Research
The Margins of Ownership Structures - Insights from 150,000 networks over 25 years (with A. Theodorakopoulos)
This paper uses a newly build dataset of multinational networks with European parents and worldwide affiliates to uncover a set of stylized facts on MNE performance, structure, and extensive and intensive margins. The dataset contains 5,749,201 observations between 1995 and 2020 on 183,938 unique parents (and thus networks) and 1,033,447 unique affiliates. We find that MNE parents are stars compared to parents of domestic networks, but we also detect superstars among the stars with a small number of larger and more efficient MNE parents having larger MNE networks. We find that most networks start small. Most networks are stable and thus stay small. Larger and superstar networks have more churning of affiliates. We find that networks do exit and that these are mainly small and young networks. Full ownership of affiliates is normal as two thirds of affiliates are fully-owned by the paretn. We document that networks cover all industries and thus are not limited to manufacturing and sales activities. Affiliates of more efficient parents are more efficient themselves. Minority-owned, less integrated affiliates, and affiliates with less network maturity are more likely to be dropped from the network. Finally we show that short-lived ownership of affiliates is not uncommon.
(updating, mail me for a pdf)
Financial Crises and the Globa lSupply Network - Evidence from Multinational Enterprises (with S. Basco, G. Felice and M. Mestieri)
Conditionally accepted at Journal of International Economics
This paper empirically examines the effects of financial crises on the organization of production of multinational enterprises. We construct a panel of European multinational networks from 2003 through 2015. We use as a financial shock the increase in risk premia between August 2007 and July 2012 and build a multinational-specific shock based on the network structure before the shock. Multinationals facing a larger financial shock perform worse in terms of revenue, employment, and growth in the number of affiliates. Lower growth in the number of affiliates operates through a negative effect on domestic and foreign affiliates, and is concentrated in affiliates in a vertical relationship with the parent. These effects built up slowly over time. Negative effects are driven by multinationals with initially more leveraged parents, who reduce relatively more the number of foreign affiliates. These findings lend support to the hypothesis of financial frictions shaping multinational activity.
NBER working paper 31216 and CEPR DP18163
Regional Integration and Cross-border FDI spillovers (with V. Purice)
Under review
Supplying inputs to foreign affiliates is consistently found to be an important source of productivity gains for domestic firms. We analyse the impact of border regimes on the existence and size of cross-border indirect productivity effects, exploiting variation in the pace and extent of European integration of seven Central and Eastern European countries and their neighbours during the period 2000-2010. EU-membership is a necessary condition for positive cross-border indirect productivity effects through backward linkages. Schengen area participation further magnifies cross-border effects. Our results bear testimony to the successful EU integration of CEECs and warn about potential productivity costs to local firms should border restrictions be reinstated.
(previously circulated as "Border regimes and indrect productivity effects from foreign direct investment")
version November 2021 - Department of Economics Working Paper 2019/965 - Coverage at voxEU
Technology sharing in decentralized multi-plant production (with S. Nasini and M. Verschelde)
Under review
By sharing production resources, integrated firms have higher returns on investment for intangible knowledge-based assets in comparison to stand-alone firms (Markusen 1995). Building on a single-leader-multi-follower game, this paper considers business groups, where a parent firm (the leader) operates in a competitive single-product market and delegates production to profit-maximizing affiliate firms (the followers). We investigate the relation between the parent firm's control of the value chain and technology sharing in decentralized business groups, where the parent decides the level of investment in shared technology and the extent of revenue sharing to compensate affiliates for their production. Affiliates respond to these incentives with their production decisions. To capture the parent's control of the value chain, this modeling framework supports two different specifications: full delegation and partial delegation. For the former, we provide an exact characterization of the equilibrium solution, whereas for business groups operating under partial delegation, we provide tight lower and upper bounds, computable by state-of-the-art optimization methods. On the empirical side, we show the applicability of our model by means of a customized version of the Orbis dataset that focuses on European firms with complete parent-affiliate balance sheet information at the firm-year level. After uncovering how the parent's control of the value chain is related to investment in intangible assets, our advocated approach reaffirms stylized facts and pinpoints a trade-off between sharing technology and revenues.
