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Author: Joonkyo Hong
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Languages : en
Pages : 0
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This dissertation consists of three chapters that attempt to understand how forward-looking firms make costly decisions and their subsequent implications for the industry's performance. The first chapter "Sunk Cost and Entrant's Choice of Capacity" develops a dynamic model of strategic entry to study how the structure of sunk entry costs influences the entrant's scale decision and the long-run market outcomes. Contrary to the typical dynamic entry model, my model features that the structure of sunk costs shapes not the number of competitors but also the industry's scale distribution. I empirically assess this channel using a case study of a land-use deregulatory reform in the South Korean cinema chain industry. The deregulation is estimated to act as an entry subsidy, particularly appealing to larger-scale theaters. However, the industry suffers a 5.6 percent loss of discounted net profits due to intensified competition and increased expenses on fixed operating costs. The resulting implicit cost of the regulatory action is not uncovered by the typical model, as it obscures the shift in the distribution toward a larger scale. The second chapter "The Differential Effect of Exporting on Input Productivities" examines how the firm's export decision shapes its input allocation in the long run, focusing on the non-neutral technological changes. I particularly study whether entering the export market results in differential increases in input productivities at the firm level (non-neutral change). I develop a model that distinguishes between firm-level skilled and unskilled labor-augmenting productivities and material input prices. Applying the model to data on the Colombian apparel manufacturers, I find that exporting raises the skilled labor-augmenting productivity by a 7.2-percentage point more than the unskilled counterpart. In a counterfactual simulation in which exporting raises the two productivities equally, the mean differences in skilled-to-unskilled employee ratios between exporters and non-exporters are 50 percent smaller than the data counterparts. The result suggests that non-neutral productivity gain from trade is central in shaping the input allocation differences between exporters and non-exporters. The third chapter "Trade Dynamics of Heterogeneous Producers under Trade Cost Complementarity" estimates a dynamic model of the firm's joint export and import decision process. In the model, participating in trade improves within-period profits and future productivity. In addition, doing one trade activity facilitates the other by reducing the associated fixed/sunk costs. Employing a Bayesian MCMC estimator, I fit the model to Colombian chemical plant panel data from 1981 to 1985. Two findings stand out: (i) importing increases future productivity significantly while exporting does not. (ii) importing facilitates exporting by lowering the sunk costs of entering the export market, while exporting facilitates importing by decreasing the fixed continuation costs of importing. A counterfactual simulation shows that subsidizing the fixed costs of importing is the most effective among trade cost subsidy schemes in improving the average productivity and firm value.
Author: Joonkyo Hong
Publisher:
ISBN:
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Languages : en
Pages : 0
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Book Description
This dissertation consists of three chapters that attempt to understand how forward-looking firms make costly decisions and their subsequent implications for the industry's performance. The first chapter "Sunk Cost and Entrant's Choice of Capacity" develops a dynamic model of strategic entry to study how the structure of sunk entry costs influences the entrant's scale decision and the long-run market outcomes. Contrary to the typical dynamic entry model, my model features that the structure of sunk costs shapes not the number of competitors but also the industry's scale distribution. I empirically assess this channel using a case study of a land-use deregulatory reform in the South Korean cinema chain industry. The deregulation is estimated to act as an entry subsidy, particularly appealing to larger-scale theaters. However, the industry suffers a 5.6 percent loss of discounted net profits due to intensified competition and increased expenses on fixed operating costs. The resulting implicit cost of the regulatory action is not uncovered by the typical model, as it obscures the shift in the distribution toward a larger scale. The second chapter "The Differential Effect of Exporting on Input Productivities" examines how the firm's export decision shapes its input allocation in the long run, focusing on the non-neutral technological changes. I particularly study whether entering the export market results in differential increases in input productivities at the firm level (non-neutral change). I develop a model that distinguishes between firm-level skilled and unskilled labor-augmenting productivities and material input prices. Applying the model to data on the Colombian apparel manufacturers, I find that exporting raises the skilled labor-augmenting productivity by a 7.2-percentage point more than the unskilled counterpart. In a counterfactual simulation in which exporting raises the two productivities equally, the mean differences in skilled-to-unskilled employee ratios between exporters and non-exporters are 50 percent smaller than the data counterparts. The result suggests that non-neutral productivity gain from trade is central in shaping the input allocation differences between exporters and non-exporters. The third chapter "Trade Dynamics of Heterogeneous Producers under Trade Cost Complementarity" estimates a dynamic model of the firm's joint export and import decision process. In the model, participating in trade improves within-period profits and future productivity. In addition, doing one trade activity facilitates the other by reducing the associated fixed/sunk costs. Employing a Bayesian MCMC estimator, I fit the model to Colombian chemical plant panel data from 1981 to 1985. Two findings stand out: (i) importing increases future productivity significantly while exporting does not. (ii) importing facilitates exporting by lowering the sunk costs of entering the export market, while exporting facilitates importing by decreasing the fixed continuation costs of importing. A counterfactual simulation shows that subsidizing the fixed costs of importing is the most effective among trade cost subsidy schemes in improving the average productivity and firm value.
