How do firm characteristics affect the subsidies provided by the unemployment insurance system?

The experience-rated method of financing unemployment insurance in the US is incomplete because of the imposition of both maximum and minimum tax rates. The result is a pattern of cross-subsidization to those firms that generate considerable layoffs from those firms that exhibit a stable pattern of employment. Past studies have investigated this cross-subsidization by industries, but have not examined in detail whether or not the characteristics of the firm play an important role. The research presented herein examines the relationship between particular characteristics of the firm – age, size, average wage, and seasonality of employment – and their effect on whether the firm is subsidized or not. Other than the industry classification, age appears to be the most significant determinant of subsidization. It appears that both young and old firms display a higher probability of subsidizing middle-age firms.     

OWNERSHIP STRUCTURE AND FIRM EXIT ROUTES

ABSTRACT

Our study presents empirical evidence about the role of ownership structure for firm exit probability by explicitly differentiating between distinct exit routes (bankruptcy and forced liquidation, voluntary liquidation, mergers and acquisitions – M&A, and removal from the court register). Based on the population of Slovenian firms in the 2006–2012 period and using multinomial probit, our findings support the predictions of agency theory. Ownership concentration, share of the largest owner, and the difference in shares between two largest owners all decrease the likelihood of exit for all studied exit routes but M&A. The magnitude of their impact is largest for exits, in which owners play a decisive role, i.e. voluntary liquidation and removal. The link between the number of primary owners and exit likelihood is U-shaped with the lowest exit probability for firms with around two owners.     

Credit constraints and margins of import: first evidence for German manufacturing enterprises

This study uses tailor-made enterprise-level data for 2008–2010 from various sources for firms from manufacturing industries to test for the link between credit constraints, measured by a credit rating score provided by a leading credit rating agency, and imports in Germany for the first time. We find empirical evidence that a better credit rating score is positively related to extensive margins of import – firms with a better score have a higher probability to import, they import more goods and they source from more countries of origin. The intensive margin of imports – the share of imports in total sales – is found not to be related to credit constraints.     

The competitive advantage of honesty

We study competitive markets where firms may lie to their workers to reduce costs. Consumers may benefit from firms’ dishonesty through lower market prices. Does firms’ (dis-)honesty affect consumers’ purchasing decisions? Our experiment shows that when honesty is fully transparent, it can provide a competitive advantage: Honest firms sell more and – despite higher costs – achieve higher profits. This finding is in line with our equilibrium predictions when allowing for dishonesty-averse consumers. By identifying circumstances in which consumers – although not the addressee of dishonesty – “punish” firms for their within-firm dishonesty, we contribute both to behavioral ethics and behavioral industrial organization.     

ECONOMICS OF THE LIVING DEAD*

Zombie firms are those firms that are insolvent and have little hope of recovery but avoid failure thanks to support from their banks. This paper identifies zombie firms in Japan, and compares the characteristics of zombies to other firms. Zombie firms are found to be less profitable, more indebted, more dependent on their main banks, more likely to be found in non‐manufacturing industries and more often located outside large metropolitan areas. Overall, larger size makes the firm less likely to be a zombie, but among small firms, relatively larger firms are more likely to be protected and become zombies. Controlling for profitability, the exit probability for zombie firms does not differ from that for non‐zombies. Zombie firms tend to increase employment by more (but do not reduce employment by more) than non‐zombies. Finally, when the proportion of zombie firms in an industry increases, job creation declines and job destruction increases, and the effects are stronger for non‐zombies.     

Determinants of the acquisition of listed versus unlisted firms in different legal and institutional environments

The aim of this article is to analyse the determinants of the decision to acquire unlisted rather than listed firms in different legal and institutional environments. We estimate a probit model considering the mergers and acquisitions (M&As) announced by European listed firms (19 countries) that acquires worldwide listed or unlisted firms (36 countries) in the period 2002–2007. Our results show that managerial opportunism is a determinant in the acquisition of listed firms, occurring with greater probability in acquiring countries with low shareholder and minority shareholder protection. Information asymmetry is another relevant determinant that promotes the acquisitions of unlisted firms. Furthermore, the less developed the capital market in the country of the acquired firm, the greater the probability of acquisitions of unlisted firms. This article contributes to the M&A literature by showing that in addition to managerial opportunism and information asymmetry, the legal and institutional environments in both the acquiring and the target countries are also relevant aspects explaining the decision of whether to acquire listed or unlisted firms.     

