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on Business Economics |
| By: | Winter, Richard (University of Mannheim); Doerrenberg, Philipp (University of Mannheim); Eble, Fabian (University of Mannheim); Rostam-Afschar, Davud (University of Mannheim); Voget, Johannes (University of Mannheim) |
| Abstract: | We provide novel evidence on the incidence of business taxes using comprehensive survey and experimental data from German firms. Leveraging randomized variation in hypothetical tax changes, we find that the incidence of profit taxes is highly asymmetric. Tax decreases are more likely to benefit workers and stimulate investment, whereas tax increases tend to be passed on to consumers through higher prices and absorbed by firm owners through reduced profit distributions. Moreover, by varying the magnitude of the tax changes, we demonstrate that worker incidence increases with the absolute size of the tax change, partially offsetting the burden on firm owners. |
| Keywords: | investment, firm behavior, tax incidence, corporate tax, payout, wages |
| JEL: | D22 H00 H22 H25 J23 J30 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17983 |
| By: | Filippo Belloc; Antonino Lofaro |
| Abstract: | We investigate how government subsidies influence the productivity of new firms, by leveraging data on more than 30, 000 government subsidy initiatives and about 1.2 million manufacturing firms distributed worldwide in the years 2012- 2019. First, using a DiD framework with multiple time periods, we document that sectors exposed to subsidies experience a statistically significant increase in new firm entry rates. We then examine the firm-level data through a series of augmented 3-way FE DiD models. Our findings reveal that subsidies have significant effects on the productivity of new firms. On average, subsidies lead to the entry of new firms with 5.53% lower productivity compared to those entering untreated markets. The productivity gap of new firms in subsidized markets persists in the years after entry. We also apply a text recognition method to analyze the effects of specific subsidy attributes. We find that unconditional tax breaks and loans are mostly responsible for the negative effects of subsidies, while subsidies promoting firm internationalization and investments by small firms may lead to the establishment of more productive firms. Subsidies aimed at supporting the adoption of green and automation technologies do not always reduce the productivity of new firms. |
| Keywords: | Government subsidies; Firm entry; Diff-in-diff methods Jel Classification:C20, H20, L52 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:927 |
| By: | Jeremy Pearce; Liangjie Wu |
| Abstract: | This paper studies the relationship between market concentration and aggregate productivity when firm-level demand emerges from past marketing investments. Granular firms may invest in demand both to complement their productivity and to amplify market power—this second force can create persistent mismatch between customer capital and productivity. The importance of this mismatch depends on the relative persistence of productivity and demand. Empirically, we find that demand is more persistent than productivity, implying a sizable role for mismatch. This leads to sluggish demand-side adjustment in the face of productivity shocks in the quantified model. Policies targeting static markup distortions—such as production subsidies—can exacerbate excessive marketing and thus are subject to a tradeoff between static gains and dynamic losses. |
| Keywords: | firm dynamics; productivity; demand; customer capital; market concentration; competition; innovation |
| JEL: | O31 O32 O34 O41 D22 D43 |
| Date: | 2025–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:101336 |
| By: | Jan Bena (Sauder School of Business, University of British Columbia); Andrew Ellul (Indiana University, CSEF, CEPR and ECGI.); Marco Pagano (University of Naples Federico II, CSEF and EIEF.); Valentina Rutigliano (Sauder School of Business, University of British Columbia) |
| Abstract: | Entrepreneurs with more diversified portfolios of private firms provide more insurance against labor income risk: in a sample of over 524, 000 Canadian firms and 858, 000 owners, firms owned by such entrepreneurs offer more stable jobs and earnings to employees. In firms whose owners’ portfolios are one standard deviation more diversified, the passthrough rates of foreign sales shocks to layoffs and labor earnings are 13% and 41% lower, respectively. These entrepreneurs reduce their own compensation and increase firm leverage to fund labor income insurance. Enhanced insurance is associated with better retention of valuable human capital and fewer costly terminations, potentially improving firm performance. |
| Keywords: | labor income risk; portfolio diversification; firm shocks. |
| JEL: | G32 J30 J63 L20 |
| Date: | 2025–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:754 |
| By: | Nicholas Bloom; Jonathan S. Hartley; Raffaella Sadun; Rachel Schuh; John Van Reenen |