Intangibles within firm boundaries (with A. Theodorakopoulos)
Under review
This paper extends a production function estimator to test whether intangible transfers within firm boundaries lead to overall efficiency gains. Using a panel of European majority owned parent-affiliate relationships, we present novel evidence that parent firms strongly benefit from such transfers alongside productivity enhancements for affiliates. In relative terms, affiliates’ long-run efficiency improvements are twice those of the parent. Such gains appear to be induced by synergies for the affiliate but not for the parent, supporting theories on the existence of common ownership. A falsification exercise suggests that only 2/3 of these gains are actually internalised within firm boundaries.
version December 2020
Within-firm Pay Inequality and State Ownership: Evidence from Europe (with B. De Lange)
This paper examines how political motives and state ownership affect within-firm pay inequality in European listed firms. The ratio of CEO pay to the average wage cost of non-executive employees in state-owned enterprises (SOEs) is 42% lower than in private firms. We provide empirical evidence consistent with political motives as an explanation for the observed differences. We only find significant differences in environments where we expect governments to experience more electoral pressure to be tough on CEO pay and within firm pay inequality. Only countries characterized by high inequality aversion, high redistribution, high transfers, and countries with a left wing government show significant differences.
version September 2021
State-Owned Enterprises across Europe: Stylized Facts from a Large Firm-level Dataset (with B. De Lange)
This paper constructs a firm-level dataset to document the prevalence of State-Owned Enterprises (SOEs) in 27 European countries over the period 2002-2012. We find government ownership of firms to be widespread over the European continent. On average we annually observe 35,596 firms with a state participation; 21,377 of these are majority-owned by the state. Notwithstanding an expected tendency towards concentration in the mining, energy, transport, postal and telecommunication sectors, we do detect non-negligible government ownership in all sectors of the business economy. Countries with a socialist legal origin show the highest number of SOEs and SOEs are present in almost all sectors. Countries with an English legal origin show the lowest numbers of SOEs. Lower levels of economic and financial development, and lower scores on institutional characteristics are associated with higher levels of government ownership at country-level. More collectivist societies also showhigher levels of government ownership. While SOEs are on average larger than privately-owned firms (POEs), half of the SOEs employs less than 50 people. Through a matching exercise we show that SOEs are outperformed by POEs in terms of 16 real and financial firm level indicators. This is no longer the case when SOEs are listed or controlled by a foreign government. In countries with better scores on institutional characteristics SOEs are generally less outperformed by POEs. More collectivist societies are characterised by SOEs that employ more people and pay higher wages, but are less efficient. In terms of employment growth SOEs are outperformed by POEs, but SOEs are more resilient in times of crisis. Further SOEs have a lower propensity to exit which does not seem to vary with the political orientation of the country.
version December 2020
Multinational Networks, Foreign, and Domestic Firms in Europe (with M. de Zwaan, K. Lenaerts, and V. Purice)
This paper introduces two datasets, AUGAMA, a panel of European firms for the period 1996-2011, and EUMULNET, a European Multinational Network data set. These datasets are constructed on the basis of the Amadeus database issued by Bureau Van Dijk Electronic Publishing. We document the process of building these data sets from the raw Amadeus data for 26 European countries. We show that the data sets adequately approximate the structure of the European economy across countries, regions, and industries as portrayed by data from Eurostat (Structural Business Statistics) and Cambridge Econometrics. As an illustration of possible application, we use the datasets to test a number of results from the theoretical literature regarding the productivity of multinational firms vis-a-vis domestic firms.
FEB UGent Working Paper 15/900
OLDER WORKING PAPER VERSIONS OF PUBLISHED ARTICLES
Gains from trade: Demand, Supply, and Idiosyncratic Uncertainty (with R. Dewitte and G. Rayp)
Under review
Firm-level sales is often used as a proxy for productivity to quantify welfare Gains from Trade (GFT) using firm-level data. This ignores the existence of uncertainty and heterogeneity other than productivity in firm-level sales. We demonstrate, theoretically and empirically, that the existence of idiosyncratic uncertainty in firm-level sales results in a sizeable bias in GFT. Conflating uncertainty with productivity, as proxied by firm-level sales, results in an over-dispersed distribution of productivity. Assigning this uncertainty-inflated productivity to the modeled economy’s supply-side results in overestimated aggregate trade elasticities and GFT. We show the possibility to obtain unbiased productivity, aggregate trade elasticities, and GFT estimates by relying on the revenue production function.
version March 2021
Network control by a constrained external agent as a continuous optimization problem (with J. Nys, M. van den Heuvel, K. Schoors)
Published at Scientific Reports
Social science studies dealing with control in networks typically resort to heuristics or describing the control distribution as is. Optimal policies, however, require interventions that optimize control over a socioeconomic network subject to real-world constraints. We integrate optimisation tools from deep-learning with network science into a framework that is able to optimize such interventions in real-world networks. We demonstrate the framework in the context of corporate control, where it allows to characterize the vulnerability of strategically important corporate networks to sensitive takeovers, an important contemporaneous policy challenge. The framework produces insights that are relevant for governing real-world socioeconomic networks, and opens up new research avenues for improving our understanding and control of such complex systems.
