Employment protection, firm selection, and growth

How do firing costs affect aggregate productivity growth? To address this question, a model of endogenous growth through selection and imitation is developed. It is consistent with recent evidence on firm dynamics and on the importance of reallocation for productivity growth. In the model, growth is driven by selection among heterogeneous incumbent firms and is sustained as entrants imitate the best incumbents. In this framework, firing costs not only induce misallocation of labor, but also affect growth by affecting firms’ exit decisions. Importantly, charging firing costs only to continuing firms raises growth by promoting selection. Also charging them to exiting firms is akin to an exit tax, hampers selection, and reduces growth—by 0.1 percentage points in a calibrated version of the model. With job turnover very similar in the two settings, this implies that the treatment of exiting firms matters for growth. In addition, the impact on growth rates is larger in sectors where firms face larger idiosyncratic shocks, as in services. This fits evidence that recent EU-U.S. growth rate differences are largest in these sectors and implies that firing costs can play a role here.     

Dynamic Olley‐Pakes productivity decomposition with entry and exit

We propose an extension of the Olley and Pakes ( 1996 ) productivity decomposition that accounts for the contributions of surviving, entering, and exiting firms to aggregate productivity changes. We argue that the other decompositions that break down aggregate productivity changes into similar components introduce some biases in the measurement of the contributions of entry and exit. We apply our proposed decomposition to Slovenian manufacturing data and contrast our results with those of other decompositions. We find that, over a five‐year period, the measurement bias associated with entry and exit is substantial, accounting for up to 10 percentage points of aggregate productivity growth.     

The Role of Long-Term Finance: Theory and Evidence

Improving the supply of long-term credit to industrial firmsis considered a priority for growth in developing countries.A World Bank multicountry study looks at whether a long-termcredit shortage exists and, if so, whether it has had an impacton investment, productivity, and growth. The study finds thateven after controlling for the characteristics of individualfirms,businesses in developing countries use significantly less long-termdebt than their counterparts in industrial countries. Researchersare able to explain the difference in debt composition betweenindustrial and developing countries by firm characteristics;by macroeconomic factors; and, most importantly, by financialdevelopment, government subsidies, and legal and institutionalfactors. The analysis concludes that long-term finance tends to be associatedwith higher productivity. An active stock market and an abilityto enter into long-term contracts also allow firms to grow atfaster rates than they could attain by relying on internal sourcesof funads and short-term credit alone. Importantly, althoughgovernment-subsidized credit markets have increased the long-termindebtedness of firms, there is no evidence that these subsidiesare associated with the ability of firms to grow faster. Indeed,in some cases subsidies are associated with lower productivity.      

The Gender Implications of Public Sector Downsizing: The Reform Program of Vietnam

Using data from Vietnam, this article describes several typesof analysis that could be conducted before launching a majordownsizing operation to identify possible gender effects. Itdraws several conclusions about Vietnam's downsizing reforms.First, although women's prospects of obtaining salaried jobsfollowing displacement from state-owned enterprise worsenedas a result of recent reforms, they are likely to improve inthe near future. Second, reforms are associated with a sharpdecline in the gender gap in earnings, both in and outside thestate sector. Third, overstaffing is greatest in sectors inwhich most employees are men, such as construction, mining,and transportation; it is much less prevalent in sectors inwhich women dominate the work force, such as footwear, textiles,and garments. Fourth, training and assistance programs currentlyin place to help redundant workers reveal no evidence of stronggender bias. Fifth, severance packages based on a multiple ofearnings are more favorable to men, whereas lump-sum packagesfavor women.      

The industry effect and the decision to integrate vertically in a crisis context

ABSTRACT

The objective of this work is twofold: firstly, to study if the characteristics of the industry affect certain financial and strategic decisions of manufacturing firms and, secondly, to determine if the strategy of diversifying the activity through vertical integration generates good financial results in times of crisis, depending on the industry. To this end, an analysis is carried out with panel data from 9,523 firms in the period between 2008 and 2013. The results show that there are different strategies that firms must follow, depending on the industry to which they belong. In sectors with lower operational risk, those firms characterized by greater specificity and better product quality obtained higher profitability. However, in riskier sectors, firms with more specific assets assumed too many risks and in times of crisis have seen their profitability fall. Likewise, it is observed that the decision to integrate vertically has mitigated the weak points of each sector, allowing firms to better weather the economic–financial crisis in which this research is framed.     