Author: Kwong-Yu Wong
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Languages : en
Pages : 0
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While the tools in empirical industrial organization allow structural analysis for competitions, it is less applied to study the competition between sellers in housing market, which is a crucial market for almost every economy. This dissertation structurally estimates the dynamic competition between real estate developers, analyses the pricing in primary real estimate market, and reviews the literature on the dynamic game estimation and other structural estimation in housing market. Chapter 1 studies the dynamic competition between real estate developers and the policy outcome of counter-cyclical measures. In the face of transient shocks in an economy, cyclical or counter-cyclical policy tends to be prescribed, as opposed to universal/acyclical policy, due to the smaller implementation scale of the former. However, once competition over time is taken into consideration, whether the former policy implies smaller impacts than the latter becomes unclear. Utilizing a unique transaction-level dataset converted from sales documents, I study the impact of counter-cycle policy by structurally estimating the dynamic competition of the Hong Kong real estate primary market, in comparison with the acyclical policy. Peripheral data, including satellite images, are used to support the assumptions required for the structural model. By approximating with an Extended Oblivious Equilibrium (EOE) that accommodates market shocks, this competition with many firms is feasibly estimated after drastically reducing the state space from the order of 55. The counterfactual analysis shows that counter-cycle policy indeed introduces an impact more extensive than acyclical policy in this market. Unlike acyclical policy that delays the listing universally, counter-cycle policy delays only in some periods, which creates congestion of apartments in other periods. The congestion leads to slower sales, and hence more apartments left unsold overall. This finding calls for caution against a common perception that a counter-cycle measure necessarily causes less distortion than a full-scale acyclical measure. Chapter 2 studies in details of the pricing behaviors among Hong Kong real estate developers. It reveals various aspect of real estate pricing including floor level, price list order, individual developer behavior, discount, and competition. Furthermore, I utilized my high frequency daily data to construct a daily price index to reflect changes by date. The index has controlled for influences from apartment heterogeneity and other intentional pricing practices and hence a better alternative in reflecting the daily changes in real estate prices. Assisted by the index, I illustrated the convoluted relationship between real estate pricing and the stock market performance, in Hong Kong and in mainland China. I also demonstrated the sophistication of responses in the real estate pricing. When previous price list does not sell well, developers respond by lowering the price in later price list. However, when the low demand is driven by peripheral factors only (e.g. flu prevalence-induced absence), I found that they do not lower the price, and even raise the price significantly, potentially to counter any negative comments from the media or the public. Chapter 3 reviews multiple strands of literature that pertain to dynamic competition and real estate market, particularly for Hong Kong. The review serves to highlight the achievements of the existing literature and illustrates the contribution of my research in expanding our understanding of dynamic competition estimation and real estate market. This review covers the estimation of dynamic game and its later development for competition with many firms, in terms of both theoretical works and empirical works. After that, current structural estimation in housing is discussed. The typical structural estimation includes dynamic models from single agent perspective and search models. Researches focusing on the local market in Hong Kong are also reviewed.
Author: Sudhir Karunakaran
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Languages : en
Pages : 318
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Author: Sriraman Venkataraman
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Languages : en
Pages : 316
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Author: Gian Italo Bischi
Publisher: Springer Science & Business Media
ISBN: 3642295037
Category : Business & Economics
Languages : en
Pages : 449
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The essays in this special volume survey some of the most recent advances in the global analysis of dynamic models for economics, finance and the social sciences. They deal in particular with a range of topics from mathematical methods as well as numerous applications including recent developments on asset pricing, heterogeneous beliefs, global bifurcations in complementarity games, international subsidy games and issues in economic geography. A number of stochastic dynamic models are also analysed. The book is a collection of essays in honour of the 60th birthday of Laura Gardini.
