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on Business Economics |
| By: | Söhnke M. Bartram; Gregory W. Brown; René M. Stulz |
| Abstract: | Average idiosyncratic volatility and firm idiosyncratic volatility increase with the number of listed firms. Average industry idiosyncratic volatility increases with the number of listed firms in the industry. We ex-plain the relation between idiosyncratic volatility and the number of listed firms through Schumpeterian creative destruction. We show that Schumpeterian creative destruction increases as the number of listed firms increases. However, there is no consistent evidence of an incremental effect of the number of non-listed firms on idiosyncratic volatility either in the aggregate or at the industry level, suggesting that listed firms play a unique role in the dynamism of the economy. |
| JEL: | G10 G11 G12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32568 |
| By: | Nguyen, Quang Khai |
| Abstract: | This study investigated the impact of the COVID-19 crisis on firm risk and performance in different country-level governance qualities in the MENA region. Analyzing a sample of 739 non-financial listed firms in 12 MENA countries for the period 2011–2020, we found that the COVID-19 crisis negatively impacted the performance of firms, especially low-performance firms, in most industries, and increased firm risk in general. Moreover, we found that national governance quality plays an important role in mitigating the negative impact of the COVID-19 crisis on firm operations. Specifically, national governance quality reduces the negative impact of the COVID-19 crisis on firm performance and the positive impact of the crisis on firm risk. The results are consistent with our contention that national governance quality contributes to creating a positive environment for businesses activities and reducing economic shocks. |
| Keywords: | COVID-19; performance |
| JEL: | G0 G3 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121001 |
| By: | Marc Claveria-Mayol; Pau Mil\'an; Nicol\'as Oviedo-D\'avila |
| Abstract: | Risk-averse workers in a team exert effort to produce joint output. Workers' incentives are connected via chains of productivity spillovers, represented by a network of peer-effects. We study the problem of a principal offering wage contracts that simultaneously incentivize and insure agents. We solve for the optimal linear contract for any network and show that optimal incentives are loaded more heavily on workers that are more central in a specific way. We conveniently link firm profits to network structure via the networks spectral properties. When firms can't personalize contracts, better connected workers extract rents. In this case, a group composition result follows: large within-group differences in centrality can decrease firm's profits. Finally, we find that modular production has important implications for how peer structures distribute incentives. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.11712 |
| By: | Crowley, Meredith A.; Han, Lu; Prayer, Thomas |
| 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 pro-competitive 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: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123982 |
| By: | Xiaohui Li (The School of Accounting and Finance, Hong Kong Polytechnic University); Yao Shen (Zicklin School of Business, c, City Univeristy of New York); Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau) |
| Abstract: | We find that investors are more negative towards firm management in proxy voting when CEOs have higher job mobility. Specifically, we document an increased dissenting vote against management-sponsored compensation proposals after an exogenous positive shock to CEO job mobility. Consistent with the rent extraction hypothesis, the effect is more pronounced for firms with poor past performance, overpaid CEOs, and weaker corporate governance. Proxy advisors recommend more against firm management after the shock, casting a larger influence on voting outcomes. Moreover, our investor level analysis suggests that larger investors care less about job mobility in their voting. |
| Keywords: | Proxy Voting; Executive Compensation; Labor Market; Proxy Advisor; Mutual Funds |
| JEL: | G30 G34 J33 M12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202412 |
| By: | Shi, Xiangyu; Wang, Chang |
| Abstract: | Input-output linkages among sectors and firms are largely overlooked when assessing regulatory policies. Using a carbon emissions regulation in China as an example, we find that the regulation facilitates the transition to green technologies and reduces entry and carbon emissions in the regulated sectors with large carbon emissions. We also find unintended spillovers via the input-output network, resulting in more entry and innovation in the downstream sectors; and less entry and innovation in the upstream sectors. These facts can be rationalized by a firm-dynamics model with input-output linkages. The results of quantitative exercises are much different when taking input-output linkages into account. |
