The Economics of Firm Productivity
Carlo Altomonte, Filippo di Mauro
Cambridge University Press,
April
2022
Abstract
Productivity varies widely between industries and countries, but even more so across individual firms within the same sectors. The challenge for governments is to strike the right balance between policies designed to increase overall productivity and policies designed to promote the reallocation of resources towards firms that could use them more effectively. The aim of this book is to provide the empirical evidence necessary in order to strike this policy balance. The authors do so by using a micro-aggregated dataset for 20 EU economies produced by CompNet, the Competitiveness Research Network, established some 10 years ago among major European institutions and a number of EU productivity boards, National Central Banks, National Statistical institutes, as well as academic Institutions. They call for pan-EU initiatives involving statistical offices and scholars to achieve a truly complete EU market for firm-level information on which to build solidly founded economic policies.
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Mission, Motivation, and the Active Decision to Work for a Social Cause
Sabrina Jeworrek, Vanessa Mertins
Nonprofit and Voluntary Sector Quarterly,
No. 2,
2022
Abstract
The mission of a job affects the type of worker attracted to an organization but may also provide incentives to an existing workforce. We conducted a natural field experiment with 246 short-term workers. We randomly allocated some of these workers to either a prosocial or a commercial job. Our data suggest that the mission of a job has a performance-enhancing motivational impact on particular individuals only, those with a prosocial attitude. However, the mission is very important if it has been actively selected. Those workers who have chosen to contribute to a social cause outperform the ones randomly assigned to the same job by about half a standard deviation. This effect seems to be a universal phenomenon that is not driven by information about the alternative job, the choice itself, or a particular subgroup.
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Micro-mechanisms behind Declining Labor Shares: Rising Market Power and Changing Modes of Production
Matthias Mertens
International Journal of Industrial Organization,
March
2022
Abstract
I derive a micro-founded framework showing how rising firm market power on product and labor markets and falling aggregate labor output elasticities provide three competing explanations for falling labor shares. I apply my framework to 20 years of German manufacturing sector micro data containing firm-specific price information to study these three distinct drivers of declining labor shares. I document a severe increase in firms’ labor market power, whereas firms’ product market power stayed comparably low. Changes in firm market power and a falling aggregate labor output elasticity each account for one half of the decline in labor's share.
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Income, Trading, and Performance: Evidence from Retail Investors
Dien Giau Bui, Chih-Yung Lin, Iftekhar Hasan, Rui-Xiang Zhai
Journal of Empirical Finance,
March
2022
Abstract
We examine whether household income influences the trading styles of retail investors and their investment performance. To investigate this question, we use a unique dataset of branch-level trading that contains all retail investors and observe that those investors with high income trade more and earn significantly higher returns in the stock market. In addition, this income effect becomes stronger for highly risky stocks, such as gambling or lottery-like stocks. These findings are in line with the information model theorized by Peress (2004) in which wealthy investors take extra risks by trading more stocks.
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Aleksandr Kazakov, Michael Koetter, Mirko Titze, Lena Tonzer
Abstract
We study whether government subsidies can stimulate bank funding of marginal investment projects and the associated effect on financial stability. We do so by exploiting granular project-level information for the largest regional economic development programme in Germany since 1997: the Improvement of Regional Economic Structures programme (GRW). By combining the universe of subsidised firms to virtually all German local banks over the period 1998-2019, we test whether this large-scale transfer programme destabilised regional credit markets. Because GRW subsidies to firms are destabilised at the EU level, we can use it as an exogenous shock to identify bank responses. On average, firm subsidies do not affect bank lending, but reduce banks’ distance to default. Average effects conflate important bank-level heterogeneity though. Conditional on various bank traits, we show that well capitalised banks with more industry experience expand lending when being exposed to subsidised firms without exhibiting more risky financial profiles. Our results thus indicate that stable banks can act as an important facilitator of regional economic development policies. Against the backdrop of pervasive transfer payments to mitigate Covid-19 losses and in light of far-reaching transformation policies required to green the economy, our study bears important implications as to whether and which banks to incorporate into the design of transfer Programmes.
