Share Of Firms Research Articles

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.

Distressed Firms and the Large Effects of Monetary Policy Tightenings

The stance of U.S. monetary policy has tightened significantly starting in March 2022. At the same time, the share of firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s.

Innovation offshoring and reshoring with fully endogenous growth

AbstractThis paper studies the implications of innovation offshoring and reshoring for long‐run productivity growth in a North–South framework that features a tension in the firm‐level innovation location decision between accessing technical knowledge in an asset‐wealthy country and sourcing low‐cost high‐skilled labor in an asset‐poor country. We show that, with trade costs and imperfect international knowledge diffusion, industry and innovation tend to concentrate geographically in proximity to the larger market of the asset‐wealthy North when trade costs are high. Investigating the effects of greater economic integration, we find that an improvement in knowledge diffusion increases the share of firms offshoring innovation to the asset‐poor South to take advantage of lower high‐skilled wages, potentially raising the rate of productivity growth. A decrease in trade costs, however, induces firms to reshore innovation to the asset‐wealthy North to take advantage of greater knowledge spillovers, with rising high‐skilled wages potentially lowering the productivity growth rate.

Deforestation in the Brazilian Amazon could be halved by scaling up the implementation of zero-deforestation cattle commitments

Deforestation for agriculture is a key threat to global carbon stocks, biodiversity, and indigenous ways of life. In the absence of strong territorial governance, zero-deforestation commitments (ZDCs), corporate policies to decouple food production from deforestation, remain a central tool to combat this issue. Yet evidence on their effectiveness remains mixed and the mechanisms limiting effectiveness are poorly understood. To advance understanding of ZDCs’ potential at reducing deforestation, we developed the first spatially explicit estimates of farmers’ exposure to ZDC companies in the Brazilian Amazon cattle sector. Exposure was measured by determining the market share of ZDC firms from the first full year of ZDC adoption in 2010 until 2018. Our analysis evaluated how variation in this exposure influenced deforestation. We found the G4 Agreement, the most widespread and strongly implemented cattle ZDC, reduced cattle-driven deforestation by 7,000 ± 4,000 km2 (15 ± 8%) between 2010 and 2018. Additionally, had all firms adopted and implemented an effective ZDC, cattle-driven deforestation could have dropped by 24,000 ± 13,000 km2 (51 ± 28%). These results for the world’s principal deforestation hotspot suggests supply chain policies can substantially reduce deforestation. However, their effectiveness is contingent on widespread adoption and rigorous implementation, both of which are currently insufficient to prevent large scale deforestation. Increased adoption and implementation could be incentivized through greater pressure from the Brazilian government and import countries.

Rethinking public funding of parties and corruption: Confronting theoretical complexity and challenging measurement

AbstractDoes the provision of state subsidies to political parties reduce their involvement in corruption? Existing research provides inconclusive evidence on this relationship, perhaps because cross‐national studies on public funding and corruption are often limited by regulation‐based indexes of political financing and by very general corruption measures. In this study, we use focused measures for both phenomena to investigate whether more generous public funding reduces party corruption. Our independent variable reflects the actual cash amount of budgetary subventions provided to parties in twenty‐seven post‐communist countries. Our dependent variable of party‐centered corruption represents the share of firms considerably affected by the informal payments made by businesses to political parties and parliamentarians to influence their decisions. We find that a higher level of state subsidies is associated with a reduction in corruption; its effect diminishes as funding increases, and its impact on corruption is lagged. However, there is a wide interval of uncertainty around these results. In the context of the existing literature, our contribution reduces the estimate of the size of a public funding effect and increases the level of uncertainty.

Vertical shareholding, vertical product differentiation and social welfare

AbstractA vertically related market with vertical product differentiation is used to analyze the impact of vertical cross‐ownership on industry profit, consumer surplus and social welfare. With forward cross‐ownership, we find that when the upstream firm holds the share of the low‐quality downstream firm, the industry profit is increasing (decreasing) in the cross‐ownership if the product quality difference is large (small). When the upstream firm holds the share of the high‐quality downstream firm, the industry profit is increasing in the cross‐ownership. The cross‐ownership will lead to a higher consumer surplus and social welfare no matter the type of vertical cross‐ownership. We also consider the scenario that the upstream firm holds the share of both downstream firms.

