Marginal Firms Research Articles

Game Analysis of Financial Regulation in International Financial Crisis using Multi-view Graph Convolutional Network

The concept of "game analysis" generally refers to the study and assessment of video games, frequently from the viewpoints of player experience, story, mechanics, design, and other relevant variables. It can be used for a variety of games, such as sports, board, card, and video games. A sudden drop in the value of assets or financial institutions is referred to as a financial crisis. It frequently causes the regular operation of financial markets to be interrupted and may have negative impacts on the economy as a whole. In this manuscript, Game Analysis of Financial Regulation in International Financial Crisis using Multi-view Graph Convolutional Network (GA-FR-IFC-MGCN). The proposed method comprises of four phases: dataset, pre-processing, feature selection, classification. Initially, the data is taken from Analcat dataset. Then, Federated Neural Collaborative Filtering (FNCF) method is used to enhancing the networks data. For feature selection phase, the ideal features are chosen by Siberian Tiger Optimization (STO). After, the Multi-view graph convolutional network (MGCN) method is used to classifying international financial crisis as bankruptcy and Non-bankruptcy. In general, MGCN does not express some adaption of optimization strategies for determining optimal parameters to promise exact classification of International Financial Crisis. Therefore, Harbor Seal Whiskers Optimization Algorithm is proposed to enhance weight parameter of MGCN classifier, which precisely predicts the International Financial Crisis. The proposed technique is executed and efficiency of GA-FR-IFC-MGCN depend classification framework is assessed by support of numerous performances evaluating metrics likes accuracy, recall, precision, FI-score, specificity. Finally the performance of proposed GA-FR-IFC-MGCN methods provides 25.32%, 29.30% and 27.32% higher accuracy, 22.41%, 29.30% and 24.31% higher specificity and 25.71%, 27.12% and 25.31% higher precision though analyzed with existing method likes game analysis of financial supervision in international financial crisis(GA-FS-IFC), performance evaluation of clustering techniques for financial crisis prediction(PE-CT-FC) and modified grey wolf optimizer with sparse auto-encoder for financial crisis prediction in small marginal firms (MGWO-SA-FCP) respectively.

Does Absence of Insider Trades Before Seasoned Equity Offerings Provide Information to the Market?

This study analyzes the interaction effect of short and long-run performance and insider trading with 1,099 seasoned equity offerings(SEOs) announced between 2004 and 2020. The major results of this study are as follows. First, insiders are net sellers prior to SEOs and the relationship between insider’s net purchase ratio and announcement effects is significantly positive. Second, the positive relationship holds only for net sell group, not for net buy group. Third, compared to firms in net sell group and net buy group, those in no trade group are marginal firms with worse operating performance, higher probability of delisting, smaller size, and lower return before SEOs, and lower ownership by largest shareholders. Fourth, regression analysis shows that announcement effect and long-run performance of no trade group is significantly more negative than net sell group and net buy group. To summarize, “dog that did not bark” effect exists in insider trading before SEOs and the absence of insider trades provide valuable information to the market.

Granting more bang for the buck: The heterogeneous effects of firm subsidies

We estimate the effects of a large program of public investment subsidies targeting Italian firms of different size and age. Investment projects were ranked by numerical scores of project quality and funded until exhaustion of funds. Exploiting this allocation mechanism as an ideal regression discontinuity design, we estimate that subsidies increased investment of marginal firms near the cutoff by 39 percent, and employment by 17 percent over a 6-year period. Smaller firms exhibit higher employment growth upon receiving the subsidy, but larger firms generate more jobs at a lower cost, and younger firms do better than older firms.

FinTech and capital allocation efficiency: Another equity-efficiency dilemma?

The emergence of financial technology (FinTech) introduces new tools and solutions to lending and equity markets, and has significantly increased the accessibility of marginal firms to funds, a property known as financial inclusion. However, little is known about whether such inclusion is acquired at the cost of efficiency. This paper provides evidence on how FinTech affects the efficiency of capital allocation using firm-level data for China over the period of 2010–2020. The development of FinTech is measured as the number of FinTech firms in a city. We find interesting evidence that the growth of FinTech reduces the capital available to more efficient firms. The evidence stands robust at both the firm- and industry-level. We identify two mechanisms that can explain the inefficiencies of FinTech in capital allocation. The first mechanism involves FinTech-induced competition in the lending market, and the second explanation relates to the property of equity-efficiency dilemma of FinTech. Finally, we show that the inefficiencies of FinTech in capital allocation arise mainly from its impact on debt financing.