Not so different from non-traders

This paper uses a unique, comparable firm-level dataset covering more than 80 developing middle-income economies to provide a novel set of stylized facts on firms engaging in international trade, focusing on the Middle East and North Africa (MENA) region. We show that firms in MENA are more likely to export and/or import than their counterparts elsewhere. However, we only find the expected positive and significant productivity premia for exporters outside of MENA. While MENA's larger exporters are indeed more productive than non-exporters, a large share of exporters – the comparatively low-volume ones – are not. We also confirm positive and significant size and productivity premia for manufacturers that import only, with productivity premia in MENA at least double of those in middle-income economies elsewhere. In contrast, we find no size or productivity premia for MENA's manufacturers that export, but do not import. These patterns are consistent with substantial distortions in the relative fixed and variable costs of trading, likely a reflection of selectively applied policies.     

The costs of foreign single listing

A significant number of firms conduct their initial public offerings in a foreign market without a domestic listing; this is known as a foreign single listing. The existing literature has mainly focused on examining cross-listings – where firms are listed in both the domestic market and one or more foreign markets – with little attention to foreign single listings. This study examines the costs of foreign single listings. Using a sample of Chinese firms, we show that – on average – the stocks of foreign single-listed firms are undervalued by around 20–30% relative to cross-listed firms. The results are robust in both panel regressions and in a natural experiment analysis. Our findings have strong implications for firms which may consider listing overseas.     

Social capital as a substitute for formality: Evidence from Bolivia

The paper studies the role of social capital in the urban informal sector in Bolivia. It shows that a formal firm has about 6.4 times the sales of an informal firm with no social capital, but informal firms use their social capital to compensate for the lack of formal productivity benefits. By being formal, firms obtain permanent visibility because they can operate a shop or a visible production location and they can produce in locations with better public infrastructure. Informal firms, in contrast, sell in one place – typically in street markets in front of formal shops – and produce in another — typically in the outskirts. Social capital increases accessibility of informal firms and provides them with security benefits at their production location.     

Does more competition increase business-level innovation? Evidence from domestically focused firms in emerging economies

This paper explores the relationship between the level of competition and innovation output for domestically focused businesses in emerging economies in Central and Eastern Europe and Central Asia. It uses survey data from 5054 businesses from the fifth Business Environment and Enterprise Performance Survey. A multivariate probit estimation of the likelihood of different innovation types finds that higher levels of competition are associated with greater likelihood of innovation, but this rises at a decreasing rate as competitor numbers grow. Also, firms operating in economies where competition policy is more effectively enforced are more likely to innovate. However, there is a point where ‘too much’ competition leads to less innovation – suggesting a tipping point effect. This suggests that policies to maximise competition, as measured by number of competitors, may not be optimal for promoting innovation in emerging economies. This requires a need for more nuanced competition policy approaches. The paper also finds that businesses relying on local markets are significantly less likely to introduce innovations than businesses trading domestically outside their local area, but increased competition in local markets increases the likelihood of businesses introducing product innovation. This points to a local rivalry effect.     

PRECAUTIONARY DEMAND FOR LABOUR AND FIRM SIZE

This paper studies firms' job creation decisions in a labour market with search frictions. A simple labour market search model is developed in which a firm can search for a second employee while producing with a first worker, and this creates the equilibrium size distribution of firms. A firm expands employment even if the instantaneous payoff to a large firm is less than that of staying small – a firm has a precautionary motive to expand its size. In addition, this motive is enhanced by a greater market tightness. Because of this effect, firms’ decisions become interdependent – a firm creates a vacancy if it expects other firms to do the same, creating strategic complementarity among firms and thereby self‐fulfilling multiple equilibria. An increase in productivity can cause a qualitative change in labour market tightness and the rate of unemployment.     

Platform intermediation in a market for differentiated products

We study a two-sided market where a platform attracts firms selling differentiated products and buyers interested in those products. In the subgame perfect equilibrium of the game, the platform fully internalises the network externalities present in the market and firms and consumers all participate in the platform with probability one. The monopolist intermediary extracts all the economic rents generated in the market, except when firms and consumers can trade outside the platform, in which case consumers obtain a rent that corresponds to the utility they would get if they did trade outside the platform. The market allocation is constraint-efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers. An increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition. As a result, the platform lowers the firm fees and raises the consumer charges. In contrast, an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition. In this case, the platform raises both the charge to the consumers and the fee for the firms.     

Business culture and tax evasion: Why corruption and the unofficial economy can persist

This paper shows that business and tax inspection culture can create multiple equilibria. In bad equilibria (high cheating and corruption), increases in penalties or auditing can have perverse impacts and increase cheating. The source of the multiple equilibria is the externalities created by business and tax inspection cultures. As tax evasion and corruption become more common, they become more acceptable and their cost is lowered. A third externality – that between firms and inspectors – is the source of the perverse effect; more cheating by firms is good for bribe-taking inspectors and more bribe-taking inspectors are good for cheating firms.     