| Abstract: | We show better-managed firms are more dynamic in plant acquisitions, disposals, openings, and closings in U.S. Census and international data. Better-managed firms also birth better-managed plants and improve the performance of the plants they acquire. To explain these findings, we build a model with two key elements. First, management is a combination of firm-level management ability (e.g. CEO quality), which can be transferred to all plants, and plant-level management practices, which can be changed through intangible investment (e.g. consulting or training). Second, management both raises productivity and also reduces the operational costs of dynamism: buying, selling, opening, and closing plants. We structurally estimate the model on Census microdata, fitting our key dynamic moments, and then use it to establish three additional results. First, mergers and acquisitions raise economy-wide management and productivity by reallocating plants to firms with higher management ability. Banning M&A would depress GDP and management by about 15 percent. Second, greater product market competition improves both management and productivity by reallocating away from badly managed plants. Finally, management practices account for about a fifth of the cross-country productivity differences with the U.S. |
| Keywords: | Management practices; mergers and acquisitions; productivity; competition |
| JEL: | L2 M2 O32 O33 |
| Date: | 2025–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:101259 |
| By: | Huiyu Li; Chen Lian; Yueran Ma; Emily Martell |
| Abstract: | We document new facts that link firms’ markups to borrowing constraints: (1) less constrained firms within an industry have higher markups, especially in industries where assets are difficult to borrow against and firms rely more on earnings to borrow; (2) markup dispersion is also higher in industries where firms rely more on earnings to borrow. We explain these relationships using a standard Kimball demand model augmented with borrowing against assets and earnings. The key mechanism is a two-way feedback between markups and borrowing constraints. First, less constrained firms charge higher markups, as looser constraints allow them to attain larger market shares. Second, higher markups relax borrowing constraints when firms rely on earnings to borrow, as those with higher markups have higher earnings. This two-way feedback lowers TFP losses from markup dispersion, particularly when firms rely on earnings to borrow. |
| JEL: | E22 E23 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33960 |
| By: | Steven J. Davis; Stephen Hansen; Cristhian Seminario-Amez |
| Abstract: | Macro shocks produce high dispersion in firm-level equity returns, sales growth, and other outcomes. We show that this dispersion reflects observable differences in business characteristics. To do so, we combine firm-level returns on stock market ``jump" days with text about business risks in prior 10-K filings to construct firm-specific shock exposures. Our exposure measures explain firm-level abnormal returns through interpretable variation in language. They also explain most of the increased dispersion in firm-level revenue growth after major shocks and much of the dispersion in employment growth, investment rates, and earnings surprises. Our evidence yields a novel interpretation for countercyclical dispersion, highlighting the key role of heterogeneous business characteristics in macro shock transmission. |
| JEL: | C55 E30 L20 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33929 |
| By: | Belot, Michèle (Cornell University); Hakimov, Rustamdjan (University of Lausanne) |
| Abstract: | This study examines the effects of structured social activities on workplace collegiality and performance in a large white-collar firm with 100 geographically dispersed offices. In a randomized controlled trial, half of the offices received subsidies to organize biweekly social events over a three-month period—including picnics, movie nights, and team games. We find that the intervention strengthens collegiality, enhances workplace friendships, and improves office-level performance. We do not detect an impact on individual productivity, but turnover appears to have fallen in the short-run, meaning that employees stayed longer in the job. We explore possible mechanisms and identify a sense of gratitude and reciprocity toward the company as the most likely mechanism driving the effects. |
| Keywords: | bonding, climate, workplace collegiality, field experiment |
| JEL: | M54 J32 C93 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17987 |
| By: | Jing Cai; Sai Luo; Shing-Yi Wang |
| Abstract: | Higher compensation and increased monitoring are two common strategies for addressing the moral hazard problem between firms and workers. In a field experiment with new hires at an automobile manufacturing firm in China, we randomly varied both signing bonuses and monitoring intensity. Both interventions increased worker output but through different channels: signing bonuses led to longer working hours without significant gains in performance, while enhanced monitoring improved performance as evaluated by managers. Additionally, bonuses reduced quit rates, whereas monitoring raised them. These results suggest that firms should carefully consider their primary objectives and weigh these trade-offs when designing optimal labor contracts. |
| JEL: | C93 J24 J30 M52 O15 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33977 |