Turning a ‘Blind Eye’? Compliance with Minimum Wage Standards and Employment

Turning a ‘blind eye’ to non‐compliance with minimum wage standards is sometimes presented as a pragmatic way to accommodate higher wages while not harming employment opportunities for workers employed in marginal firms. In this paper, we model firms' wage and employment decisions, and show that there may be a trade‐off between non‐compliance and employment. The main predictions of the model are tested empirically using data from the Italian labour force survey. We find evidence of a positive employment non‐compliance effect, though elasticities are smaller than typically thought as employers internalize the expected costs of non‐compliance. We also show that employment effects are larger at low levels of non‐compliance (when the risk of being referred to court is very low). The implications for policy and the role of regulators in monitoring and sanctioning non‐compliance are discussed.

Auditor Independence: Evidence on Non-audit fees, firm financial health and investors’ perceptions of earnings

Motivated by the mixed results of prior research regarding the role of non-audit fees (NAFs) on auditor independence, this study examines the effect of NAFs on earnings response coefficients (ERCs) of healthy and financially distressed firms. We find that NAFs positively affect ERCs for healthy and marginal firms with little incentives to manage earnings while NAFs negatively affect ERCs for financially distressed firms with more incentives to manage earnings. We confirm our findings by showing that distressed firms are more likely to use accrual-based earnings management (AEM) as a channel to affect ERCs. These results hold after we control for various other determinants of audit quality and possible endogeneity. Results provide policy, research, and practical implications by advancing our understanding of the relationship between NAFs and investors’ perceptions of auditor independence.

Credentials Matter, but Only for Men: Evidence from the S&P 500

We study gender differences in the value of credentials in managerial labor markets. Exploiting quasi-random variation in S&P 500 index membership, we examine the careers of managers whose firms were “just included” on the index and compare them to the careers of managers of similar firms that were not included. We use within-firm variation in S&P 500 status for marginal firms and managers who joined a marginal firm before its addition to the index to obtain near-random assignment of S&P 500 experience. Men with experience at an S&P 500 firm obtain more subsequent independent directorships and executive roles at other S&P 500 firms, but not at non-S&P 500 firms. The increase is 12-42% relative to the average. Strikingly, we observe no such relationship for women. Our results suggest that receiving less credit for similar credentials poses an obstacle for women in the managerial labor market.

Turning a "Blind Eye"? Compliance with Minimum Wage Standards and Employment

Turning a blind eye to non-compliance with minimum wage standards is sometimes presented as a pragmatic way to accommodate higher wages while not harming employment opportunities for workers employed in marginal firms. In this paper, we model firms' wage and employment decisions, and show that there may be a trade-off between non-compliance and employment. The main prediction of the model are empirically tested using data from the Italian labour force survey. We find evidence of a positive employment non-compliance effect, though elasticities are smaller than typically thought as employers internalize the expected costs of non-compliance. We also show that employment effects are larger at low levels of non-compliance (when the risk of being referred to court is very low). The implications for policy and the role of regulators in monitoring and sanctioning non-compliance are discussed.

International Trade with Heterogeneous Firms: Theory and Evidence

International trade is dominated by a small number of very large firms. Models of trade with heterogeneous firms have been developed to study the causes and consequences of this observation. The canonical model of trade with heterogeneous firms shows that trade leads to between-firm reallocations and selection: it shifts employment towards firms with the best attributes and forces marginal firms to exit. The model also illustrates the role of heterogeneity, and its various sources, in explaining the volume of trade and the firm-level margins of adjustment. Consistent with the model, earlier empirical studies have documented that exporting is a rare activity, that exporting firms are larger and more productive than other firms, and that trade liberalization reallocates market shares towards the best-performing firms in various countries. More recent studies using transaction-level data have unveiled additional salient features of trade flows. First, sales by foreign firms are very heterogeneous and highly concentrated. Second, both the extensive margin (number of exporting firms) and the intensive margin (average export per firm) are important in explaining the level of exports and its changes over time. More heterogeneity in sales across firms is associated with a higher volume of trade along both margins. Third, increased foreign competition reallocates market shares towards top firms and hence can increase concentration from any country of origin. Numerous extensions of the benchmark model have been proposed to study other important aspects, such as the relevance of multi-product and multinational firms and the extent to which heterogeneity is endogenous to firms' choices, but some open challenges still remain.

