The possible adverse impact of innovation subsidies: some evidence from Italy

The impact of public funding on innovative productivity is estimated using a sample of Italian firm-level data (CIS3). A bivariate endogenous switching model is developed in order to free the analysis of the sources of sample selection and firm heterogeneity, the possible simultaneity between subsidy allocation and the qualitative composition of the innovative output, as well as the endogeneity of public support with respect to innovative performance. Results show that innovative productivity is negatively affected by the subsidy; as a result of government intervention, supported firms appear to exhaust their advantage through merely increasing their innovative expenditures.     

The Marisol case: Challenges of international growth for a successful Brazilian designer apparel firm

Marisol has forged a successful legacy in Brazil in the market for clothes with a sophisticated, stylish look. Success in Brazil enabled the firm to garner overseas customers. The establishment of subsidiaries in Argentina, Italy and Mexico, as well as sales operations in several countries – including Chile, Colombia, Spain, and the USA, among others – represented important steps in Marisol's internationalization. Marisol's executives have to decide on several issues: how to consolidate their position in the USA market and in other countries? What modes of operation – own stores, franchisees, multi-brand stores, private label supply – to use in which countries? Which brands to launch abroad and whether to adapt them to local tastes, while exploiting the image of Brazilianness?     

Do foreigners replace native immigrants? A panel cointegration analysis of internal migration in Italy

This paper examines the impact of the immigration of foreigners on domestic labor mobility. Since David Card's seminal study on the regional labor market impact of the Mariel Boatlift it is controversial whether domestic labor mobility equilibrates economic conditions across regions. However, there is little or no evidence that natives leave destinations where migrants tend to cluster. In this paper we reconcile the existing evidence by taking another route: we analyze whether the immigration of foreigners replaces domestic mobility from poor to rich regions. We focus on Italy, which is characterized by large North-South wage and unemployment differentials, and apply panel cointegration methods. The main finding is that, conditional on unemployment and wage differentials, the presence of foreign workers in the labor force of the destination regions discourages internal labor mobility significantly. As a consequence, spatial correlation studies which use the variance of the foreigner share across regions for identifying the wage and employment effects of immigration, tend to understate the actual impact of foreign immigration.     

Internal finance and growth: Microeconometric evidence on Chinese firms

Using a panel of 79,841 Chinese firms over the period 2000-2007, we examine the extent to which liquidity constraints affect firms' assets growth. We find that state owned enterprises are not affected, while the availability of internal finance represents a binding constraint for the growth of private firms, especially those operating in coastal regions, with negligible foreign ownership. Thanks to their high productivity, cash flow is, however, so abundant for these firms that they are able to grow at a very fast rate, despite being discriminated against by financial institutions. Hence, well developed external capital markets may not always be needed for fast economic growth.     

Choosing price or quantity? The role of delegation and network externalities

We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.     

Does slack always affect resilience? A study of quasi-medium-sized Italian firms

Research on organizational slack, which has focused mainly on its effect in large, publicly traded firms and on transitional economies, has found that slack functions as a buffer in periods of crisis. However, little work has been done on the value of slack resources for smaller firms in mature industries. This study contributes to the resource-based literature with a quantitative analysis of a broad sample of Italian SMEs that operate in the traditional ‘Made in Italy’ industries. The purpose of the paper is to use longitudinal data from before and after the 2008 world financial crisis to determine whether slack resources drive growth and profitability in organizations with limited resources that operate in mature industries in periods of recession. The results of two-stage least squares regression indicate that, similar to their larger counterparts, small firms must secure high levels of profitability in order to achieve sound growth during recessions. Potential financial slack is equally important in driving profitability in these periods, although it is not related to higher growth. Investing in R&D does not affect small firms’ ability to be profitable and grow during recessions.     

Investment and financing constraints in China: Does working capital management make a difference?

We use a panel of over 116,000 Chinese firms of different ownership types over the period 2000–2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that an active management of working capital may help firms to alleviate the effects of financing constraints on fixed investment.