Agglomeration economies and clustering – evidence from German and European firms

This article empirically analyses the impact of agglomeration economies on the clustering of German and European firms using partial proportional-odds models. Firms are grouped according to industry and divided into departments. At the industry level, I find evidence for inter-industry economies derived from the New Economic Geography (NEG) framework for European firms in general and German knowledge-intensive firms in particular. At the department level, Marshallian Externalities such as the hiring of skilled labour and technological spillover, and therefore intra-industry economies, are empirically confirmed for European and German departments like Human Resources and R&D but rarely for others.     

Need for speed? Exploring the relative importance of patents and utility models among German firms

Despite the wide use of two-tiered patent systems (patents and utility models (UMs)), there is little empirical evidence about how often UMs are actually used, what kind of firms use them to protect their intellectual property, and how firms rank them relative to patents. We offer such an analysis using data from Germany. We find that larger firms are more likely to use both protection methods. Moreover, a short life cycle of products and services is associated with an increased likelihood to use UMs. The features and functioning of the German UM system are of broader interest because it has been a benchmark for several second tier patent protection systems around the world.     

Board of directors’ quality and firms’ debt financing: the moderating effect of insider ownership – evidence from Omani firms

This study aims to examine the direct effects of board of directors’ quality and insider ownership on firms’ capital structure and the moderating effect of insider ownership on the relationship between board of directors’ quality and firms’ capital structure. The sample of this study consists of the time period 2005–2011. The final sample consists of 535 firm-year observations of public nonfinancial firms listed on the Muscat Securities Market (MSM). The hypotheses are tested using a random effects model. The results reveal that the coefficient sign on the board of directors’ quality is as predicted, but the coefficient sign is insignificant. Further, the results show that insider ownership is positively associated with leverage at the significant level of 10%, suggesting that the inside substantial shareholders employ higher leverage. With regard to the moderating effect of insider ownership, the findings show that the effect of the board of directors’ quality-leverage relationship becomes negative and stronger with increasing insider ownership.     

What hinders innovation performance of services and manufacturing firms in Mexico?

Barriers to innovation are heterogeneous, of financial and non-financial nature. The importance of barriers to innovation and their actual influence on innovation depend on firms’ characteristics such as sectoral affiliation, technological behavior and their response to perceived obstacles to innovation. Firms either continue to engage in innovation, or they avoid the activity altogether. This paper explored the nature and perceived importance of the obstacles to innovation that firms confront, in a developing-country context; we build on survey data about firms in Mexico. Our findings suggest that two kinds of policy interventions should help offset a firm’s perception of barriers to innovation. On the one hand, policies should enhance the innovation capacity of firms interested in innovation; on the other hand, policies need to tackle factors that reduce the interest of firms in innovation. Policies that boost demand for locally generated innovations would assist in achieving both these goals.     

Is export diversification good for profitability? First evidence for manufacturing enterprises in Germany

This article uses a tailor-made newly available data set for enterprises from manufacturing industries in Germany to investigate for the first time the links between export diversification over destination countries and goods on the one hand and the profitability of the exporting firms on the other hand. We find that profits tend to be larger in firms with less diversified export sales over goods and in firms with more diversified export sales over destination countries.     

The effect of communication and energy services reform on manufacturing firms’ innovation

Upstream services liberalization improves the efficiency and cost of communication and energy services, reducing the marginal costs of downstream manufacturing firms through input-output linkages. This study explores one possible mechanism behind this finding: innovation. I investigate the effects of communication and energy services reform in India in the mid-1990s on downstream manufacturing firms’ decisions to invest in R&D. The empirical analysis uses manufacturing-firm level data and regulation indicators in the communications and energy service sectors. The liberalization of services in India had a positive effect on manufacturing-firm innovation. These results are concentrated on firms in the middle of the initial productivity distribution. The main channel is the elimination of entry barriers into the communication sector.     

Exchange rate disconnect and financial constraints —evidence from Chinese firms

One puzzling observation in international economics is the lack of response of exports to exchange rate fluctuations. Employing the most comprehensive export data from China for the 2000–2007 period, we provide sector- and firm-level evidence that the response of exports to exchange rate movements depends crucially on the level of financial constraints. For sectors with large financial constraints, the response is small, whereas, for less financially constrained sectors, the response can be much larger, with the estimated elasticity decreasing with the sector's degree of financial constraints. At the firm-level, financial constraints affect the firm's response to exchange rate shocks at both the intensive and the extensive margins. At the intensive margin, financial constraints dampen the effect of exchange rate on exports by restricting the firm's export value to the existing destination market; at the extensive margin, financial constraints restrict the number of firms participating in exporting, the number of firm-product pairs being exported, and the probability of entering a new destination market.     