Global Financial Imbalance: Firm-Level Evidence from Korea

Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased productivity. This study focused on the increase of marginal firms as a result of the adverse effects of financial imbalances on firms. The marginal firms were identified based on the company's financial statement, and the share of marginal firms by country was compared and analyzed using Worldscope data. As a detailed analysis on the marginal firms, the impact of borrowing interest rate on the possibility of becoming a marginal company was analyzed in the case of Korea with KED data. According to the international comparison, East Asia including Korea, China and Japan has shown a lower share of marginal companies than Europe, South Asia and Latin America. Empirical results through Panel Logit with Sector Fixed Effect Model show that the borrowing rate has a negative correlation with the probability the company will become a marginal company in the case of Korea. However, the impact of an increase in borrowing rates on the likelihood of becoming a marginal company depends on the degree of financial vulnerability. Specifically, an increase in the borrowing rate has a greater impact on the possibility to become ICR<1 in the companies with higher financial vulnerability indexes.

Play to Win or Don't Play at All: The Financial Returns to Making the Cut

Despite the proliferation of lists and rankings that recognize firms for superior performance, empirical studies have been limited in their ability to causally evaluate how inclusion for the marginal firm influences shareholder value. Using a regression discontinuity design, we address this limitation by examining how investors responded to firms that were just barely included or excluded from the 100 Best Corporate Citizens list. Contrary to prevailing theoretical expectations, our findings indicate that marginal firms that were included in the ranking experienced negative abnormal returns compared to marginal firms that were excluded. We discuss how these findings inspire future research on rankings and status and highlight implications for managers considering strategic decisions related to pursuing rankings.

The risk of being ranked: Investor response to marginal inclusion on the 100 Best Corporate Citizens list

AbstractResearch SummaryDespite the proliferation of lists and rankings that recognize firms for superior performance, empirical studies have been limited in their ability to causally evaluate how inclusion for the marginal firm influences shareholder value. We address this limitation by examining how investors responded to firms that were barely included or excluded from the 100 Best Corporate Citizens list. Contrary to prevailing theoretical expectations, our findings indicate that marginal firms that were included in the ranking experienced negative abnormal returns compared to marginal firms that were excluded. We discuss the theoretical implications of these findings and how they inspire future research questions for scholarship on rankings and status. We also discuss implications for managers that question whether and when being ranked results in financial benefits or liabilities.Managerial SummaryBecause being ranked is generally seen as an important strategic objective for companies, managers must carefully consider how much attention and resources to allocate toward this pursuit. Although existing research suggests that being ranked can be beneficial, we have a limited understanding about whether barely making a ranked list is worth the effort. We provide new insights for managers by showing that investors not only respond negatively to marginal inclusion on a ranking but also provide suggestions for how companies might counteract this effect. Specifically, our results suggest that making consistent, focused investments that are relevant to external stakeholders may buffer organizations from the potential negative effects of marginal inclusion on a ranking. These insights may also inspire managers to reconsider their firms' commitments to being ranked.

최저임금과 생산성: 우리나라 제조업의 사례(Minimum Wage and Productivity: Analysis of Manufacturing Industry of Korea)