| By: | Matteo Cacciatore; Giacomo Candian |
| Abstract: | We study how uncertainty propagates through production networks. First, we construct a highly disaggregated, forward-looking measure of industry-level uncertainty using option-implied volatility data for U.S. firms. Second, we identify the effects of higher uncertainty within industries, across the supply chain, and at the aggregate level. We find that heightened uncertainty in upstream industries (e.g., chemical manufacturing, iron and steel mills) behaves like a negative supply shock—raising prices and lowering employment across the production network. In contrast, greater uncertainty in downstream industries (e.g., automotive manufacturing, insurance carriers) behaves like an adverse demand shock, reducing both prices and employment. At the aggregate level, the inflation response depends on where uncertainty originates within the supply chain. A multi-sector model with time-varying sectoral uncertainty demonstrates that production linkages play a central role in explaining these empirical findings. |
| JEL: | E23 E31 E32 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33953 |
| By: | Ezra Oberfield; Esteban Rossi-Hansberg; Nicholas Trachter; Derek Wenning |
| Abstract: | We study the spatial expansion of banks in response to the banking deregulation of the 1980s and 90s in order to develop a spatial theory of banking. During this period, large banks expanded rapidly, mostly by adding new branches in new locations, while many small banks exited. We document that large banks sorted into the densest markets, but that sorting weakened over time as large banks expanded to more marginal markets in search of locations with a relative abundance of retail deposits. This allowed large banks to reduce their dependence on expensive wholesale funding and grow further. To rationalize these patterns, we propose a theory of multi-branch banks that sort into heterogeneous locations. Our theory yields two forms of sorting. First, span-of-control sorting incentivizes top firms to select the largest markets and smaller banks the more marginal ones. Second, mismatch sorting incentivizes banks to locate in more marginal locations, where deposits are abundant relative to loan demand, to better align their deposits and loans and minimize wholesale funding. Together, these two forms of sorting account well for the sorting patterns we document in the data. |
| Keywords: | multi-establishment firms; Spatial Sorting; branches; firm location; Span-of-control model |
| JEL: | G21 R32 L22 L23 |
| Date: | 2025–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:101147 |
| By: | Erik Katovich (University of Connecticut); Dominic Parker (University of Wisconsin-Madison); Steven Poelhekke (Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | Sectoral expansions and contractions cause labor reallocation out of declining industries and into booming industries. Which types of workers gain and lose from these transitions? Using linked employer-employee panel data from Brazil spanning boom-bust cycles in its oil sector, we compare oil entrants with closely-matched workers hired into other sectors in the same year. We find that entry timing interacts with worker skill in ways that have lasting effects. Only highly educated workers hired into oil at the onset of a boom reap persistent earnings premiums across the boom-bust cycle. For most later entrants, especially low-education workers, the decision to enter the oil industry results in persistent unemployment and earnings penalties. We document mechanisms underlying this first-in, last-out pattern. Accumulated experience in professional occupations insulates high-education early entrants from downturns, while a boom in sector-specific training programs intensifies competition among later entrants. We discuss implications for energy transitions. |
| JEL: | J24 J31 Q33 |
| Date: | 2025–05–16 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250033 |
| By: | Tobias Korn; Jean Lacroix |
| Abstract: | This paper documents a new consequence of market integration: local reallocation, i.e., the exit of some workers from production even though employment increases in the same area and industry. Thanks to new data on over 150, 000 personal bankruptcies combined with detailed microcensus data from 19th-century Britain, we estimate the causal impact of railway access on employment growth and personal bankruptcies. Market integration increased both employment and bankruptcy probability solely in the manufacturing sector. Studying the mechanisms of local reallocation, we show that market integration increased the number and size of manufacturing firms that employed cheap, task-differentiated labour. Our results extend existing research focused primarily on reallocation either across sectors or across locations. |
| Keywords: | bankruptcies, market integration, reallocation, structural transformation |
| JEL: | N63 L16 O33 R40 K35 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11963 |
| By: | Eric A. Hanushek; Simon Janssen; Jacob D. Light; Lisa K. Simon |
