Firm-level Evidence Research Articles

Productivity loss and misallocation of resources in Southeast Asia

This article examines within-sector resource misallocation in three Southeast Asian countries—Indonesia, Malaysia, and Vietnam. The methodology accounts for measurement error in revenues and costs. The firm-level evidence suggests that measurement error is substantial, resulting in an overestimation of misallocation by as much as 30%. Nevertheless, resource misallocation across firms within a sector remains large, albeit declining. The findings imply that there are considerable potential gains from efficient reallocation—above 80% for Indonesia and around 20% to 30% for Malaysia and Vietnam. Private domestic firms and firms with higher productivity appear to face larger distortions that prevent them from expanding.

Have greed and rapidly rising wages triggered a profit-wage-price spiral? Firm-level evidence for Belgium

Our study of Belgian firms found that 2022 price increases were largely attributable to rising intermediate input costs. Wage increases also contributed to prices hikes. Interestingly, markups appeared to play no role in driving up prices and in fact decreased or even offset the contribution of wages. In a country with automatic wage indexation, this is an important point for discussion in the debate on the profit-price or wage-price spiral.

How do power shortages affect CO2 emission intensity? Firm-level evidence from China

Power shortage is a development challenge that most developing countries often face, which not only brings negative impacts to firms' growth, but also has an impact on their environmental performance. In this study, a city-level power shortage index in China from 2008 to 2015 was used to investigate how electricity shortages can affect firms' carbon dioxide (CO2) emission intensity. We also examined the indirect impact of electricity shortages on CO2 emission intensity through three channels, namely, technological innovation, energy intensity and productivity. Our empirical results indicate that power shortages have a statistically significant positive impact on firms' CO2 emission intensity. The findings are robust to various robustness checks and endogeneity concern. The results verify the robustness of our proposed three mechanisms and imply that power shortages have an inhibitory effect on China's green and low-carbon transition in addition to their other well-known negative effects. Therefore, policymakers should consider the effect of power shortages on the energy transition in addition to the conventional negative impacts of power shortages on economic activities.

Assessing the Impact of a Regional Integration Policy on Corporate Environmental Performance: Micro-Evidence from Chinese Industrial Firms

Environmental performance is extremely vital for sustainable growth in China, and the impact of a regional integration policy plays an important role in improving environmental performance. However, current studies are weak in causal inference, and firm-level evidence is lacking. As a result, taking the Outline of the Pearl River Delta Reform and Development Plan as a quasi-natural experiment, with propensity score matching and difference-in-differences methods, this paper investigates the effect of regional integration on firms’ environmental performance. Our empirical results show that regional integration can significantly improve corporate environmental performance; specifically, the regional integration will result in an increase in the output value, of 46.7%, 22.3%, and 68.1% per unit emission of sulfur dioxide (SO2), industrial wastewater (WATER), and industrial smoke and dust (SD). Moreover, the impact of regional integration differs across different industries. For SO2, the impact of regional integration is greater for the petroleum processing, coking and nuclear fuel processing industries, and special equipment manufacturing; in terms of WATER, the impact is much higher in the tobacco products industry and printing and the reproduction of recording media industry; for SD, the petroleum processing, coking, and nuclear fuel processing industries are highly impacted. Finally, this impact also differs for core and peripheral cities. For policy implications, first, regional integration policies are highly recommended, and China is implementing regional integration in the Beijing–Tianjin–Hebei area and Yangtze River Delta, and these policies should be enhanced for other areas. Second, to maximize the effect of regional integration, the government needs to combine regional industrial structural characteristics to formulate industrial and environmental policies.

Inventory as a Financial Instrument: Evidence from China’s Metal Industries

Classic inventory theory suggests that inventory plays a vital role in matching demand and supply. This paper provides both country- and firm-level evidence that inventory can be used as a financial instrument to take advantage of arbitrage opportunities in financial markets with limited capital mobility. Using data from China customs’ metal imports and firm-level inventory from metal processing industries, we show that firms can utilize the inventory of an imported product to carry lower cost capital into a country with strict capital controls and, thus, gain higher financial returns. Specifically, at the country level, we find that the level of imported metal commodities is positively associated with the expected returns from financial arbitrage. At the firm level, we find that a higher expected return from financial arbitrage will incentivize a firm to increase its inventory level through short-term borrowing. In addition, our evidence supports the notion that firms with higher liquidation value, larger size, and higher sales growth (i.e., firms with higher borrowing capacity) may be more active in using inventory as an instrument to seek higher financial gains. We also utilize a unique regulatory policy shock as a quasi-natural experiment to enhance the causality interpretation of our empirical findings. This paper was accepted by Vishal Gaur, operations management. Funding: This work was supported in part by the National Natural Science Foundation of China [Grant 72201230] and the Research Grants Council of Hong Kong, University Grants Committee [Grant 14504621]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2023.4873 .