Human capital and firms’ innovation: evidence from emerging economies

ABSTRACT

We explore the relationship between human capital and firms’ innovation in emerging economies. Most papers consider the formal knowledge developed in R&D laboratories as a major source of innovation. However, a critical portion of knowledge required for innovation resides in human resources and is created outside any formalised R&D activity. We consider that, to improve their technological capabilities, firms should invest in different forms of human capital, namely highly educated workforce and experienced managers, but also in strategic human resource (HR) practices aimed at developing human capital by increasing employees’ firm-specific technical skills and competences. Besides looking at the type of innovation outcomes, we place greater emphasis on the strategies of innovation development, as these should signal an improved firms’ ability, not just to innovate, but to put their own creative effort in the development of innovation. Our results contrast with the traditional view of firms in emerging economies as mainly relying on the external acquisition of innovations, by showing their actual ability to develop new technologies. In this respect, HR practices aimed at fostering employees’ learning and autonomy at work appear more important than the educational attainment of workers, whilst the experience of managers does not seem effective.     

Rent-sharing and collective wage contracts–evidence from German establishment-level data

Using German establishment-level data, this article analyses whether wages respond to firm-specific profitability conditions. Particular emphasis is given to the question of whether the extent of rent-sharing varies with collective bargaining coverage. In this context, two conflicting hypotheses are tested. The first one asserts that unions exploit their bargaining power at the firm level and appropriate a larger share of rents than the bargaining parties in uncovered firms. The second one states that unions favour a compressed intra-industry wage structure and suppress the responsiveness of wages to firm-specific profitability conditions. The empirical analysis provides strong support for the second hypothesis. While Pooled Ordinary Least Squares (POLS) estimates yield positive estimates of the rent-sharing coefficient in covered establishments, dynamic panel data estimates accounting for unobserved heterogeneity and the endogeneity of rents point to a rent-sharing coefficient of zero.     

Is investment time irreversible? Some empirical evidence for disaggregated UK manufacturing data

It has long been suggested that investment may be time irreversible, and consideration of the option value of waiting to invest has aroused renewed interest in this issue. This study tests for time irreversibility in UK investment according to disaggregation by type of investment expenditure and across manufacturing sector groupings. The test results reported indicate that the irreversibility of investment patterns varies not only from industry to industry but also according to the type of capital being purchased, with significant time irreversibility detected in gross fixed capital formation and aggregate vehicles expenditure, and industrial sector groupings comprising fuels and oil refining, engineering and vehicles, and textiles and leather. However, only in the first and last of these series is time irreversibility attributable to non-linearities in the underlying data generating process, and consistent with threshold effects which may be associated with (S,s) type models of investment dynamics.     

Shareholders’ agreements and voting power: evidence from Italian listed firms

This work provides an empirical investigation of shareholders’ agreements signed in Italy over the past decade. The evidence shows that agreements produce a remarkable reshuffling of voting power (Shapley value) among participants. In particular, the first owner gains much voting power at low levels of ownership concentration, and his gain is decreasing in his ownership stake; the opposite happens for the other participants. In addition, the likelihood that a supermajority rule is included in an agreement contract is increasing in the first owner's share of equity. These findings are consistent with the hypothesis that agreements are used to correct situations where the first owner's power is at one of the two extremes: either too low (leading to insufficient monitoring over managers and gridlocks in decision-making) or too high (enabling him to extract large private benefits of control).     

Knowledge spillovers,absorptive capacity and total factor productivity in China’s manufacturing firms

Applying the stochastic frontier framework, this study explores the diffusion and absorption of technological knowledge in China’s manufacturing firms, based on a panel of more than 10,000 local and foreign-invested firms over the period 1998–2001. Our empirical approach allows us to distinguish between technological progress (TP) and technical efficiency (TE) in analysing whether R&D, exports and the presence of foreign direct investment simultaneously enhance TP through knowledge spillovers in a single framework and whether different types of domestic absorptive capacity moderate external knowledge spillovers in relation to TE. The results show that there are positive inter-industry productivity spillovers from R&D and foreign presence, whereas evidence of intra-industry productivity spillovers from FDI to Chinese firms is less robust. We find evidence that absorptive capacity is one of the key determinants to quantitatively explain intra-industry differences in productivity of local Chinese firms. The findings have important policy implications.     

Business regulation and business investment: evidence from US manufacturing 1970–2009

Regulation is often portrayed as placing a substantial burden on US businesses and the overall US economy. Moreover, policy options of “cutting red tape” and “reducing federal bureaucracy” are often asserted to be a way to stimulate investment and, through this channel, a way to promote economic growth. This paper examines the relationship between growth in regulatory restrictions in the Code of Federal Regulations and manufacturing investment in the United States over the 1970–2009 period. An industry-level dataset is constructed by mapping the novel industry-specific RegData dataset from the Mercatus Center at George Mason University to the comprehensive industry-specific manufacturing data in the NBER-CES Manufacturing Industry Database. In total, the constructed dataset includes 337 manufacturing industries. This approach yields substantial evidence that increased business regulation is associated with decreased business investment.     