Crisis, Adjustment, and Reform in Thailand's Industrial Firms

New data on Thailand's industrial firms shed light on the originsof the East Asian financial crisis and on the response of themanufacturing sector to the structural adjust-ment program supportedby the international financial institutions. Before the crisis,Thai firms had declining profitability, but they neverthelessmaintained high levels of investment, often in domesticallyoriented areas (notably the auto sector). Thai firms financedthese investments with short-term borrowing from financial institutions,which in turn borrowed short term on foreign markets. That only40 percent of firms provided audited financial statements totheir banks meant that the financial sector had poor informationfor assessing the true riskiness of these investments. The financialstructure was thus vulnerable even to small shocks. How well did the adjustment program deal with the crisis? Thaifirms had difficulty increasing their exports quickly becauseof investment in the wrong sectors, a decline in regional demand,and bottlenecks that included red tape and poor customs administration.Because of the poor export response, the brunt of adjustmenthad to come through compression of demand and of imports. Inretrospect, the macroeconomic program— which assumed quickexport recovery— was too tight.      

Patent Citation, R&D Spillover, and Tobin's Q: Evidence from Taiwan Semiconductor Industry

Although prior research has examined the effect of patent citations on Tobin's Q in a variety of environments, in this study we examine whether the parameters are affected by stage of a company in the value chain. Unlike other national semiconductor firms, Taiwanese semiconductor firms typically specialize in one of the value-added activities, namely, either design or manufacturing or packaging and testing. Our finding is that the effect of patent citation on Tobin's Q is accentuated when the firm is at the front end of the value chain and diminishes as we proceed to the back end. This finding is novel in the literature. We also find that frequency of patent citations and R&D spillover are positive and significant in relation to Tobin's Q. In addition, the effect of R&D spillover on Tobin's Q is more pronounced for firms in the design sector relative to other sectors. JEL Classification: M41, O3 Authors are grateful for insightful comments and suggestions from an anonymous reviewer. Picheng Lee also gratefully acknowledges a research grant from Lubin School of Business at Pace University     

REACHING THE RURAL POOR THROUGH PUBLIC EMPLOYMENT: Arguments, Evidence, and Lessons from South Asia

With the limited set of policy instruments typically avaiablein the rural sectors of developing countries, imperfect coverageof the poor and leakage ot the nonpoor must be expected fromeven the most well-intentioned poverty alleviation scheme. Oneway to reach the poor more effectively is to build incentivesfor self-selection into the scheme. Labor-intensive rural publicworks projects have the potential to reach and protect the poor,as well as to create and maintain rural infrastructure. Thelimited evidence for South Asia suggests that few nonpoor personswant to participate, and that both direct and indirect transferever, be rapidly dissipated by a badly concevided and executedproject; the details of how project are selected, designed,and financed are crucial to success in both the short and thelong run.      

Reducing the Incidence of Low Birth Weight in Low-Income Countries Has Substantial Economic Benefits

Reducing the incidence of low birth weight not only lowers infantmortality rates but also has multiple benefits over the lifecycle. This study estimates the economic benefits of reducingthe incidence of low birth weight in low-income countries, boththrough lower mortality rates and medical costs and throughincreased learning and productivity. The estimated economicbenefits, under plausible assumptions, are fairly substantial,at about $510 per infant moved from a low-birth-weight status.The estimated gains are primarily from increases in labor productivity(partially through more education) and secondarily from avoidingcosts due to infant illness and death. Thus there may be manyinterventions to reduce the incidence of low birth weight thatare warranted purely on the grounds of saving resources or increasingproductivity.      

Equity Issuance,CEO Turnover and Corporate Governance

There is substantial evidence on the effect of external market discipline on chief executive turnover decisions in poorly performing companies. In this study we present evidence on the role of institutional monitoring in these decisions through the equity issuance process. We find that firms which undertake equity offerings are associated with an increased rate of forced CEO turnover that is focused on the managers of poorly performing companies. At the same time, equity offerings increase the likelihood of a new CEO being appointed from outside the current management team. We also provide evidence that independent boards are more likely to forcibly remove CEOs from their position, although this is not conditional on poor performance.     

Financial structure,informality and development

The impact of capital market imperfections and costs of creating and operating formal sector firms on total factor productivity is studied. We propose a firm dynamics model with endogenous formal and informal sectors where firms face a technology adoption opportunity. The model predicts that countries with a low degree of debt enforcement and high costs of formality are characterized by low allocative efficiency and large output shares produced by low productivity, informal sector firms. For frictions parametrized using the Doing Business database, the model generates a drop in total factor productivity of up to 25% relative to the US.     

