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on Business Economics |
| By: | Nicholas Bloom; Mihai A. Codreanu; Robert A. Fletcher |
| Abstract: | We partner with a large US payment-processing company to run a 5-year, 10 wave panel survey of incentivized quarterly sales forecasts on over 6, 000 firms. We match firm predictions to proprietary revenue data to assess accuracy. We find firms forecast poorly, with issues of inaccuracy, over-optimism, predictable errors and over-precision. To assess the causes of these forecasting issues we run experiments on: (i) data use, (ii) incentives, (iii) forecasting skill, and (iv) contingent thinking. We find greater data use primarily decreases noise and reduces over-precision, while higher incentives moderate over-optimism. Both moderately increase accuracy. The other two treatments have no impact. These results suggest forecasting biases can be reduced but are hard to eliminate. In a simple simulation model, we show these biases change firm responsiveness to changes in taxes and productivity, highlighting their macro importance. |
| JEL: | J0 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33384 |
| By: | Sockin, Jason (Cornell University); Sockin, Michael (University of Texas at Austin) |
| Abstract: | Firms differ in the extent to which they use variable pay. Using U.S. employeeemployer matched data on variable pay from Glassdoor, we document such dispersion and find workers are exposed to firm-level shocks through variable pay. Credit rating downgrades from investment to speculative grade, negative shocks to financial or operational performance, and greater exposure to a financial crisis, as proxied for by the collapse of Lehman Brothers, induce firms to shift compensation toward base pay. Increased use of variable pay is associated with greater earnings variance for workers but less volatile growth for firms. We rationalize these findings in a model of risk sharing between a risk-averse firm and workers with limited commitment. |
| Keywords: | risk sharing, bonuses, firm-specific shocks, employment volatility, layoffs |
| JEL: | J33 E24 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17644 |
| By: | Eriksson, Tor; Ortega, Jaime |
| Abstract: | Using firm-level data from Denmark, a country characterized by a high level of adoption of “high-performance work practices” (HPWPs), we document a large percentage of firms with limited adoption and large differences depending on the firms’ organizational structures. To explain these differences, we propose a theoretical framework based on agency theory and on human resource (HR) process theory in which the benefits of HPWPs vary across organizations according to their organizational structure. We find that opportunity- and skill-enhancing practices are more frequently used in firms with a network structure than in firms with a divisional structure, which in turn use them more frequently than firms with a functional structure. These findings are consistent with the idea that firms whose structures are designed to rely more heavily on employee control benefit less from HPWPs than those whose structures are meant to promote employee commitment. The use os performance pay is greater in divisional firms than in functional firms, which is consistent with this same idea. However, we find that the use of performance pay is lower in network organizations than in divisional organizations and is not significantly different from its use in functional organizations. |
| Keywords: | High-performance work practices, organizational structure |
| JEL: | M2 M5 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123332 |
| By: | Herbert Schuetze (Department of Economics, University of Victoria); Jen Baggs (Department of Economics, University of Victoria) |
| Abstract: | The earnings outcomes of recent immigrants to Canada are considerably below those of similarly skilled native-born workers and these gaps rarely fully dissipate over time. A few recent studies examine the importance of unobserved firm-level wage premiums in explaining immigrant-native wage gaps. These studies find that the sorting of immigrants into low wage establishments explains a significant portion of the initial earnings gap between immigrants and native-born workers and that movements to higher wage firms over time partially explains why immigrant wages catch up to those of the native born. Likely due to a lack of detailed information on firm attributes, very little is known about the role of observed firmlevel characteristics in immigrant wage outcomes. This paper focuses on the relationship between observable establishment-level characteristics and the relative wage outcomes of immigrants using linked Canadian employee-employer data from Statistics Canada’s Workplace and Employment Survey (WES) for 2005. We augment a human capital model with a rich set of observed establishment-level characteristics to identify the precise establishment attributes driving firm-specific wage premiums and the establishment characteristics associated with unobserved worker-firm match quality across immigrants and the native born. We find that, while several observed establishment characteristics are associated with firm pay premia, the average skill level of employees at a firm plays a particularly important role in the sorting of immigrants across establishment. Recent arrivals to Canada are sorted into establishments with lower average skill levels, which is associated with lower wages. Such sorting is concentrated among immigrants from non-traditional source countries. With time in Canada, immigrants move to establishments with higher average skill levels. JEL Classification: J15 J31 J62 |
| Keywords: | Immigrant, wage differential, firm characteristics |
| Date: | 2024–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:vic:vicddp:2406 |
| By: | Klaus Adam; Tobias Renkin; Gabriel Züllig |
