individual-level exposure of firms to immigrants plays an important role, influencing future hiring and remuneration of immigrants. Our results provide new insights into how barriers to hiring different worker groups shape economic inequality, with novel implications for immigration policies.
    Keywords: immigration; immigrant-native wage gaps
    JEL: J15 J31
    Date: 2024–03–01

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