Korean Abstract: 최근 최저임금 인상 관련 논의가 고용인원 수와 같이 양적 측면에 국한되면서 부정 적 효과가 주로 부각되고 있지만, 최저임금 인상은 기업 또는 산업 특성에 따라 생산성 제고, 저생산성 한계기업 퇴출 등 질적 측면에서 긍정적 효과를 가져올 수 있다. 즉, 최 저임금 인상으로 생산성이 개선된다면 노동비용 증가, 고용 감소 등 최저임금 인상의 부정적 효과를 일정 부분 상쇄할 수 있는 것이다. 본 연구는 이러한 관점에서 최저임금 인상이 기업의 생산성에 미친 영향을 실증적으로 분석하였다. 실증분석을 위해 제조업 부문의 사업체 단위 패널데이터를 이용하여 제조업 내 업 종별·고용규모별 최저임금 영향률을 추정하고 이를 기업의 생산성과 연계함으로써 최 저임금 변화가 생산성에 미치는 영향을 분석하였다. 특히 생산함수 추정에서 기존 연 구의 문제점인 요소투입의 내생성을 보정함으로써 자본계수 과소추정 및 노동계수 과 대추정의 문제를 보완하였다. 분석 결과, 최저임금 인상이 임금, 고용, 생산성에 미치는 영향은 업종별·고용규모별 로 다르게 나타났다. 특히, 최저임금 인상은 제조업 전반의 생산성 제고에 긍정적인 것 으로 추정되었지만 생산성 변화의 방향과 폭은 업종별로 상이했다. 최저임금 인상이 고용규모별 생산성에 미친 영향을 보면 전반적으로 고용규모가 작을수록 생산성에 부 정적이지만 업종에 따라서는 긍정적인 효과가 있는 것으로 분석되었다. 또한 최저임금 인상으로 유발된 임금 상승은 제조업 내 모든 업종에 걸쳐 생산성을 증가시키는 것으 로 나타났다. 한편 제조업 내 업종별 생산성 회귀식 추정 결과를 보면 산업별 생산성 증 가에 수렴 효과가 있는 것으로 보인다. 이는, 최저임금영향률이 생산성 증가에 긍정적 영향을 미치는 산업의 경우 생산성 증가가 답보상태에 놓이면 최저임금 인상으로 야기 된 기업여건 변화를 계기로 생산성 증가 속도를 제고할 수도 있음을 의미한다. 본 연구의 정책적 시사점은 다음과 같다. 최저임금 인상으로 상당수 업종에서 생산성이 개선되는 것으로 추정된 만큼, 이를 최저임금 상승이 초래하는 노동비용 증가 및 고용 감소 효과와 함께 종합적으로 평가 하는 게 바람직하다. 이와 함께 동일한 최저임금 적용에도 불구하고 최저임금영향률 의 차이로 인해 최저임금이 고용, 임금, 생산성에 미치는 영향은 업종·규모에 따라 상이 할 수 있음에 유념할 필요가 있다. English Abstract: Recent discussions on minimum wage increase (MWI) and its influences on the economy have mainly focused on the quantitative aspects such as labor cost and employment. However, on the qualitative aspects, MWI could have positive effects by enhancing firm productivity and crowding out marginal firms in the market. These positive effects of MWI can offset, to some extent, its potential negative effects – the increase of labor cost and the decrease of employment among others. In this regard we empirically examine the impact of MWI on the firm productivity (total factor productivity). Using firm level panel data in the manufacturing industry of Korea, we calculate the influence rates of minimum wage by sector and by size (number of workers) and analyze their effect on the firm productivity. In particular the production functions of the firms are estimated by the way of taking into account endogeneity among input factors, in order to resolve the drawbacks of existing studies – underestimating capital factor coefficient and overestimating labor factor coefficient. This study finds that the influences of MWI on wage, employment, and productivity differ across sectors and firm sizes. While MWI has shown positive influences on the productivity growth in the manufacturing industry as a whole, each sector demonstrates different direction of effect and the degree of productivity change is also varying by sector. The impacts of MWI on the firm productivity are estimated generally to be more negative for smaller firms but for some sectors the effects are found to be positive. In addition, the wage increases resulted from MWI seem to cause productivity enhancement throughout all sectors in the manufacturing industry. The policy implications of this study are as follows. Considering the empirical finding that MWI causes the increases of productivity in many sectors of the manufacturing industry, it will be desirable to evaluate not only the negative side effects but also the positive effects of MWI for designing future minimum wage policy. Moreover, in spite of the uniform minimum wage, this study finds that the diverse influence rates of minimum wage across firms have differential impacts on wage, employment, and productivity across sectors or different sizes of establishment. This finding could be conducive to discussing about the differentiation of minimum wage scheme by sector or by size.

The dark side of institutional intermediaries: Junior stock exchanges and entrepreneurship

Research Summary: Our study shows how institutional intermediaries established to foster the creation of new firms might hinder new firm growth instead. We show that intermediaries can reduce new firm growth rates due to institutional conflict. To analyze this idea, we examine the setting of junior stock exchanges, which are commonly formed to facilitate entrepreneurial growth. The introduction of these exchanges focused investment into new technology firms, reduced investment in other sectors, and led to diminishing new firm growth. Our findings demonstrate how institutional conflict causes unintended effects and reveals the complexity of influencing entrepreneurship with institutional intermediaries.Managerial Summary: Investors and entrepreneurs face uncertainty when deciding what firms to start and fund. We show that an intermediation effort to make entry easier for entrepreneurs increases the uncertainty that entrepreneurs and investors face. For investors, the enthusiasm for technology firms engendered by the new exchange can motivate investment in marginal firms to maintain as desired deal flow. However, lower firm growth and less liquidity in the future is likely. For entrepreneurs, our results indicate that it is more challenging to manage technology firm growth as well as there is potential opportunity to investigate other industries. Finally, for policy‐makers and supporters of the new exchanges, our results imply that investment flows are altered as intended, but unless listing standards remain high, the virtuous cycle of investment upon which a healthy entrepreneurial climate rests may be disrupted, muting the intended effects of the new exchange.