Trade and Growth in the New Member States: The Role of Global Value Chains

We analyze the determinants of value-added and productivity growth of New Member States in the period between 1995 and 2009. We show that in the analyzed countries, exports contributed to roughly 30% to over 40% of the overall growth of GDP while the contribution of the domestic component varied from negative to over 60%. We show that in the most important export manufacturing industries of the NMS, the growth in exported value added was substantial, while the growth of the domestic component of GDP was mostly due to the growth in services. We associate growth of sectoral productivity with the foreign direct investment and exporting but, more importantly, with the position of a sector/country in the global value chains. We show that sectors that have imported intermediate goods have experienced higher productivity growth. Moreover, faster productivity growth was found in sectors further away from the final demand and in sectors exporting intermediate goods.     

Trade costs, firms and productivity

This paper examines the response of U.S. manufacturing industries and plants to changes in trade costs using a unique new dataset on industry-level tariff and transportation rates. Our results lend support to recent heterogeneous-firm models of international trade that predict a reallocation of economic activity towards high-productivity firms as trade costs fall. We find that industries experiencing relatively large declines in trade costs exhibit relatively strong productivity growth. We also find that low-productivity plants in industries with falling trade costs are more likely to die; that relatively high-productivity non-exporters are more likely to start exporting in response to falling trade costs; and that existing exporters increase their shipments abroad as trade costs fall. Finally, we provide evidence of productivity growth within firms in response to decreases in industry-level trade costs.     

服务贸易开放、市场化改革与中国制造业企业生产率

本文首先构建了一个微观企业生产理论框架,从理论上分析了在考虑国内产品替代效应的情况下,贸易开放如何影响下游制造业企业生产率,以及国内市场化程度对贸易开放政策效果的调节效应。其次,我们利用中国工业企业数据库和世界银行的服务贸易限制指数,实证检验了服务贸易开放对中国制造业企业生产率的影响。结果发现,服务贸易开放显著促进了我国制造业出口强度较大的企业的生产率提高,对出口强度较小的企业的促进作用不明显,并抑制了非出口企业生产率的提升;国内市场化水平提高能够增强服务贸易开放对出口企业生产率的促进作用,减弱服务贸易开放对非出口企业造成的负面冲击。此外,我们还发现:(1)市场化主要通过商业存在(FDI)渠道调节服务贸易政策效果;(2)服务贸易开放对国企以及非东部地区中的出口企业生产率的促进效应更为显著,而对非国企以及东部地区的非出口企业的不利冲击更大。在考虑内生性以及使用替换变量等检验后,结果仍然稳健。因此,当前阶段中国服务贸易政策需要同时兼顾出口企业与非出口企业,并协调国内市场化改革,稳中有序开放。     

Industry dynamics with stochastic demand

We study the dynamics of an industry subject to aggregate demand shocks where the productivity of a firm's technology evolves stochastically over time. To characterize the intertemporal evolution of the distribution of firms, we discuss in particular how exit decisions, aggregate output, profits, and distributions of firm productivities vary (a) across different demand realization paths; (b) along a demand history path, detailing the effects of continued good or bad market conditions; and (c) for different anticipated future market conditions. We show how poor demand conditions can lead to increased exit of low‐productivity firms at all future dates and states and raise welfare due to the impact on exit decisions.     

Venture capital investment and the performance of entrepreneurial firms: Evidence from China

We examine the contributions of venture capital investment to entrepreneurial firms in China. Based on a panel dataset of Chinese manufacturing firms, we investigate the performance and R&D activities of venture capital-backed (VC-backed) and non-VC-backed firms during the period 1998 to 2007. We explore whether VC-backed firms in China generally outperform their non-VC-backed counterparts, and if so, whether this outperformance is mainly attributed to the ex-ante screening or ex-post monitoring efforts of venture capitalists (VCs). We then determine whether the different types of VCs and investment approaches affect the ex-post monitoring efforts of VCs, and consequently, the performance and R&D activities of the VC-backed firms. Our analysis shows that VC-backed firms outperform non-VC-backed firms in terms of profitability, labor productivity, sales growth, and R&D investment. First, VCs select firms with higher profitability, labor productivity, and sales growth, as well as firms that invest more in R&D activities. Moreover, the differences in profitability and labor productivity are significantly magnified after VC entry. After receiving investment from VCs, firms on average achieve magnified higher ROS, ROE, and labor productivity compared to non-VC-backed firms. However, no evidence demonstrates the magnified improvement in sales growth or R&D investment of the VC-backed firms after the venture investment is made. We distinguish the screening and value added effects by using propensity score matching. We also use instrumental variables to determine whether the post-investment performance improvements of the firms are driven by the venture capital investment. Finally, we find different types of VCs and investment approaches affect the performance of the firms after the investment is made. Foreign VCs add more value to the firms they invest in compared to domestic VCs. Firms backed by syndicated investment perform better and invest more in R&D after the investment is made compared to those backed by non-syndicated investment and non-VC-backed firms.     