Trajectories of Russian manufacturing firms’ growth after the global financial crisis of 2008–2009: the role of restructuring efforts and regional institutional environment

The aim of this article is to conduct an empirical investigation and reveal which types of modernisation strategies and characteristics of regional institutional environment are likely to be associated with patterns of the performance of Russian manufacturing firms in 2007–2012. In addition to estimating the impact of ex-ante behaviour on the rate of sales growth, we use hierarchical cluster analysis to reveal the typical trajectories of firms’ sales growth. We find that the dynamic of sales for more than 90% of firms can be described by just two types of performance curve: (a) crisis decline with recovery and growth; and (b) crisis decline with weak recovery and stagnation. Firms that invested more prior to the crisis and implemented active restructuring were more likely to have positive post-crisis dynamics of sales. We find evidence that firms in the regions with lower levels of corruption (both administrative and everyday) were more likely to recover successfully after the crisis.     

Determinants and impacts of subcontracting: evidence from India’s unorganized manufacturing sector

There are two divergent perspectives on the impact of subcontracting on firms in the informal sector. According to the benign view, formal sector firms prefer linkages with relatively modern firms in the informal sector, and subcontracting enables capital accumulation and technological improvement in the latter. According to the exploitation view, formal sector firms extract surplus from stagnant, asset-poor informal sector firms that use cheap family labour in home-based production. However, direct, firm-level evidence on the determinants and impact of subcontracting is thus far lacking in the literature. We apply a modified Heckman selection model to Indian National Sample Survey data on informal manufacturing enterprises (2005–2006). We find that home-based, relatively asset-poor, and female-owned firms are more likely to be in a subcontracting relationship. Further, we perform selectivity-corrected Oaxaca-Blinder Decomposition and calculate treatment effects to show that subcontracting benefits smaller firms, firms in industrially backward states and rural firms; it is harmful for larger firms, firms in industrially advanced states, and urban firms. Our results suggest that the effects of subcontracting are more complex than those predicted by the divergent perspectives. Policy-makers need to engage with this complexity.     

The international competitiveness of Chinese manufacturing firms and the exit of the renminbi–dollar peg

This paper evaluates the implications of a shift from a pegged to a floating exchange rate regime for the international competitiveness and the economic behavior of Chinese manufacturing firms. Using a conceptual framework that characterizes the relationship between the exchange rate regime and the potential source of a firm's competitive advantage, it yields two key analytical results. First, Chinese manufacturing firms may increase their reliance on a low-margin pricing strategy as the exchange rate regime shifts towards a more flexible one. As a corollary, a low-margin pricing strategy may discourage Chinese manufacturing firms from undertaking costly research and development (R&D) activities, and investments in human capital development. Second, Chinese manufacturing firms have the incentive to employ various wage restraint measures under a floating exchange rate regime at least in the short term. These key analytical results provide insights into a number of policy-relevant issues that may arise at the firm-level. It concludes by providing some general directions on the timing of a complete transition to a floating exchange rate regime.     

Bank distress and firms’ investment during the Great Recession - evidence from Ireland

This article investigates the impact of bank distress on firms’ performance using unique data during the Great Recession for Ireland. The results show that bank distress, measured as banks’ credit default swap spreads (CDS), has negatively and statistically significantly affected firms’ investment expenditures. Interestingly, firms with access to alternative sources of external finance are not impacted by bank distress. The results are robust to accounting for external finance dependence, demand and trade sensitivities, which affect firm performance and the demand for credit.     

How does FDI affect domestic firms’ wages? theory and evidence from Vietnam

This paper explores the role of inward foreign direct investment (FDI) as a determinant of domestic firms’ wages, namely wage spillovers. We first construct a theoretical model to demonstrate that the presence of FDI firms affects domestic firms’ expected average wages via productivity spillovers and a cut-off capability. We then estimate FDI-induced wage spillovers by employing IV-GMM estimator with a five-year panel dataset of a growing service industry in Vietnam. Despite FDI firms on average pay 2.25 times that of domestic firms, they put a downward pressure on domestic firms’ wages. A one percent increase in FDI presence causes domestic firms to cut average wages by 2.03 percent. The estimations also find that firm-specific features are attributable to significant differences in their wages as well as FDI-linked wage spillovers.     

Prices for cash and cash for prices? Theory and evidence on convenient pricing

A transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy – prices for cash – and this strategy pushes buyers to pay cash – cash for prices.