Author: Alexander-Nicholas Amundsen
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Languages : en
Pages :
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"The unifying theme of this thesis is to understand the dynamics of firms in terms of their investments and productivity. In the first chapter, I explore how adjustment costs influence the investment dynamics of firms. This chapter is motivated by two unsettled issues in the literature: there is a discrepancy on the estimated sign of the interaction term between total capital and labour in the adjustment cost function, and that capital aggregation may severely bias the parameter estimates. I explicitly account for both issues by developing a firm structural model with labour and two types of heterogenous capital, and estimate the adjustment cost parameters. The main finding is that there are distinct complementarity/substitutability effects between the inputs in the adjustment cost function that are independent of the production function, and these effects lead to asymmetric outcomes when a fiscal policy subsidy is targeted towards each capital good.In the second chapter, we explore the productivity dynamics of firms. This chapter is motivated by the fact that simple Markov processes are widely used to model productivity in the literature, yet not much is known about how this process varies across firms, or over time, especially for the top 1% of productive firms. We leverage a comprehensive dataset that allows us to robustly estimate productivity across its distribution, even for the top 1%. Using new non-parametric methods, our main finding is that productivity deviates substantially from the ubiquitous AR(1), where it has fat tails, a heterogenous shock process and strong persistence. In the third chapter, we study the influence of financial constraints on investment dynamics. This chapter is motivated by two simultaneous trends that have been recorded in the literature: declining business dynamism and declining investment sensitivities. The chapter proposes that these two trends are linked, where declining business dynamism has led to an increase in the average age of firms, leading to a decrease in financial constraints, proxied by investment sensitivities. We measure the investment sensitivity for private domestic firms in both manufacturing and services and find that it is significant, suggesting that these firms are financially constrained as a group. Using a financial constraint index, our main finding is that these constraints have declined over time, of which we show that changes in age are the dominant driving factor"--
Author: Gian Italo Bischi
Publisher: Springer Science & Business Media
ISBN: 3642040233
Category : Business & Economics
Languages : en
Pages : 384
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Over the last two decades there has been a great deal of research into nonlinear dynamic models in economics, finance and the social sciences. This book contains twenty papers that range over very recent applications in these areas. Topics covered include structural change and economic growth, disequilibrium dynamics and economic policy as well as models with boundedly rational agents. The book illustrates some of the most recent research tools in this area and will be of interest to economists working in economic dynamics and to mathematicians interested in seeing ideas from nonlinear dynamics and complexity theory applied to the economic sciences.
Author: Qinshu Xue
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Languages : en
Pages : 0
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This dissertation consists of three essays in the areas of Industrial Organization and Firm Dynamics and Trade, examining the interaction between firms' decision-making and government policies in determining market outcomes and the welfare consequences.The first chapter studies how upstream market concentration and demand risk affect downstream firms' outsourcing decisions. Firms' boundary decisions are one of the most fundamental issues in economics. I focus on the volatile automobile industry and study how firms can use outsourcing to insure themselves against the demand risk. I formulate a structural model in which outsourcing allows the downstream firms to hedge the uncertain in-house production cost and upstream firms exploit downstream's insurance motive by exerting market power. I estimate the model using data on the vehicle manufacturers and upstream transmission firms in the automobile industry. In the counterfactual analysis, I evaluate the potential impact of the United States-Mexico-Canada Agreement. When the upstream market is more concentrated due to the protection of the local firms, upstream's price response to a negative shock further increases by 68%. An increase in upstream market power attenuates upstream's role of insurance and amplifies the impact of economic downturns on consumer welfare and manufacturers' profit by 65%. My paper highlights a previously overlooked welfare loss channel of market power, especially in industries heavily affected by the business cycles. In the second chapter, I analyze the impact of trade policies on firm dynamics and the labor market. I construct a demand system with the production function to purge out the price effect in productivity measures based on sales data. It allows me to separate the firm-side physical productivity gain from the demand-side impact of trade liberalization. I use my new physical productivity measure to analyze the effect of the processing trade policies prevalent in developing countries. Required by the policy, firms import duty-free intermediate input from abroad but are forced to reexport their final products. Though firms with high productivity enter the export market, I find firms with productivity lower than non-exporters become pure processing trade firms and export as well. In addition, their productivity gains from the input tariff reduction and exporting are much smaller compared with the other exporting firms. In the third chapter, my coauthor and I study the geographic concentration of entrants and capitalists in the US. We first document that VC investment is elastic to local vintage capital, and we propose that local vintage capital supply is an essential determinant of this spatial concentration and co-location decision. We develop a model by linking the motives of co-locating by entrants and capitalists via a core feature of vintage capital reallocation toward young firms mediated by venture capital. Since a vintage capital market with abundant supply can lower the capital cost and thus increase the profits, VC investments are attracted due to higher expected returns. This, in turn, encourages entrepreneurship and leads to a selection-induced agglomeration effect. A larger city intensifies such allocative forces and thus amplifies the agglomeration effect, which ultimately makes the city further attractive to VC investment relative to others.