Does environmental regulation affect capital-labor ratio of manufacturing enterprises: Evidence from China

Currently, China faces the dual pressures of finding ways to address the unstable ecological environment improvement and rising labor costs. All sectors of society are concerned about how to perfect the structure of enterprise factors input to improve production efficiency and adapt to high-quality economic development. This paper examines the impact of environmental regulation on the capital-labor ratio of manufacturing enterprises in China. The results indicate that the implementation of the new EPL (Environmental Protection Law) increases the capital-labor ratio of heavy polluting manufacturing enterprises. This conclusion is still robust to parallel trend tests, considering sample selection bias, random factors, as well as expected effects. Enterprises response to the new EPL by increasing capital factors input and hiring high-skilled labor, which is in line with the capital-skill complementarity hypothesis and reflects the views of Karabarbounis and Neiman (2014). In addition, this study investigates the effects of capital deepening on the production and operational efficiency of heavy-polluting manufacturing firms. Results show that the implementation of the new EPL can facilitate the reduction of enterprise's production costs and the improvement of total factor productivity.     

Do productive firms get external finance? Evidence from Chinese listed manufacturing firms

Due to information asymmetry problem in financial markets good quality firms often find it difficult to prove to external finance providers about their true quality and to distinguish themselves from bad quality firms. We argue that instead of sending indirect signals to financial market good quality firms could focus on improving their productivity to obtain external finance. Besides relying solely on firms' balance sheet information external finance providers using firms' TFP or labour productivity information would have a true knowledge of firms' efficiency and risk. Overall, using a panel of 1591 Chinese listed manufacturing firms between 2003 and 2016 we find that productivity measured by TFP or labour productivity is statistically and economically important and positive in determining firms' external finance, i.e. total leverage, new issue of equity and long-term debt. We find that productivity is helpful for firms to raise new equity finance, but only some weak results for total leverage and long-term debt. Such results hold for both the whole sample and private firm sample. We also find that large and/or old firms and exporting firms are able to make better use of their productivity to gain external finance than their respective counterparts, i.e. small young firms and non-exporting firms. The causality of the regression results is also confirmed by difference-in-difference tests using an exogenous industrial policy shock.     

贸易自由化对制造业企业现金储蓄的影响——预防性动机还是投资挤压?

随着加入世界贸易组织,中国企业的出口及投资机会增多,但与此同时面临的进口竞争压力也与日俱增。本文基于1998-2007年中国工业企业数据和行业进口关税数据,以中国2001年加入世界贸易组织为准自然实验,采用双重差分法(DID)模型,首次系统地考察了贸易自由化对制造业企业现金储蓄的影响及作用机制。研究发现:(1)中国贸易自由化不仅没有提高国内制造业企业的现金储蓄率,反而通过投资挤压显著降低了企业的现金储蓄率,这与发达国家的相关研究结果大相径庭。(2)贸易自由化对企业现金储蓄的作用依赖于市场竞争程度,即关税减让会显著降低竞争性行业以及高集聚区域内企业的现金储蓄率。(3)高关税行业的关税降低后,进口竞争会侵蚀纯内销企业的投资机会,尤其是小规模企业,进而降低其现金储蓄。经过一系列检验后,结论依然成立。     

CSR activity in response to the Paris Agreement exit

In 2017, U.S. President Donald Trump announced his intention to withdraw the United States from the Paris Agreement. Although there were concerns that the exit would impede the global effort to reduce greenhouse gas emissions, the environmental performance of U.S. firms in carbon-intensive sectors improved after the announcement at a significantly higher pace than firms in other sectors. Moreover, our findings are concentrated among firms exposed to higher public attention. One implication is that firms under greater public scrutiny used the United States' departure from the agreement as an opportunity to credibly signal their commitment to combating global climate change.