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on Entrepreneurship |
| By: | Ufuk Akcigit; Harun Alp; André Diegmann; Nicolas Serrano-Velarde |
| Abstract: | We study the implications of employment targets on firm dynamics during the privatization of the East German economy. Exploiting novel contract-level data, we document three stylized facts. First, the policy distorted firm size choices and generated bunching of firms around their committed employment target. Second, exploiting heterogeneous labor preferences of privatizers, we how that assigning tight commitments to firms causes an increase in employment growth and leads to higher productivity growth. Finally, tighter commitments also result in significant costs by leading to increased firm exit. We interpret these results through the lens of a dynamic model with endogenous productivity growth at the firm level. The model highlights that while tight commitments distort the employment decision statically and lead to a higher exit probability, they also induce a “catch-up” increase in productivity growth. This is because although firm profits are lower under tight commitments, marginal profits with respect to productivity are higher. We calibrate the model to our data and find that the policy lead to a 3 percentage points higher aggregate TFP growth thanks to the productivity improvements of firms with tight contracts. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:685&r=ent |
| By: | Zhiyuan Chen (School of Business, Renmin University of China); Minjie Deng (Department of Economics, Simon Fraser University); Min Fang (Department of Economics, University of Florida) |
| Abstract: | This paper documents that firms are increasingly financing innovation using their stock of innovation, measured as patents. We refer to this behavior as financing innovation with in- novation. Drawing on patent collateral data from both the US and China, we first show that (1) in both countries, the total number and share of patents pledged as collateral have been rising steadily, (2) Chinese firms employ patents as collateral on a smaller scale and with a lower intensity than US firms, (3) firms increase their borrowing and innovation after they start to use patent collateral. We then construct a heterogeneous firm general equilibrium model featuring idiosyncratic productivity risk, innovation capital investment, and borrow- ing constrained by patent collateral. The model emphasizes two barriers that hinder the use of patent collateral: high inspection costs and low liquidation values of patent assets. We parameterize the model to firm-level panel data in the US and China and find that both barriers are significantly more severe in China than in the US. Finally, counterfactual analyses show that the gains in innovation, output, and welfare from reducing the inspection costs in China to the US level are substantial, moreso than enhancing the liquidation value of patent assets. |
| JEL: | E22 G32 O31 O33 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:ufl:wpaper:002004&r=ent |
| By: | Chiara Fumagalli; Massimo Motta; Emanuele Tarantino |
| Abstract: | A start-up and an incumbent negotiate over an acquisition price under asymmetric information about the start-up’s ability to succeed in the market. The acquisition may result in the shelving of the start-up’s project or the development of a project that would otherwise never reach the market because of financial constraints. Despite this possible pro-competitive effect, the optimal merger policy commits to standards of review that prohibit high-price takeovers, even if they may be welfare-beneficial ex post. Ex ante this pushes the incumbent to acquire startups lacking the financial resources to develop independently, and increases expected welfare. Keywords: Optimal merger policy, selection effect, nascent competitors. JEL Classification: L41, L13, K21 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:680&r=ent |
| By: | Weber, Cameron; Zhen, Ying; Arias, JJ |
| Abstract: | How we define an artist and how we use census and survey data to study artist behaviour is a cornerstone of cultural economics. Frey and Pommerehne (1989) list eight criteria for identifying an artist, from time spent on and income derived from art-making, to reputation and recognition, organizational membership and professional qualifications. We take a radically subjective approach where we use only the last of their categories, artist self-identification, to attempt a theoretical advancement in art economics. Concurrent with the professionalization of economic science at the university and positivism in economic policy emerges a quantitative focus on production in labor markets (Tribe 2022). This seems a Procrustean bed for cultural economics in that artists tend to be self-directed, entrepreneurial and self-employed and when they do work for others, do so only as a second “job” in order to support creative practice (Throsby 1994). This is not a labor market model where income is maximized and redistribution is needed for fairness. There is an over-supply of art, subsidy may not be necessary as may create moral hazard (Benhamou 2003). We use Max Weber (1919)’s original notion of avocation (substantive value) versus vocation (instrumental value) and determine that it may be wrong to fit art-making into the categories of mainstream industrial and labor economics. For our book Artists and Markets in Music (Routledge 2023) we conduct a grassroots snowball sampling survey method where the criterion is self-identification as a musician. The survey might help us to test differing relevancies for the SAD production function in music as proposed by Samuel Cameron (2015, 2016) as well as further identifying market heterogeneity as discussed in Throsby (1994). |
| Keywords: | Arts Entrepreneurship, Musical Artist, Creativity, Covid-Era, Industrial Organization, Snowball Surveys |
| JEL: | B4 J82 O3 Z13 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116216&r=ent |
| By: | Catão, Luis A. V. (Inter-American Development Bank); de Faria, Pedro (University of Groningen); Martins, António (ISEG); Portela, Miguel (University of Minho) |
| Abstract: | Using a new panel dataset of about 140 thousand Portuguese firms during 2006-2019, we measure the effects of globalization on firm-level performance along four dimensions: ownership of capital, employment of foreign-seasoned managers, and participation in export and import markets. Once at least one of these channels is active, firms are larger, less leveraged, employ better qualified workers, and pay higher hourly wages. We also uncover a pecking order of effects, with export-market participation having generally larger positive effects on productivity and negative effects on unit labor costs. All four channels interact, sometimes complementing, sometimes substituting one another. For instance, foreign ownership boosts exports at the extensive margin while being an importer and/or having a foreign-experienced manager help at the intensive margin; conversely, the marginal productivity gains of foreign-ownership are greatly reduced when the firm is already an exporter. Breaking down the effects of each channel by firm size, we show that smaller firms stand the most to gain from export market participation and foreign-ownership. |
| Keywords: | foreign direct investment, entrepreneurship, trade, productivity, wages, labor costs, leverage, firm size distribution |
| JEL: | D22 D24 F23 G34 J3 L20 M10 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15903&r=ent |
| By: | Kenza Benhima (Department of Economics, University of Lausanne); Omar Chafik (Bank Al-Maghrib); Min Fang (Department of Economics, University of Florida); Wenxia Tang (Department of Economics, University of Lausanne) |
| Abstract: | We study the effect of working capital loan guarantee programs on firm growth and their aggregate implications. Using a Moroccan firm-level dataset, we show that firms with guaranteed short-term loans (i) decrease their cash ratio, (ii) expand their production scale homogeneously and persistently, and that (iii) participation in the guarantee program is humped- shaped in firm size. We rationalize these findings in a heterogeneous-firm model with collateral and working capital constraints. First, we show that while relaxing collateral constraints on short-term loans always has a positive short-term effect on firm growth as firms reallocate cash to capital, persistent effects on firm scale depend on the existence and size of intertemporal distortions. Second, the combination of a flat fixed participation cost and size-dependent collateral constraints explain the non-monotonous participation rate. The interaction of the collateral constraint with these two frictions is crucial to determine the aggregate effect of a loan guarantee program. We parameterize the model to our Moroccan firm-level data. We show that the growth and welfare gains of expanding credit guarantee programs through a higher guaranteed amount or a lower participation cost are substantial, with the former generating relatively more growth while also increasing participation. |
| JEL: | E22 E27 E44 G28 G38 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ufl:wpaper:002003&r=ent |