Author: Joseph Basheer Farhat
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Languages : en
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Tests of the static trade-off theory that posits that firms move towards the optimum capital structure necessitate a joint hypothesis test - whether firms adjust toward target leverage, and whether the proxy used for target leverage is the true target leverage. Prior studies use the time-series mean leverage for each firm, the industry median leverage, an estimated cross-sectional leverage, and a tobit estimated leverage using the factors suggested by the static trade-off theory as proxies for the target leverage. In this dissertation, I examine whether these proxies are equivalent and test the consistency of the proxies with the theorized behavior of the true target leverage. My results indicate that the four proxies we examine have significantly different distributions and this holds across most industries. Further, the industry median leverage is the proxy which best exhibits behavior consistent with the true target leverage. Firm value is higher for firms closer to the industry median and lower for firms away from the industry median. A robustness check using K-means cluster analysis confirms the superiority of the industry median leverage over the other proxies of target leverage. This study complements the previous studies on the pecking order theory and the trade-off theory. The main purpose of this study is to investigate three issues that are not considered in the previous studies. The adequacy of the specification and the assumptions of the models used intesting the trade-off and the pecking order theory. The second issue examined in this study is the validity to putting the pecking order and the trade-off theories in a horse race. The final issue examined in this study is the factors driving firms to issue (repurchase) debt or equity or combination of both and simultaneously the factors affecting the size of issue (repurchase).
Author: Abdul Rashid
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Languages : en
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Despite ample research on corporate financing decisions, there is a growing interest in deepening our understanding of how firms structure their financing needs. In this dissertation, we build upon previous work on capital structure by examining the impact of firm-specific and macroeconomic risks on the capital structure of UK manufacturing firms. In particular, the dissertation consists of three separate, yet related essays. Each essay intends to serve a specific objective. The essays, in the order in which they appear, are entitled as follows: Essay I: The Response of Firms' Leverage to Risks: Evidence from UK Public versus Non-Public Firms Essay II: Capital Structure Adjustments: Do Macroeconomic and Business Risks Matter? Essay III: Macroeconomic Dynamics, Idiosyncratic Risk, and Firms' Security Issuance Decisions: An Empirical Investigation of UK Manufacturing Firms In the first essay, we empirically investigate whether the sensitivity of leverage to firm-specific (idiosyncratic) and macroeconomic risk differs across publicly listed and privately owned firms. We also study the implications of cash reserves-risk interactions for firms' leverage decisions. Using data from the Financial Analysis Made Easy (FAME) database, the analysis is carried out for a large panel of UK manufacturing firms over the period 1999-2008. The results provide significant evidence that UK manufacturing firms use less short-term debt in their capital structure during periods of high risk. This finding holds for both types of risk. The results on the differential effects of risk across public and non-public firms indicate that while the leverage of non-public firms is more sensitive to firm-specific risk in comparison to their public counterparts, the effects of macroeconomic risk on leverage are similar for both types of firms. The results of the indirect effects of risk show that firms with high levels of cash holdings are more (less) likely to reduce their leverage in periods when firm-specific (macroeconomic) is risk. On the whole, the results that we document in this essay provide strong evidence of the heterogenous sensitivities of leverage to risk across both types of firms and across different levels of firms' cash holdings. Essay II examines how risk affects firms' leverage adjustment decisions. Specifically, in this essay, we study the impact of risk about firms' own business activity and macroeconomic conditions on the speed with which firms adjust their capital structure toward their specific leverage targets. In doing this, we use an annual panel data obtained from the WorldScope file via DataStream for a fairly large sample of quoted UK manufacturing, covering the period 1981-2009. The results suggest that the adjustment is asymmetric and it depends on the magnitude of risk, the type of risk, and whether firms' actual leverage is above or below the target. Further, we find that firms with financial surpluses and above-target leverage adjust their leverage faster when firm-specific risk is low and when macroeconomic risk is high. In contrast, firms with financial deficits and below-target leverage are more likely to align their leverage toward their target in periods when both types of risk are low. Taken as a whole, our results suggest that firms adjust their leverage toward the target very asymmetrically across different levels and types of risk. This finding holds true even when we take into account several firm characteristics known to affect firms' adjustment speeds. The third essay analyzes how risk about firms' own business activity and macroeconomic conditions influences the security issuance decisions of listed UK manufacturing firms appeared on the WorldScope database during the period from 1981-2009. Estimating dynamic panel models using the system GMM estimator, we show that the issuance of new debt is significantly negatively related to idiosyncratic risk while both the issuance of new equity and the use of internally generated funds (retained earnings) are positively related to the risk. In contrast, we find that all these three sources of financing are significantly negatively associated with macroeconomic risk. Nevertheless, our results suggest that the aggregate dynamics of firms' target leverage are significantly negatively linked with these two types of risk. The results, from the debt-equity choice regression, indicate that the effect of both firm-specific and macroeconomic risk is significant and negative, implying that firms are likely to have low debt-equity ratio in periods when either type of risk is high.