Oil price uncertainty, financial distress and real economic activities: Evidence from China

This paper studies the transmission of oil price uncertainty (OPU) shock to real economic activities by focusing on the role of financial condition. We find that financial stress is an important link in the propagation of OPU shock based on China’s macro- and firm-level data. We document significant decrease in real economic activities as oil price uncertainty increases by using SVAR, and further suggest that the contractionary effect of oil price uncertainty is more pronounced under high financial stress. Firm-level evidence consistently shows that heightened financial distress cost – resulted from oil price uncertainty – suppresses investments. OPU shock may cause financial distress through mechanisms of credit crunch, firm volatility and exchange rate uncertainty.

Un-Incorporation and Conditional Misallocation: Firm-Level Evidence from Sri Lanka

Abstract Un-incorporated firms are usually found less productive than their incorporated counterparts. However, little is known about the misallocation conditional on firms’ incorporation status and their productivity. This paper investigates the resource misallocation across un-incorporated firms and gauges the consequent aggregate productivity loss in comparison with their incorporated counterparts. We examine the question by using firm-level survey data from Sri Lanka’s manufacturing sector for 2005–2017 that provide unique information about firms’ corporation status. Our findings suggest that misallocation is more severe in unincorporated firms than in incorporated ones, leading to extra 42 % aggregate TFP loss to the former. By comparing the sources of misallocation between the two types of firms, we find capital is more misallocated relative to output and there is a stronger positive correlation between firm-specific distortion and productivity across the unincorporated firms. Our findings suggest that the un-incorporated firms suffer additional productivity loss at the aggregate level due to misallocation.

Government environmental attention and carbon emissions governance: Firm-level evidence from China

Climate change induced by carbon emissions has received extensive global attention. However, with the ever-increasing environmental attention from governments, whether firms, as main contributors to carbon emissions, have responded to the government’s call to achieve carbon abatement target is uncertain. To answer this question, we manually collected urban government work reports from 2007-2016 and extracted environment-related textual content to quantify government environmental attention (GEA). Employing firms’ carbon emission data from National Tax Survey Database (NTSD), this paper explores the impact of GEA on firms’ carbon emissions governance. We observe that the increase in GEA cuts firms’ carbon emissions. The results remain solid after using the instrumental variable method to alleviate endogeneity problems. The mechanism analysis reveals that GEA reduces firms’ carbon emissions via three environmental-related decision-making behaviors of government: environmental regulations, fiscal expenditure and subsidy policies, and energy structure transformation strategies. Heterogeneity analysis shows that GEA notably reduces firms’ carbon emissions from burning coal and oil energy. Moreover, firms in eastern-north, central, and western regions are more susceptible to GEA, while the impact is insignificant for firms in eastern regions. Furthermore, the carbon reduction performance is more pronounced for enterprises in capital-intensive, technology-intensive, and high polluting industries. This study provides a reference for policymakers to ensure the enforcement of carbon emissions governance of firms and to reach carbon abatement targets.

Advanced digitalisation and resilience during the COVID-19 pandemic: firm-level evidence from developing and emerging economies

ABSTRACT Advanced digital production technologies – often clustered under the label of ‘Industry 4.0’– are reshaping industrial production. Using novel firm-level data collected by UNIDO this paper investigates the extent to which these technologies shielded developing countries’ manufacturing firms in times of COVID-19. The results of the analysis show that the adoption of the latest vintage of digital technologies strengthened firms’ robustness against the shock and, at the same time, facilitated their readiness to respond and adapt to the new context. These findings pose relevant implications for the design of post-COVID recovery strategies to strengthen future industrial resilience in developing and emerging economies.

Digital financial inclusion and the share of labor income: Firm-level evidence

We analyze the impact of digital financial inclusion (DFI) on the change in the labor income share of listed firms. Based on small and medium-sized enterprises from 2011 to 2021 in China, we show that the development of DFI plays an important role in promoting the increase in the labor income share of firms, among which the breadth of coverage has a more significant effect. The effect is more significant for private firms than for state-owned firms, and for firms located in western China than in developed regions.

R&D, exports and employment growth: firm-level evidence using administrative data from South Africa

This paper asks two main research questions. First, what is the relationship between firm-level innovation and export performance? Second, what is the direct effect of innovation on employment, while accounting for the indirect innovation-export link? I use a novel longitudinal administrative dataset of all firms registered to pay tax in South Africa, over 2010–2016. The first main result suggests a positive and significant relationship between innovation and export performance. Second, the fixed effects results show that direct innovation positively impacts employment growth in manufacturing firms, however, R&D-induced exports – the indirect channel – negatively impacts employment growth. This points to the notion that productivity enhancements necessary for South African manufacturing exporters to compete internationally might promote labor-saving innovations. Nonetheless, the overall innovation effect on firm employment growth is positive.

