Interenterprise Credit and Adjustment during Financial Crises: The Role of Firm Size

Small and medium‐sized enterprises (SMEs) suffered a sharp contraction in their borrowing from banks during the Great Recession. Analyzing a large firm‐level database for European countries, the paper shows that trade credit amplified the liquidity squeeze on SMEs, with adverse effects on their real activity. SMEs sharply increased their net trade credit and thus transferred financial resources to larger firms. Given the large weight of SMEs in the economy of European countries, the liquidity squeeze of SMEs likely contributed to the depth of the output fall and the slow recovery in Europe during the Great Recession.     

NATURAL RESOURCE ABUNDANCE,INSTITUTIONS AND TAX REVENUE MOBILISATION IN SUB‐SAHARA AFRICA

The contribution of natural resources to tax revenues has generally yielded mixed results in the literature. This study asserts that the missing link to explaining these differences is the quality of institutions. More resource revenues reduce tax revenues when institutions are poor. Using an interaction term for natural resources and institutional quality, we show that institutions are decisive for the contribution of natural resources to tax revenue mobilisation. The interaction effect is statistically significant after controlling for per capita gross domestic product (GDP), an alternative measure of quality of institutions and additional regressors. This finding is robust to different econometric specifications and the type of natural resources.     

Competent Production Supervisors

While the manufacturing sector is vanishing in most European and North American regions, northeast Italian firms have successfully contrasted global competition thanks to superior manufacturing capabilities grounded, among other things, on people's competencies. Applying nonparametric statistical analysis on data from 212 behavioral event and 44 repertory grid interviews, the research presented in this note investigates the nature of these competencies for production supervisors in northeast Italian firms. We identify four threshold and nine distinctive competencies and offer insights on the relationship between these competencies and northeast Italian firms’ manufacturing capability. We also suggest how to use competency tools to design skill development policies in industrial clusters and implement effective human resource management practices in small and medium‐sized enterprises.     

Shareholder Votes and Proxy Advisors: Evidence from Say on Pay

We investigate the economic role of proxy advisors (PAs) in the context of mandatory “say on pay” votes, a novel and complex item requiring significant firm‐specific analysis. PAs are more likely to issue an Against recommendation at firms with poor performance and higher levels of CEO pay and do not appear to follow a “one‐size‐fits‐all” approach. PAs’ recommendations are the key determinant of voting outcome but the sensitivity of shareholder votes to these recommendations varies with the institutional ownership structure, and the rationale behind the recommendation, suggesting that at least some shareholders do not blindly follow these recommendations. More than half of the firms respond to the adverse shareholder vote triggered by a negative recommendation by engaging with investors and making changes to their compensation plan. However, we find no market reaction to the announcement of such changes, even when material enough to result in a favorable recommendation and vote the following year. Our findings suggest that, rather than identifying and promoting superior compensation practices, PAs' key economic role is processing a substantial amount of executive pay information on behalf of institutional investors, hence reducing their cost of making informed voting decisions. Our findings contribute to the literature on shareholder voting and the related policy debate.     

Money and Collateral

This paper presents a model in which collateralized monetary loans are essential as trading instruments. Money and private debt collateralized by real assets complement each other as allocative tools in an environment with informational and commitment limitations. Public debt may play a socially beneficial role when collateral is scarce.     

BREAKING THE IMPEDIMENTS TO BUDGETARY REFORMS: EVIDENCE FROM EUROPE

In addition to the known effects of government fractionalization, we find that larger deficits are associated with a reduced likelihood of budgetary reforms. In a war of attrition setting, larger deficits signify stronger entitlements on the budget, generating unwillingness to impose self‐discipline. A sense of crisis emerges only when macroeconomic imbalances appear. However, while a crisis creates the opportunity for reform, policy credibility is important for effectively using that opportunity. We find that one way of establishing credibility is by undertaking measures in opposition to the government's known ideological position – these presumably signal motivation by broader social welfare considerations.     

Inflation and Welfare in a Competitive Search Equilibrium with Asymmetric Information

We study an economy characterized by competitive search and asymmetric information. Money is essential. Buyers decide their cash holdings after observing the contracts posted by firms and experience match-specific preference shocks which remain unknown to sellers. Firms are allowed to post general contracts. In the baseline model with indivisible goods, we show that, when the number of potential buyers is fixed, inflation decreases markups. This, in turn, increases aggregate output and ex ante welfare. When goods are divisible the negative effect of inflation on markups holds for unconstrained agents but is ambiguous for constrained agents. Still, optimal monetary policy implies a positive nominal rate. When there is buyers' free entry, asymmetric information causes a congestion effect that can be corrected by monetary policy.