Determinants of Korea's Imports and Its Effects on Distribution of Firms

In this paper, we analyze determinants of Korea's imports in the context of the interaction between exports and foreign investments, and investigate the effects of imports on firms' exit and productivity, in order to understand Korea's import structure and distributional influences of imports. In order to analyze the determinants of imports by type, we constructed a theoretical model and found two propositions. The results of the empirical analysis based on the theoretical model are summarized as follows. As exports grow, imports of intermediate goods and raw materials used as production input factors will increase, while imports of consumer goods will decrease. Imports of intermediate goods and raw materials are positively related with inward foreign direct investment (FDI), but imports of consumption goods are negatively affected by inward FDI. The main results of analyzing the effects of imports on a probability of firms' exit are as follows. First, the increase in total imports raises the probability of a firm's exit due to increased market competition, whereas the firm size, capital stocks, and productivity lower the probability. Second, imports of raw materials and intermediate goods lower the probability of a firm's exit. Technological upgrade or cheap imported intermediate goods improve marginal firms' competitiveness and hence their survival chances. Third, whether firms are exporting or not does not significantly affect the relationship between import penetration and firms' exit. Fourth, the magnitude of the effects of imports on firms’ exit varies from industry to industry.

Taxing and Subsidizing Foreign Investors

Many countries impose taxes on foreign investors while also having in place targeted subsidies and tax incentives that are designed to attract them. This paper shows that such a policy can be optimal from the standpoint of a host country. The government has an incentive to tax inframarginal firms because they are relatively immobile. It also has an incentive to subsidize marginal firms because the economic activity generated by such a subsidy can increase domestic wages in excess of the fiscal cost of the subsidy. These tax and subsidy policies improve host country welfare at the expense of foreigners. This analysis is thus able to provide an explanation for why tax coordination efforts can simultaneously entail reduced taxes and subsidies on foreign firms.

Designing Corporate Bailouts

AbstractAlthough common economic wisdom suggests that government bailouts are inefficient because they reduce incentives to avoid failure and induce excessive entry by marginal firms, in practice bailouts are difficult to avoid for systemically significant enterprises. Recent experience suggests that bailouts also induce litigation from shareholders and managers complaining about expropriation and wrongful termination by the government. Our model shows how governments can design tax-financed corporate bailouts to reduce these distortions and points to the causes of inefficiencies in real-world implementations such as the Troubled Asset Relief Program. Bailouts with minimal distortion depend critically on the government’s ability to expropriate shareholders and terminate managers.

Designing Corporate Bailouts

Common economic wisdom suggests that government bailouts are inefficient because they reduce incentives to avoid failure and induce excessive entry by marginal firms counting on future bailouts. Our model shows how governments can design tax-financed corporate bailouts to avoid these distortions and points to the causes of inefficiencies in real-world implementations, such as TARP.

Do Entry Regulations Deter Entrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal

Abstract We evaluate the consequences of a recent regulatory reform in Portugal, which substantially reduced the cost of firm entry. Our analysis uses matched employer–employee data, which provide unusually rich information on the characteristics of founders and employees associated with new firms before and after the reform. We find that the short‐term consequences of the reform were as one would predict with a standard economic model of entrepreneurship: the reform resulted in increased firm formation and employment, but mostly among ‘marginal firms’ that would have been most readily deterred by existing heavy entry regulations. These marginal firms were typically small, owned by relatively poorly educated entrepreneurs, and operating in low‐technology sectors (agriculture, construction and retail trade). In comparison to firms that entered in the absence of the reform, these marginal firms were less likely to survive their first two years.

Marginal Distance: Does Export Experience Reduce Firm Trade Costs?

Are the costs of exporting to a market reduced if a firm has experience of exporting to a neighbouring market? If so, does this effect operate through reducing entry barriers or by increasing sales once the firm is operating in the market? This paper examines linkages between current export destinations and entry, sales and exit for new markets. We find that measures of exporting experience in geographically nearby markets increase the probability of entry into a market and reduce the probability of exit. However, these same measures have very limited effect on the firm’s export sales in the market. The effect of related experience on sales tends to be negative for recently entered firms. We interpret this result in the context of the Melitz heterogeneous-firm model of trade by showing that lower fixed costs reduce the entry threshold, but this lower threshold has the effect of allowing lower-sales marginal firms to be present in the market.