One Man's Death is Another Man's Bread: The Effect of a CEO's Sudden Death on Competitors' Strategic Investments

AbstractWe examine how a CEO's sudden death influences competitors' strategic investments. Consistent with the literature on death awareness and the expectancy‐valence model, we suggest that a CEO's unexpected death can trigger competitors' competitive moves. Using a difference‐in‐differences methodology, we show that a competitor increases strategic investments after its peer firm experiences a CEO's sudden death. This effect becomes stronger when the competitor and its peer firm share similar resource allocation profiles or the competitor possesses greater organizational slack. Our supplementary analysis shows that a competitor increases its strategic action intensity following a CEO's sudden demise at a peer firm. This study contributes to the competitive dynamics literature by highlighting how critical events affecting the cognitive base and values of strategic leaders expose strategic vulnerability and in turn evoke competitive moves by competitors in response to the events.

Social Responsibility: Opportunities for Integral Assessment and Analysis of Connections with Business Innovation

The paper proposes an approach to the integrated assessment of the social responsibility of EU countries with a combination of data from three international indices most relevant to the monitoring of social responsibility at the macroeconomic level: the Global Sustainable Competitiveness Index, the Sustainable Development Goals Index and the Social Progress Index. Applying the method of taxonomic analysis on the example of index values for EU countries, we assessed the differences and leaders in ensuring social responsibility. The authors do not consider country-level social responsibility only as a consequence of the development of responsible practices at all levels. Taking into account that social responsibility should be a prerequisite for expanding opportunities in all spheres, in particular, in business, the authors conducted a correlational analysis of the relationship between the taxonomic indicator of social responsibility and the development of innovative business. As a result, we confirmed significant connections with “Business sophistication” indicators (as part of the Global Innovation Index) and the share of innovative firms of total SMEs (according to OESD statistics). The obtained results strengthen the grounds for considering social responsibility not only as an important socially oriented concept, but also as a reliable basis for the development of innovative business due to the created comfortable institutional environment of business development.

The New Strategy of High-Tech Companies – Hidden Sources of Growth

The recent increase in the share of zero-leverage firms is most pronounced in the Software and Services, Hardware Equipment, and Pharmaceutical and Biotechnical industries. The reasons for these industries’ conservative debt policies are not fully disclosed. How companies in technological sectors manage to perform well attracting no debt and loosing debt tax shield benefits is a mystery. This study aims to determine why high-tech firms are less likely to have debt in the capital structure. On the basis of a sample of US-based firms from the RUSSELL 3000 index for 12 years, we show the factors leading to a zero-debt structure. After dividing the sample into high-tech and non-high-tech subsamples, we demonstrate the gap between zero-debt motives for technological and traditional sectors. We show that the common determinants of corporate structure cannot fully explain why high-tech firms choose a zero-debt policy. Testing the possible motives of debt financing avoidance, we find that high-tech firms are more financially constrained than non-high-tech firms. We further show that unconstrained high-tech firms may avoid debt to maintain their financial flexibility. On top of that, managerial entrenchment also adds to the zero-leverage choice of high-tech companies. The study results are helpful for executive management teams and investors since they shed light on the specific style of financing choice for technological firms.

Firm leverage and labour share: evidence from China

We examine the relationship between firm leverage and firm-level labour shares by using the panel threshold effect model. Based on the sample of Chinese firms listed in the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE) from 2010 to 2019, we find that leverage has a significant threshold effect on the labour share of firms, and on average, firm leverage is positively associated with the labour share when the debt per labour is less than 640,000 CNY (approximate 89,600 USD). When the firm leverage exceeds the threshold, firm leverage is negatively associated with labour share. We also find significant heterogeneity over state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs), capital-intensive firms and labour-intensive firms, firms with different levels of financial constraints and firms in different life cycles. We contribute to prior literature by revealing the nonlinear association between leverage and firm-level labour share. Therefore, various policies (e.g. made credit policy to restrict lending to firms without sustainable profitability) must be implemented to increase the labour share of enterprises as well as achieve the higher-quality development of the economy in the long term.

Service Branding and Performance of Insurance Firms in Ekiti State, Nigeria

The apparent poor performance in the insurance sector occasioned by poor service branding is the major factor that triggers this study. The study examined the influence of brand meaning, brand awareness, brand image and external brand communication on performance of Insurance firms in Ekiti State. Survey research design was adopted in executing the study with a population of 257 Insurance employees in Ekiti State. Since the population was relatively small, the entire population was used as a census. Primary data were collected using self-administered questionnaire distributed to employees of insurance companies in Ekiti State. The data generated from the questionnaire were subjected to statistical analysis and the hypotheses were tested using Correlation Coefficient with the aid of Statistical Package for Social Sciences (SPSS) version 25.0. The findings revealed that all the independent variables (brand meaning, brand awareness, brand image and external brand communication) have significant influence on performance of insurance firms in Ekiti State. Hence, the study concluded that a statistically significant and positive association exists between service branding and performance of Insurance firms in Ekiti State. Hence the study recommended that management of insurance companies should put strong policies on service branding in place so as to improve profitability and market share of insurance firms operating in Ekiti State.