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Economic Sentiment: Disentangling Private Information from Public Knowledge
Katja Heinisch, Axel Lindner
IWH Discussion Papers,
No. 15,
2021
Abstract
This paper addresses a general problem with the use of surveys as source of information about the state of an economy: Answers to surveys are highly dependent on information that is publicly available, while only additional information that is not already publicly known has the potential to improve a professional forecast. We propose a simple procedure to disentangle the private information of agents from knowledge that is already publicly known for surveys that ask for general as well as for private prospects. Our results reveal the potential of our proposed technique for the usage of European Commissions‘ consumer surveys for economic forecasting for Germany.
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Gift-Exchange in Society and the Social Integration of Refugees: Evidence from a Field, a Laboratory, and a Survey Experiment
Sabrina Jeworrek, Bernd Josef Leisen, Vanessa Mertins
Journal of Economic Behavior and Organization,
December
2021
Abstract
Refugee integration requires broad support from the host society, but only a minority is actively engaged. Given that most individuals reciprocate kind behavior, we examine the idea that the proportion of supporters will increase as a reciprocal response to refugees’ contributions to society through volunteering. Our nationwide survey experiment shows that citizens’ intentions to contribute time and money rise significantly when they learn about refugees’ pro-social activities. However, we find a substantial heterogeneity in the observed treatment effects. Individuals with a high reciprocal inclination show higher willingness to contribute time, while individuals with a lower reciprocal inclination are ready to contribute money after learning about the refugees' good deeds. Information regarding the possibility to establish a mutual support relationship with the refugees does not generally increase the willingness to contribute time or money beyond the information on refugees’ general contributions to the society. We complement this investigation with experiments in the lab and the field that confirm our findings for actual behavior.
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Advances in Using Vector Autoregressions to Estimate Structural Magnitudes
Christiane Baumeister, James D. Hamilton
Abstract
This paper discusses drawing structural conclusions from vector autoregressions. We call attention to a common error in estimating structural elasticities and show how to correctly estimate elasticities even in the case when one knows only the effects of a single structural shock and the covariance matrix of the reduced-form residuals. We describe the traditional approach to identification as a claim to have exact prior information about the structural model and propose Bayesian inference as a way to acknowledge that prior information is imperfect or subject to error. We raise concerns about the way that results are typically reported for VARs that are set-identified using sign and other restrictions.
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Executive Equity Risk-Taking Incentives and Firms’ Choice of Debt Structure
Iftekhar Hasan, Walid Saffar, Yangyang Chen, Leon Zolotoy
Journal of Banking and Finance,
December
2021
Abstract
We examine how executive equity risk-taking incentives affect firms’ choice of debt structure. Using a longitudinal sample of U.S. firms, we document that when executive compensation is more sensitive to stock volatility (i.e., has higher vega), firms reduce their reliance on bank debt financing. We utilize the passage of the Financial Accounting Standard (FAS) 123R option-expensing regulation as an exogenous shock to management option compensation to account for potential endogeneity. In cross-sectional analyses, we find that the documented effect of vega is amplified among firms with higher growth opportunities and more opaque financial information; we also find vega's effect is mitigated in firms with limited abilities to tap into public debt market. Supplemental analyses suggest that firms with higher vega face more stringent bank loan covenants. We conclude that, by encouraging risk-taking, higher vega reduces firms’ reliance on bank debt financing in order to avoid more stringent bank monitoring.
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Corporate Loan Spreads and Economic Activity
Anthony Saunders, Alessandro Spina, Sascha Steffen, Daniel Streitz
SSRN Working Paper,
2021
Abstract
We use secondary corporate loan-market prices to construct a novel loan-market-based credit spread. This measure has considerable predictive power for economic activity across macroeconomic outcomes in both the U.S. and Europe and captures unique information not contained in public market credit spreads. Loan-market borrowers are compositionally different and particularly sensitive to supply-side frictions as well as financial frictions that emanate from their own balance sheets. This evidence highlights the joint role of financial intermediary and borrower balance-sheet frictions in understanding macroeconomic developments and enriches our understanding of which type of financial frictions matter for the economy.
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