| Abstract: | We analyze the full distribution of displaced workers’ earnings losses using a new method that combines matching and synthetic control group approaches at the individual level. We find that the distribution of earnings losses is highly skewed. Average losses, as estimated by conventional event studies, are driven by a small number of workers who suffer catastrophic losses, while most recover quickly. Observable worker characteristics explain only a small fraction of the variance in earnings losses. Instead, we find substantial heterogeneity in earnings losses even among workers displaced by the same firm who have identical observed characteristics such as education, age, and gender. Workers with minimal earnings losses adjust quickly by switching industries, occupations, and especially regions, while comparable workers with catastrophic losses adjust slowly, even though they are forced to make comparable numbers of switches in the long run. |
| JEL: | J2 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33667 |
| By: | Chen, Natalie (Department of Economics, University of Warwick, CAGE, CESifo, and CEPR); Novy, Dennis (Department of Economics, University of Warwick, CAGE, CESifo, CEP/LSE, and CEPR); Solórzano, Diego (Banco de México) |
| Abstract: | In 2018 and 2019, the US administration increased tari¤s on imports from China. Did these tariffs lead to more US imports from other countries such as Mexico? Using highly disaggregated data on the universe of Mexican firm-level exports, we find evidence of trade diversion from China to Mexico. We then combine the export data with detailed longitudinal employer-employee data to investigate the impact of trade diversion on labor market outcomes for workers employed by Mexican exporters. We find that trade diversion increased the labor demand of exporters exposed to US tariffs against China, resulting in more employment and higher wages, especially for low-wage workers such as female, unskilled, younger, and non-permanently insured employees. The effects were concentrated in technology and skill-intensive manufacturing industries. JEL Codes: F12 ; F14 ; L11. |
| Keywords: | Employment ; exports ; firms ; tariffs ; trade costs ; trade diversion ; wages ; workers |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1563 |
| By: | Maria Garcia-Osipenk (Arizona State University); Nicholas Vreugdenhil (Arizona State University); Nahim Bin Zahur (Queen's University) |
| Abstract: | We investigate how endogenous rigidities inhibit physical capital reallocation. We focus on the role of contract duration - a classic example of an adjustment rigidity. We argue when agents sign longer contracts in booms when markets are thin, they generate a contracting externality which further amplifies thinness and impedes the adjustment of markets to shocks. We develop a framework with booms and busts where agents search and choose match duration. Applying the framework to the containership leasing market, we find substantial misallocation from endogenous rigidities, particularly in the transition after a crash. We also quantify implications for designing industrial policy. |
| Keywords: | TBA |
| JEL: | D22 D23 L14 L22 L91 R40 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1536 |
| By: | Wesley M. Cohen; Matthew J. Higgins; William D. Miles; Yoko Shibuya |
| Abstract: | Using detailed product- and invention-level data from the pharmaceutical industry, we demonstrate that firms with particularly high-selling “blockbuster” products concentrate their development efforts on new products that both target the same customer segments and are more likely to be technically similar to existing blockbuster products. This behavior, driven by an expectation of the stickiness of demand for existing product offerings, limits firms' incentives to invest in entirely new products targeting different customer segments. Our findings offer insights into how blockbuster products shape firms' customer segment and innovation choices, with implications for understanding the dynamics of technological change in R&D-intensive industries. |
| JEL: | O3 O31 O33 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33957 |
| By: | Miguel Antón; Florian Ederer; Mireia Giné; Guillermo Ramirez-Chiang |
| Abstract: | We study common ownership in 49 countries from 2005 to 2019 and show that it is pervasive and rising around the world. However, despite this global growth, common ownership is still considerably lower in all countries compared to the United States. It is particularly high and growing rapidly among the largest firms, a trend observed across all countries and regions. The rise of common ownership stems not only from increased institutional investment but also from its growing concentration, a development in which the Big Three (BlackRock, Vanguard, State Street) play a dominant role, particularly in the United States. Although non-Big Three institutional investors remain important in other countries, the significant increase in common ownership in many countries is primarily attributable to the breadth, size, and growth of Big Three holdings. We also investigate how common ownership is related to legal, institutional, and market characteristics such as investor protection laws, competition laws, mandatory ESG disclosure, and labor market frictions across firms and countries. |
| JEL: | F65 G32 K21 L40 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33965 |