Unaware corporate social responsibility: impact of firm size, motivations and external pressures

ABSTRACT We explore differences in firms’ attitudes towards corporate social responsibility (CSR). Using a unique dataset covering 8,857 French firms, collected by the National Institute of Statistics and Economic Studies (INSEE), we identify firms conducting conscious CSR and others with effective but unaware CSR activities. We then construct three CSR pillar scores for each firm, using Mokken scale analysis, a form of non-parametric item response analysis. The CSR scores, along with responses to specific questions, allow us to characterize firms that implement conscious or unaware CSR. We then estimate simple probit and count data models to show that a significant share of firms are in fact actually engaged in unaware CSR, with no monotonic size effect. Cooperation with external actors such as NGOs mitigates the effect of firm size on the likelihood of conducting unaware CSR, while the effect of NGO campaigns against large firms is mainly to increase the environmental score of small firms in the same industry.

Оценка потенциала жизнестойкости городов российской Арктики: фактор экономической специализации

This paper proposes an original methodology for assessing the impact of economic specialization on the resilience potential of Russian Arctic cities. The author understands the resilience as the ability of urban economies to adapt to crises, especially structural ones. He considers the key concepts of urban and regional development, in which the impact of economic specialization factor on resilience are assessed. The author takes into account the specifics of the Arctic urban systems that evolve focusing mainly on the resource development of the territory. As a result, he ranks 28 Russian Arctic cities on the resilience potential basis. The ranking consists of four quantitative indicators with equal weight. These are the degree of diversification of the economy in terms of employment structure, the level of the extractive industry development, the share of innovative firms and the patent activity level. The cities differ mostly by the last two indicators responsible for the development of human capital and the generation of new niche industries of specialization. In terms of employment diversification and dependence on the extractive industry, the distribution is more even. Regional capitals, research and university centres acquire higher scores of resilience potential. By contrast, factors of location in suburban zone, on the remote periphery with low infrastructure provision or in areas with a high concentration of mineral resources negatively affect the assessment of the resilience of the cities. The ranking methodology can be applied to identify the risks Arctic cities are likely to face if they lose their current specialization.

Hiring family or non-family managers when non-economic (sustainability) goals matter? A multitask agency model

Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates may speak against family management. However, a large share of family-owned firms is run by family managers. Our study develops a theoretical model that provides an explanation for this paradox, linked to the multitasking problem of managing economic and non-economic tasks in family firms. Comparing the performance of family and non-family managers under moral hazard and imperfect performance measurement, we find that incentive pay leads to an effort distortion towards economic outcomes for both manager types, however less so for family managers. This effort distortion is less pronounced when economic and non-economic management tasks are complements. We show that family managers with excellent skills regarding non-economic goals of the owner family often outperform non-family managers even if they have poor skills in economic tasks or, what is more, if they have lower average abilities altogether. We further show that the interdependence between economic and non-economic goals in the manager’s job tends to have a moderating effect on the family manager’s relative performance. Our study contributes to the literature about family management and agency costs in family firms and has practical implications for family firms’ hiring decisions. By highlighting the importance of non-economic goals, it moreover adds to the current discussion about the compliance with firms’ sustainability goals.

Public family firms and economic inequality across societies

Research and public interest on economic inequality have grown over the last years. Family firms and the concentration of wealth and power in the hands of a few wealthy entrepreneurial families have been discussed as both a cause and a consequence of economic inequality. Yet, so far, we lack knowledge about the relationship between economic inequality and the prevalence of family firms in an economy. Our study investigates how the share of family-controlled public firms correlates with various measures of income and wealth inequality. The results show that a higher share of public family-controlled firms leads to more income inequality in a country. This effect is particularly pronounced for the middle of the income distribution as opposed to the top quantiles. Redistribution only mitigates this effect to some extent, as the effect is significant for market income and disposable income. We also find that a higher share of family-controlled firms contributes to an increase in wealth inequality. Our results are of economic relevance as, for instance, a one standard deviation change in the share of family-controlled firms leads to an increase of around 1.3–1.5 percentage points in the Gini coefficients for market income, disposable income, and wealth.