The impact of international talent on environmental pollution: Firm-level evidence from China

Environmental pollution affects people's quality of life and health. Improving environmental awareness and developing green technologies are the key measures to solve the pollution problem. Combining the pollution emission database of Chinese industrial enterprises and the survey data on the scale of international talent inflow, we empirically test the impact of international talent influx on corporate pollution emission behavior and its influence channels. We have found that increasing the scale of international talent inflow significantly reduced the intensity of corporate pollution emissions, and the potential channels are to promote corporate technological progress, improvement of environmental protection concept, and export higher-quality products. Heterogeneity analysis found that the inflow of international talents has a significant inhibitory effect on the pollution emission intensity of enterprises in high human capital intensity and high pollution intensity industries, and talents from developed countries are more conducive to reducing the pollution emission intensity of enterprises. This paper proves that attracting international talents is an effective way to improve environmental pollution and achieve green and sustainable development.

Upgrading through global, regional or national value chains? Firm-level evidence from the East African textiles & apparel sector

This paper introduces the concept of value chain directionality to investigate how orientation to different value chains has implications for productive learning and industrial outcomes. We develop and test this concept building on a purposefully designed firm-level survey focused on the textile and apparel value chain in East Africa. Tanzanian and Kenyan textiles and apparel firms lie on a spectrum in terms of their engagement with national, regional and global value chains (NVCs, RVCs and GVCs), with outcomes varying with value chain directionality. GVC firms focus on a narrow range of lower-value functions (mostly garment assembly) while RVC and NVC firms perform a wider range of functions including vertical integration to textile manufacture and higher-value activities such as design and branding, but cases of functional upgrading were rare in all groups. GVC firms were closer to the technological frontier, but RVC and NVC firms were similarly engaged in process upgrading. GVC firms tended to have more complex products than RVC and NVC firms, and only GVC firms had recently engaged in product upgrading. Crucially, results in the area of end market upgrading confirmed the hypothesis that RVCs have the potential to serve as ‘learning grounds’, or ‘stepping stones’ to more demanding but potentially lucrative global markets. In other outcomes, GVCs appear to offer greater prospects for rapid employment generation but RVCs and NVCs tend to favour backward integration by incorporating more locally sourced inputs.

Export duration and product innovations: do born globals learn by exporting differently?

PurposeThis paper aims to study the learning-by-exporting effect among small-to-medium-sized enterprises (SMEs). Specifically, the authors propose a dynamic perspective and suggest that learning-by-exporting is duration-dependent and contingent upon the born global internationalization strategy. In earlier phases of export activities, exporting has had a strong positive effect on SMEs’ innovations, which, however, diminishes over time. This inverted U-shape effect is even more distinct for born global firms.Design/methodology/approachThe authors used longitudinal data with 1,689 Canadian SMEs to test their hypotheses. A two-stage instrumental approach is used to take into account the endogeneity of the born global international strategy on new product innovations.FindingsBorn globals learn faster at the early stages of exporting but also restrain their innovations more strongly than gradual internationalizers in the longer run, leveling out the initial learning advantages of newness. Thus, this study suggests that born globals have a significantly different learning trajectory than gradual internationalizers.Practical implicationsTo maximize the benefits of exporting on innovation, managers should focus on learning during the initial years of exporting. However, once this period has passed, it is advisable for managers to invest in research and development as well as other innovation activities to complement the learning effect of exporting. Born global firms experience more rapid learning at the initial stage of exporting, but such learning effects wear off quicker later than gradually internationalized firms. For SME managers, this study helps draw their attention to the learning benefits of exporting in the initial years of export participation.Originality/valueThis study corroborates recent studies arguing for a “learning-by-exporting” effect. Providing longitudinal firm-level evidence, the authors also forward a dynamic perspective and show that learning by exporting is duration dependent and contingent upon the market entry strategy pursued by SMEs.

Can raising environmental tax reduce industrial water pollution? Firm-level evidence from China

This paper examines the effect of raising tax rates on reducing industrial water pollution, exploiting China's environmental tax reform in 2018 as a quasi-natural experiment. Based on micro-level data covering >19 thousand firms nationwide, we estimate that for every unit of tax rate increase, the emissions of water pollutants, Chemical Oxygen Demand (COD) and Ammonia Nitrogen (NH3−N) have fallen by 8.63% and 3.79%. High emission intensity firms reduce their emissions more than low emission intensity firms. We also document that state-owned enterprises are less responsive to the tax increase than non-state-owned enterprises. Our findings provide evidence that the increased environmental tax has contributed to significant reductions in industrial emissions in China.