Social Justice and Varieties of Capitalism: An Immanent Critique

This article emphasises how labour codes of conduct mediate a series of complex and evolving power relations that span the politics of consumption through to the politics of production. It argues that codes of conduct not only reflect an uneven division of labour – in which firms are stratified in size, productivity and labour conditions – but actively shape it. Using examples drawn from light-manufacturing industries in China, it illustrates how labour codes of conduct feed into these processes of uneven development. In their reaction to the implementation of codes of conduct across global supply chains, some Chinese suppliers at the higher tiers of industrial structure have sought to substitute capital for labour as a way to increase productivity beyond abusive labour conditions. Simultaneously, many smaller firms at lower tiers that are reliant on cut-throat forms of discounting have evolved elaborate schema of falsifying code of conduct processes and reports. Finally, mid-tier firms tend to display a strategically partial degree of compliance. Code provisions that empower workers to self-organise are commonly undermined because such trends threaten the very political basis upon which the restructuring the global division of labour over the past four decades has been predicated.     

Risk sharing and export performance with firm heterogeneity

We investigate how market uncertainty affects the export performance of a firm through financial frictions. We first extend Melitz's (2003) heterogeneous firm trade model by incorporating demand shocks, linking the demand uncertainties to the financing costs of firms. In this extension, the default probability is endogenously determined by a firm's productivity and demand uncertainty. Hence, firms with higher productivity or lower market uncertainty are offered lower interest rates and thus show better export performance. As an application, we also show that a risk-sharing mechanism, that pools default risk for a certain group of firms, lowers the default risk. This mechanism allows banks to charge lower interest rates to the member firms and therefore ultimately improves their export performance in both extensive and intensive margins. We find a real-world example of such a mechanism from business groups in Korea. Using Korean firm-level data, we show that the more diversified the business group, the greater the likelihood that its member firms export and the bigger their export revenues. We also show that our results are robust to alternative explanations for Korean business groups’ export competitiveness.     

Finance constraints and technology spillovers from foreign to domestic firms

Scholars have suggested that externalities such as technology spillovers to domestic firms from the entry and presence of foreign firms – i.e., Foreign Direct Investment (FDI) spillovers – arise only when domestic firms possess adequate absorptive capacity. But they have also maintained a predominantly technological focus in their conceptualization of absorptive capacity, treating it mostly as a function of domestic firms' technological investments. Yet, several anecdotes point to finance constraints being equally important hurdles to absorbing technology. Given the comparatively scant attention to finance constraints in the FDI spillover literature, we present theoretical arguments and a counterfactual simulation for how finance constraints influence firms' realization of FDI spillovers. In the process, we identify two mechanisms underlying why firms facing high finance constraints experience lower FDI spillovers. (125 words).     

Dividend taxation and intertemporal tax arbitrage

We analyze the effects of changes in dividend tax policy using a life-cycle model of the firm, in which new firms first access equity markets, then grow internally, and finally pay dividends when they have reached steady state. We find that unanticipated permanent changes in tax rates have only small effects on aggregate investment, since macroeconomic dynamics are dominated by mature firms for which dividend taxation is not distortionary. Anticipated or temporary dividend tax changes, on the other hand, create incentives for firms to engage in inter-temporal tax arbitrage so as to reduce investors' tax burden. For example, a temporary tax cut – the type most likely to be enacted by policymakers – induces firms to accelerate dividend payments while tax rates are low, which reduces their cash holdings and makes them capital-constrained when large investment opportunities arise. This can significantly lower aggregate investment for periods after the tax cut.     

Credit supply,post-acquisition performance and financial constraints

We study the effect of credit supply on the acquisition behaviour of financially constrained (FC) and financially unconstrained (UC) firms. FC firms are likely to conduct acquisitions when credit supply is greater while UC firms can conduct acquisitions whenever a good opportunity arises. We argue that the flexibility unconstrained firms have is valuable. Our empirical results indicate that UC firms outperform FC firms up to 36 months after the acquisition. We also find that increased credit supply increases the probability of conducting mergers and acquisitions (M&As) for FC firms while it has less impact on M&A behaviour of UC firms.     

THE POTENTIAL FOR SHORT‐RUN SHIFTING OF A CORPORATE PROFITS TAX

Can the owners of a firm shift a corporate profits tax to consumers? Not in the short run if the tax is stated as a proportion of profits and the firm is a profit maximizer. But what if the firm wishes to pursue a strategy other than profit maximization, say revenue maximization subject to a profit constraint? Under such a condition the firm's reaction to a tax or tax increase might be a price rise that captures part of the foregone profits. We show that firms which operate at a point on their demand curve that differs from profit maximization have an incentive to raise price in response to the tax – and that high cost firms have a greater incentive to raise price than do low cost firms. Our empirical analysis of the US beer industry confirms this finding, and sheds light on the Krzyzaniak–Musgrave analysis of the 1960s which suggested that the corporation income tax produced significant short‐run shifting.