Who wins and who loses from state subsidies?

AbstractChina is perceived to rely on subsidizing firms in targeted industries to improve their performance and stay competitive. We implement an approach that allows for the joint estimation of direct and indirect effects of subsidies on subsidized and non‐subsidized firms. We find that firms that receive subsidies experience a boost in productivity. However, our approach highlights the importance of indirect effects, which are generally neglected in the literature. We find that, in general but not always, non‐subsidized firms experience reductions in their productivity growth if they operate in a cluster where other firms are subsidized. These negative externalities depend on the share of firms that receive subsidies in the cluster. Aggregating direct and indirect effects into a (weighted) total effect shows that this negative indirect effect tends to dominate. We interpret our results in light of a simple heterogenous firm model, which highlights that subsidization in a competitive environment of firms may potentially harm non‐subsidized firms.

Estimating Production Functions of Multiproduct Firms

Abstract Multiproduct firms constitute a considerable share of firms and account for an even greater share of production. Nevertheless, the vast majority of production function estimates are based on the assumption that firms are single-product manufacturers. This assumption is due to a lack of data on how firms allocate their inputs across their various product lines. I provide a strategy for estimating product-specific input allocations and production functions of multiproduct firms involved in monopolistic competition. The strategy is based on using firms’ product prices and output demand in solving for product-level input allocations.

Environmental protection tax and the labor income share of companies: evidence from a quasi-natural experiment in China.

There is no conclusion on whether green development can symbiotically coexist with shared development, and the effect of environmental protection tax on labor share provides new evidence to answer this question. This paper presents a theoretical analysis of change in labor share in the exogenous impact of the enforcement of the Environmental Protection Tax Law of China, and proposes relevant hypotheses. At the same time, empirical data of listed firms on the main board from 2013 to 2019 are collected. A difference-in-differences model is constructed to test the hypotheses empirically. The study found that the reform of environmental protection fee to tax reduced the labor share of high-polluting firms by an average of about 1.43%. However, it did not significantly reduce the share of corporate executives' income. The reform of environmental protection fee to tax reduces the labor share of high-polluting firms through the crowding-out effect and the substitution effect of production technology. The heterogeneity study revealed that the reform of environmental protection fee to tax has more substantial negative impacts on firms with high financing constraints, low market concerns, and low government subsidies. There is no significant difference between the impact on state-owned and private firms. The reform of environmental protection fee to tax has a more substantial negative impact on the firms in Central and Western China than those in more economically developed Eastern China.

Firm Size Distribution in African Manufacturing Firms: Revisiting the ‘Missing Middle’

AbstractThere has been a widespread view that firm size distribution (FSD) in developing countries has been characterised as having a ‘missing middle’. We have investigated this question using evidence from the entire population of Ethiopian manufacturing firms, including small informal firms. Based on the analysis, we have documented the following four facts. First, there is no evidence of a bimodal distribution in the FSD. Second, small firms overwhelmingly, and increasingly, dominate the distribution. Third, the distribution of the average product of factor input is neither bimodal nor an inverted U-shaped. Fourth, we have investigated the potential regulatory notches of employment sizes of the sort often thought to discourage firm growth and have found no unusual bunching of firms near the notch points. More recently it has been argued by Tybout that instead of looking at the actual FSD to capture a ‘missing middle’, the actual should be compared with an undistorted one, which could be characterised as Paretian. We show, using this approach, that there is a ‘missing middle’ when using employment shares. However, when we look at firm share, by size category, over time large firms have been missing as well.

Worker household debt, functional income distribution and growth: A neo‐Kaleckian perspective

AbstractIn a stock‐flow consistent neo‐Kaleckian macro‐model, along with worker households' debt dynamics, we incorporate distributional dynamics and examine the dynamic stability of the economy in the long‐run. Both wage‐led and profit‐led but a debt‐burdened demand and growth regimes are possible in the short‐run and the long‐run. We show that the interaction between the debt and distributional dynamics may lead to instability in the economy. We find that a rise in the targeted profit share of firms or an increase in the bargaining power of firms vis‐à‐vis workers may cause a deterioration in functional income distribution. We show that a fall in animal spirits leads to a decline in functional income distribution vis‐à‐vis workers and may also lead to a fall in capital accumulation rate in the long‐run.