Does oil price uncertainty matter in firm innovation? Evidence from China

Inspired by the prevalence of firm innovation and substantial influence of international oil price uncertainty (OPU) on firm operation and decision-making, we investigate the influence of OPU on firm innovation. Using a sample of Chinese listed firms over the 2007–2019 period, our study reveals that OPU decreases firm innovation. This finding is consistent with the real options theory and the prospect theory. Mediation analysis shows that OPU could decrease firm innovation by increasing firms' financing constraints degree. Moreover, high-tech firms and those in highly competitive industries have fewer options to delay their innovation investments, we find that the adverse effects of OPU on their innovation are weaker. Finally, further analysis shows that government subsidies can help mitigate adverse effects of OPU on firm innovation. This paper reveals that OPU goes beyond the commonly known and understood regular indicator that shapes a firm's innovation activity and enriches firm-level evidence for the effects of OPU by highlighting the effects on long-term investment in intangible assets.

Gender bias in access to trade credit: Firm-level evidence from emerging markets

How do small and medium-sized enterprises (SMEs) led by women fare with respect to obtaining trade credit? While both trade credit and bank credit have long been viewed as potentially important financing instruments for SMEs, there is considerable ambiguity in the existing literature as to whether they complement or substitute each other from the perspective of credit-seeking SMEs. This is even more important for Women-Led Businesses (WLBs) in emerging markets and developing economies (EMDEs) who tend to face higher severity of credit constraints relative to their male counterparts. Given this context, using firm-level data on 95 EMDEs over 2009–2020, we contribute to the literature on gender bias and credit access by examining three specific questions: First, is there a gender bias in obtaining inter-firm trade credit? Second, if there is one, can those WLBs with access to traditional bank finance use it as a signal to obtain trade credit? Third, how does this relationship hold for SMEs that are women-led? After tackling potential endogeneity bias, our empirical findings show that WLBs are less likely to obtain inter-firm trade credit relative to their male counterparts, although we observe that this bias tends to disappear when WLBs have received an institutional source of financing. We establish robustly that bank credit can act as a signaling device enabling the accessibility of inter-firm trade credit, suggesting a complementary relationship between trade credit and bank credit for WLBs.

Digitalization and global value chain participation: firm-level evidence from Indian manufacturing

We analyze the role of digital infrastructure in shaping the global value chain (GVC) participation of Indian manufacturing firms. To examine the digitalization and GVC nexus, a rich, firm-level, unbalanced panel of 4875 manufacturing firms from the past two decades is used to detail the rising significance of digital infrastructure in the Indian context and then to examine empirically the relationship between digitalization and GVCs. Employing a logit model, we observe a positive and significant association of digitalization on firms’ GVC participation. Further, subsample results highlight that digitalization promotes the integration of small firms and firms from low-technology industries into the GVC. Moreover, the findings of our analysis are robust to alternate measures of GVCs.

Growing exports through ISO 9001 quality certification: Firm-level evidence from Chinese agri-food sectors

The adoption of ISO 9001 quality certification for agri-food products may promote China’s relatively weak competitiveness in agri-food exports compared with industrial sectors. To explore this, we construct a panel data set of Chinese listed firms in agri-food sectors from 2000 to 2016 and use staggered Difference-in-Difference (DID) method to investigate the causal relationship between the adoption of ISO 9001 quality certification and agri-food exports. Three main findings are obtained in this study. First, we find that the adoption of ISO 9001 certification is positively associated with exports for agri-food listed firms. Second, we find that ISO 9001 certification promotes firms’ exports by increasing their innovation activities. Third, the export effects are greater for food (vs. non-food) manufacturing firms and non-SOEs (vs. SOEs). Identification problems are addressed by utilizing randomly generated certification status, two-part fractional regression model, controlling and excluding other quality certifications, etc. This study provides important implications for China’s food and agricultural development strategy, which emphasises the transition from quantity expansion to quality enhancement.

IMPACT OF IMPORTED INTERMEDIATE GOODS ON ENERGY-ENVIRONMENTAL EFFICIENCY: FIRM-LEVEL EVIDENCE FROM CHINA

Improving energy-environmental efficiency (EEE) is an important way to achieve China’s carbon peak, carbon-neutral goals and green transformational development. The scale of imports of intermediate goods has been increasing rapidly with the deepening of China’s opening up to the outside world, which has played a positive role in promoting high-quality development. Considering that enterprises are the main players in transforming energy consumption patterns and high-quality development, we investigated the impact of imported intermediate goods on EEE from a microfield perspective. The empirical results showed that imported intermediate goods significantly contributed to EEE and that firms’ innovation capacity and productivity are the corresponding influencing mechanisms. The effects of importing intermediate goods in foreign-invested enterprises, enterprises in the eastern and coastal regions and capital-intensive enterprises are more obvious in improving EEE. Further expansion of imports of intermediate goods, enhancement of enterprises’ capacity for independent innovation, deepening structural reforms and accelerated development of the digital economy can help enhance the promotional effect of imports of intermediate goods on enterprises’ EEE.