| Keywords: | carbon emissions regulation; firm dynamics; innovation; input-output networks |
| JEL: | C1 D2 E2 L2 Q5 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121359 |
| By: | Michele Fioretti; Junnan He; Jorge Tamayo |
| Abstract: | We study firms' strategic interactions when each firm may own multiple production technologies, each with its own marginal cost and capacity. Increasing industry concentration by reallocating non-efficient capacity to the largest and most efficient firm can decrease market prices as it incentivizes the firm to outcompete its rivals. However, with large reallocations, the standard monotonic relationship between concentration and prices re-emerges as competition weakens due to the rival's lower capacity. Thus, we demonstrate a U-shaped relationship between market prices and industry concentration when firms are diversified. This result does not rely on economies of scale or scope. We find consistent evidence from the Colombian wholesale energy market, where strategic firms are diversified with fossil-fuel and renewable technologies, exploiting exogenous variation in renewable capacities. Our findings not only apply to the green transition but also to other industries and suggest new insights for antitrust policies. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.03504 |
| By: | Joel P. Flynn; Karthik Sastry |
| Abstract: | We study the macroeconomic implications of narratives, defined as beliefs about the economy that spread contagiously. In an otherwise standard business-cycle model, narratives generate persistent and belief-driven fluctuations. Sufficiently contagious narratives can "go viral, " generating hysteresis in the model's unique equilibrium. Empirically, we use natural-language-processing methods to measure firms' narratives. Consistent with the theory, narratives spread contagiously and firms expand after adopting optimistic narratives, even though these narratives have no predictive power for future firm fundamentals. Quantitatively, narratives explain 32% and 18% of the output reductions over the early 2000s recession and Great Recession, respectively, and 19% of output variance. |
| JEL: | D84 E32 E70 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32602 |
| By: | Luca Macedoni; Rui Zhang; Frederic Warzynski |
| Abstract: | We propose a new model of multi-product firms in international trade, where firms choose their product mix based on the products’ attractiveness and endogenous competition. The model is motivated by two novel stylized facts using Danish manufacturing data, which demonstrate the importance of product-specific characteristics in understanding firms’ product mix choices. The model predicts that as a larger number of firms want to supply products with high attractiveness, these products also feature the toughest competition. Depending on the strength of competition, two sorting patterns are possible: one in which only the most productive firms produce the most attractive products and another in which all firms produce the most attractive products. Our model can generate both sorting patterns depending on the value of a key preference parameter. By quantifying our model, we find that product-specific differences in attractiveness and competition explain a quarter of the variation in sales. Furthermore, we find that the most attractive products tend to be produced by all firms, while the least attractive products are made only by the most productive firms. |
| Keywords: | multi-product firms, competition, product attractiveness, sorting |
| JEL: | F12 F14 L11 L25 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11144 |
| By: | Thomas J. Chemmanur (Carroll School of Management, Boston College); Zeyu Sun (School of Accounting, Capital University of Economics and Business); Jing Xie (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau) |
| Abstract: | We find that firms are more inclined to distribute dividends when a larger fraction of other firms held by the same common institutional blockholder (CIB) have paid dividends. This effect also holds for the level of and the change in dividend payment. We establish causality using exogenous perturbations in peer relations. In particular, we show that the similarity in firms’ dividend policies becomes greater after the exogenous creation of new peer relations between them due to asset managers’ mergers and Russell index reconstitutions. The peer effect is stronger when peers have maintained relations with the focal firm for a longer period or when focal firms’ stock liquidity is higher. We also find that a CIB is more likely to vote against manager sponsored proposals in nondividend-paying investee firms if a larger proportion of the CIB’s other investee firms have paid dividends. Overall, our results provide fresh evidence of dividend clienteles. |
| Keywords: | dividend policy; peer effects; common institutional blockholders; shareholder voting; dividend clienteles. |
| JEL: | G35 G23 G20 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:boa:wpaper:202407 |