Firm size and the impact of profit-margin uncertainty on investment: do financing constraints play a role?
We study the response of investment to changes in uncertainty about future profits. We find that in industries dominated by small firms, an increase in uncertainty about future profits depresses investment; in all other industries, increased uncertainty has virtually no effect (or has a positive effect) on investment. The data set from which these findings emerge is a balanced panel, consisting of annual data from 1958 to 1991 for 252 manufacturing industries in the United States. The theoretical work on this topic points to uncertainty about future profit flows as one of the important actors ...
Wanted: Entrepreneurs (just don't ask for a job description)
If entrepreneurship is so important, why don't we know more about it?
Derivatives and corporate risk management: participation and volume decisions in the insurance industry
In this paper we formulate and test a number of hypotheses regarding insurer participation and volume decisions in derivatives markets. Several specific hypotheses are supported by our analysis. We find evidence consistent with the idea that insurers are motivated to use financial derivatives to hedge the costs of financial distress, interest rate, liquidity, and exchange rate risks. We also find some evidence that insurers use these instruments to hedge embedded options and manage their tax bills. We also find evidence of significant economies of scale in the use of derivatives. ...
News flash: Small-market papers prosper
In small cities and towns in the district, the demise of newspapers has been greatly exaggerated.
If you try, you’ll get by: Chinese private firms’ efficiency gains from overcoming financial constraints
It appears to be common knowledge that external financing in China is mostly limited to state-owned firms and is hard to obtain for smaller private firms. In this paper we first confirm this pattern for more recent data and then investigate ways in which private firms overcome their financing constraints. We find that private firms reduce their need for external funds through more efficient management of inventory levels and accounts receivable. We further show that the low levels of inventories and accounts receivable in Chinese private firms are not below efficient levels and are unlikely ...
Research and development with asymmetric firm sizes
Wage rigidity: a look inside the firm
This paper tests for nominal salary rigidity using panel data from two large service-sector firms. Distributions of the firms' salary changes exhibit nominal rigidity: few nominal pay cuts, a pile-up of observations at zero, and positive skewness and asymmetry. In addition, these characteristics become more pronounced in periods of low inflation. These results are much stronger than those found in the previous literature. Further analysis shows that the sizable measurement error in the PSID and the fact that establishment surveys typically follow average wages within jobs may bias the results ...
Franchisors R Us
Every Ninth District state is home base to some franchisors, but Minnesota leads the district pack.
Competition by choice
This paper relates firm location choice and consumer search. Firms that cluster together attract consumers by facilitating price comparison, but clustering increases the intensity of local competition. I construct a simple model which shows that firms may choose head-on competition by locating together. In special cases, this can be the unique equilibrium outcome. I also use the model to show that price setting firms may earn more in equilibrium than quantity setting firms.
Recent developments in business finance