nep-bec New Economics Papers
on Business Economics
Issue of 2024‒05‒27
five papers chosen by
Vasileios Bougioukos, London South Bank University

  1. Are Immigrants More Innovative? Evidence from Entrepreneurs By Lee, Kyung Min; Kim, Mee Jung; Brown, J. David; Earle, John S.; Liu, Zhen
  2. Firms and inequality in Latin America By Eslava, Marcela; Meléndez, Marcela; Ulyssea, Gabriel; Urdaneta, Nicolás; Flores, Ignacio
  3. The dynamics of diversity on corporate boards By Matthias Raddant; Fariba Karimi
  4. Revisiting Granular Models of Firm Growth By Jos\'e Moran; Angelo Secchi; Jean-Philippe Bouchaud
  5. Business Dynamics and Productivity Growth in the Netherlands By Daan Freeman; Leon Bettendorf; Gerrit Hugo van Heuvelen; Gerdien Meijerink

  1. By: Lee, Kyung Min; Kim, Mee Jung; Brown, J. David; Earle, John S.; Liu, Zhen
    Abstract: We evaluate the contributions of immigrant entrepreneurs to innovation in the U.S. using linked survey-administrative data on 199, 000 firms with a rich set of innovation measures and other firm and owner characteristics. We find that not only are immigrants more likely than natives to own businesses, but on average their firms display more innovation activities and outcomes. Immigrant-owned firms are particularly more likely to create completely new products, improve previous products, use new processes, and engage in both basic and applied R&D, and their efforts are reflected in substantially higher levels of patents and productivity. Immigrant owners are slightly less likely than natives to imitate products of others and to hire more employees. Delving into potential explanations of the immigrant-native differences, we study other characteristics of entrepreneurs, access to finance, choice of industry, immigrant self-selection, and effects of diversity. We find that the immigrant innovation advantage is robust to controlling for detailed characteristics of firms and owners, it holds in both high-tech and non-high-tech industries and, with the exception of productivity, it tends to be even stronger in firms owned by diverse immigrant-native teams and by diverse immigrants from different countries. The evidence from nearly all measures that immigrants tend to operate more innovative and productive firms, together with the higher share of business ownership by immigrants, implies large contributions to U.S. innovation and growth.
    Date: 2024–04–18
  2. By: Eslava, Marcela; Meléndez, Marcela; Ulyssea, Gabriel; Urdaneta, Nicolás; Flores, Ignacio
    Abstract: The relationship between firms and inequality has been a focus of recent attention globally. This chapter summarizes basic facts about this relationship for Latin America. Unlike advanced economies where superstar firm growth has prompted concerns over disproportionate income growth at the top, the facts we summarize illustrate that the main concern for Latin America is the extreme prevalence of tiny businesses whose workers and owners tend to populate the bottom income segments. The empirical likelihood that these businesses improve their productivity and grow to hire more workers and pay better wages is also very low. The region displays a deficit of employment generation in SMEs, by contrast to both microbusinesses (including self-employment) and large corporations. While the former tend to remunerate both workers and owners with very low incomes, the latter pay high wages but also exhibit low labor shares.
    JEL: E20 J21 O54
    Date: 2024–04–01
  3. By: Matthias Raddant; Fariba Karimi
    Abstract: Diversity in leadership positions and corporate boards is an important aspect of equality. It is important because it is the key to better decision-making and innovation, and above all, it paves the way for future generations to participate and shape our society. Many studies emphasize the importance of the visibility of role models and the effect that connectivity has on the success of minorities in leadership. However, the connectivity of firms, the dynamics of the adoption of minorities, and the long-term effects have not been well understood. Here, we present a model that shows how these effects work together in a dynamic model that is calibrated with empirical data of firm and board networks. We show that homophily -- the appointment of minorities is influenced by the presence of minorities in a board and its neighboring entities -- is an important effect shaping the trajectory towards equality. We further show how perception biases and feedback related to the centrality of minority members influence the dynamic. We find that reaching equality can be sped up or slowed down depending on the distribution of minorities in central firms. These insights bear significant implications for policy-making geared towards fostering equality and diversity within corporate boards.
    Date: 2024–04
  4. By: Jos\'e Moran; Angelo Secchi; Jean-Philippe Bouchaud
    Abstract: We revisit "granular models of firm growth" that have been proposed in the literature to explain the anomalously slow decrease of growth volatility with firms size and how this phenomenon shapes the distribution of their growth rates. In these models, firms' sales are viewed as collections of independent "sub-units", and these non-trivial statistical properties occur as a direct result of the fat-tailed distribution of the number or sizes of these sub-units. We present and discuss new theoretical results on the relation between firm size and growth rate statistics. Our results can be understood by noting that granular models imply the existence of three types of firms: well-diversified firms, with a size evenly distributed among several sub-units; firms with many sub-units but with their total size concentrated on only a handful of them, and lastly firms which are poorly diversified simply because they are made up of a small number of sub-units. We establish new empirical facts about growth rates and their relation with size. As predicted by the model, the distribution of growth rate volatilities is to a good approximation {independent of firm size}, once rescaled by the average size-conditioned volatility. However, the tail of this distribution is much too thin to be consistent with a granular mechanism. Moreover, the moments of growth volatility scale with size in a way that is at odds with theoretical predictions. We also find that the distribution of growth rates rescaled by firm-specific volatility, which is predicted to be Gaussian by all the models we consider, remains very fat-tailed in the data, even for large firms. This paper, in ruling out the granularity scenario, suggests that the overarching mechanisms underlying the growth of firms are not satisfactorily understood, and argues that they deserve further theoretical investigations.
    Date: 2024–04
  5. By: Daan Freeman; Leon Bettendorf; Gerrit Hugo van Heuvelen; Gerdien Meijerink
    Abstract: This study examines the decline in firm dynamism within the Netherlands, potentially linked to the deceleration of productivity growth. We utilise a rich microdata set covering the period 2006-2016, encompassing nearly all Dutch corporations. This dataset facilitates an evaluation of start-ups’ and exiting firms’ contributions to Total Factor Productivity (TFP) growth across various industries, employing the Melitz and Polanec (2015) decomposition approach. Our findings reveal that in service sectors, the creative destruction hypothesis is substantiated, as start-ups and exiting firms positively impact overall TFP growth. In contrast, TFP growth in manufacturing is primarily driven by incumbent firms. Entry and exit dynamics in this context exert minimal or even negative influence on TFP growth. Although entrants in manufacturing initially display lower productivity than incumbents, their productivity growth outpaces that of incumbents. In services, entrants commence operations with higher initial productivity, a trait that gradually diminishes over time. Generally, entrants with relatively low productivity are predisposed to exit within five years, aligning with the ’up-or-out’ pattern.
    Keywords: productivity slowdown, firm dynamics, TFP, Netherlands
    Date: 2024

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