| Abstract: | We estimate the dynamics of relative markups, marginal costs and prices over the firm life cycle using detailed firm data from Denmark. Relative marginal costs fall strongly over the first 15 years of firm life, but relative prices fall only weakly because of a strong rise in relative markups. Relative price trends thus underestimate trends in relative productivity. This distorts recent estimates of the optimal inflation target downward by 0.2-1.2% per year. We show that relative markups increase following the introduction of new products and the discontinuation of old products, suggesting that product turnover is important driver of markup dynamics at the firm level. Only about one third of the decrease in relative marginal cost over the firm age is explained by movements in relative productivity, with the remainder being due to non-homotheticities and increasing returns in the production function. |
| Keywords: | relative markups, marginal costs, prices over the firm life, optimal inflation |
| JEL: | E52 L11 L13 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_626 |
| By: | Paul Gertler; Sean Higgins; Ulrike Malmendier; Waldo Ojeda |
| Abstract: | Firms frequently fail to adopt profitable business opportunities even when they do not face informational or liquidity constraints. We explore three behavioral frictions that explain inertia among individuals—present bias, limited memory, and distrust—in a managerial setting. In partnership with a FinTech payments company in Mexico, we randomly offer 33, 978 firms the opportunity to pay a lower merchant fee. We vary whether the offer has a deadline, reminder, pre-announced reminder, and the size of the fee reduction. Reminders increase take-up by 15%, suggesting a role of memory. Announced reminders increase take-up by an additional 7%. Survey data reveal the likely mechanism: When the FinTech company follows through with the pre-announced reminder, firms' trust in the offer increases. The deadline does not affect larger firms, implying limited or no present bias, but does increase take-up by 8% for smaller firms. Overall, behavioral frictions contribute significantly to explaining profit-reducing firm behavior. |
| JEL: | D9 G4 M1 O14 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33387 |
| By: | Santiago Alvarez-Blaser; Raphael Auer; Sarah M. Lein; Andrei A. Levchenko |
| Abstract: | This paper uses barcode-level price data for 16 advanced and emerging market countries over the period 2005–2022 to investigate the role of individual firms and product categories in aggregate inflation. We decompose inflation into the component due to macroeconomic shocks and the granular residuals capturing the impact of individual firms and product categories, respectively. In advanced economies, the firm granular residual accounts for 41% of the variance of overall inflation, while the product category granular residual accounts for another 15%. Most of the variation in the firm granular residual is due to idiosyncratic shocks rather than to higher sensitivity of larger firms to common shocks. In the cross-section of countries, granular residuals are less important in economies with less concentrated market shares and higher inflation, such as emerging markets. Lastly, granular residuals contributed to the post-COVID inflation surge, with the firm-level component accounting for roughly one-third of the 2021-2022 inflation in advanced economies. |
| JEL: | E31 E32 L11 L16 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33404 |
| By: | Dolores Añon Higón (Department of Applied Economics II and ERICES, Faculty of Economics (Universitat de València), Avda. Tarongers, s/n, 46022 Valencia (Spain)); Juan A. Máñez (Department of Applied Economics II and ERICES, Faculty of Economics (Universitat de València), Avda. Tarongers, s/n, 46022 Valencia (Spain)); Amparo Sanchis (Department of Applied Economics II and ERICES, Faculty of Economics (Universitat de València), Avda. Tarongers, s/n, 46022 Valencia (Spain)); Juan A. Sanchis (Department of Applied Economics II and ERICES, Faculty of Economics (Universitat de València), Avda. Tarongers, s/n, 46022 Valencia (Spain)) |
| Abstract: | We examine how financial constraints influence the digitalization of Spanish manufacturing firms, taking into account the business cycle. Our study covers a representative sample of Spanish manufacturing firms from 2001 to 2017. We offer empirical insights into the moderating role of the business cycle on the impact of financial constraints on firms’ digitalization efforts, distinguishing between large firms and small and medium-sized enterprises (SMEs). We build a firm-year financial score aimed to mirror the extent of financial constraints, and a synthetic index of digitalization, both at the firm level. We estimate a panel data specification for firms’ digitalization intensity using a fractional response method. Our findings highlight that financial constraints pose a hurdle to digitalization, particularly for SMEs, and show that firms’ digitalization exhibits a counter-cyclical pattern, both for SMEs and large firms. |
| Keywords: | Digitalization, manufacturing firms, financial constraints, business cycle |
| JEL: | L60 L23 M20 O33 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2502 |
| By: | Cao, Yiran; Lin, ping; Zhang, Tianle |
| Abstract: | Incumbent firms may acquire start-ups to eliminate potential competition without intending to develop new technology (killer acquisitions). We develop a model to examine the incentives and welfare implications of killer acquisitions under different market structures: vertical separation and integration. Our model focuses on the competition between an upstream incumbent firm and a start-up with the potential to develop superior technology, where the incumbent has the option to acquire the start-up and decide whether to continue the development of the superior technology. We find that killer acquisitions are more likely when the cost of developing the superior technology is moderate under both vertical separation and integration. However, these acquisitions lead to a welfare loss only when the development cost is relatively low. Comparing vertical integration to separation, the probability of killer acquisition is higher (lower) when the incumbent firm has a greater (smaller) chance of successfully developing the superior technology. |
| Keywords: | innovation incentive, killer acquisitions, vertical integration. |
| JEL: | D8 L1 |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123344 |