The productivity impact of R&D and FDI spillovers (with A. Spithoven)
Published at The Journal of Technology Transfer
R&D activities by indigenous firms create new knowledge and technology in a region, while foreign-owned firms bring advanced knowledge and technologies from their home countries. This paper analyses the spillover effects of R&D-active or foreign-owned firms on total factor productivity of domestic non-R&D active firms. Focusing on productivity spillover effects on domestic non-R&D active firms in three regions in Belgium between 2000 and 2017, we conclude that R&D spillovers generally occur more frequently than FDI spillovers. By focussing on two sources of technological spillovers, the paper offers a more nuanced picture of industrial transformation and regional path development. Region-specific analyses show that the effects on the productivity of domestic non-R&D active firms originate from different spillover sources. Linkages of R&D active or foreign-owned firms with domestic non-R&D active firms exert a heterogeneous impact on their productivity.
Does a Tax Credit Matter for Job Creation by Multinational Enterprises (with J. Konings, and C. Lecocq)
Published at Canadian Journal of Economics
We analyze the impact of a tax credit on jobs in multinational enterprises. In particular, we exploit the introduction of the 'notional interest deduction' regime in Belgium in 2006, an 'allowance for corporate equity', which aimed to provide an attractive tax system for multinational enterprises active in Belgium. We study employment growth in foreign affiliates of MNEs in Belgium and use as a control group the affiliates of the same MNEs in France. We find that the tax credit has increased employment in Belgian affiliates by 6 to 8 percent over the period 2006-2008.
CEPR Discussion Paper 13105 - Coverage at voxEU
Productivity Effects of Internationalisation Through the Domestic Supply Chain: Evidence from Europe (with A. Theodorakopoulos)
Published at Journal of Applied Econometrics
This paper analyses whether indirect effects of internationalisation occur through the domestic supply chain. We investigate productivity effects for a given firm resulting from the import or export of intermediate inputs by domestic upstream and downstream industries. Using a rich sample of manufacturing firms in 19 EU countries, we find evidence that domestic access to intermediate inputs that are also destined to foreign countries is associated with higher levels of revenue productivity. Further, our results highlight two common, but important, misspecification biases: ignoring the dynamic nature of productivity and estimating a value-added instead of a gross-output production function.
version July 2019 - Coverage at voxEU
Downstream Offshoring and Firm-level Employment (with B. Michel)
Published at Canadian Journal of Economics
When engaging in offshoring, firms do not only import intermediates they used to produce in-house, but also intermediates previously sourced from non-affiliated domestic suppliers. This leads to a negative demand shock for the latter. Prior empirical research has so far neglected this channel through which offshoring may affect employment. We label this demand shock `downstream offshoring' and develop a novel measure capturing its extent for a firm in a given upstream industry. According to our instrumental variables estimations for a representative sample of Belgian manufacturing firms over 1997-2007, downstream offshoring has a robust negative effect on employment.
version May 2016; FEB UGent Working Paper 14/880
A constrained nonparametric regression analysis of factor-biased technical change and TFP growth at the firm-level (with Verschelde M., Dewitte R., Dumont M., and Rayp G.)
Published European Journal of Operational Research entitled Firm-Heterogeneous Biased Technological Change: A Nonparametric Approach under Endogeneity
Using firm-level data for Belgium, we study the validity of Hicks neutrality in several sectors that cover the spectrum of knowledge intensity. We find that Hicks neutrality is clearly not supported by the data in different sectors. The results are not sensitive to altering the specification of the technology by including firm age and R&D into the analysis. We also reject Hicks neutrality for a balanced sample, pointing to ‘within-firm’ factor-biased technical change and we also find factor-biased technical change in the pre-crisis era, indicating that unobserved heterogeneity in demand does not drive the results. Overall, our results point towards low-skilled labour- saving and materials-using technical change. So far, this has received little attention and may be linked to offshoring and global value chain networks. Finally, we show that nonparametric estimates of TFP change that allow for factor biases support the evidence of the recent slowdown in TFP growth in many manufacturing sectors in Belgium. Estimations of TFP and technical change are shown to be sensitive to the estimation method and the specification of the factor bias of technical change.
MNE Heterogeneity and FDI Spillovers (with K. Lenaerts)
published Review of World Economics
This paper analyzes for a panel of Romanian manufacturing firms whether the quality of foreign firms, measured by their productivity level, affects their potential as a source of indirect productivity effects on domestic firms. We find that only sufficiently productive foreign firms generate positive productivity effects on domestic supplier firms. The most productive foreign firms are the main source of productivity effects. Domestic firms with higher productivity levels also enjoy larger total positive productivity effects. When supplying foreign firms that are less productive than themselves, domestic firms experience zero to negative effects.
June 2016 version; FEB UGent Working Paper 14/879
Investment-Cash Flow Sensitivity and the Cost of External Finance (with K. Mulier and K. Schoors)
published Journal of Banking and Finance
We contribute to the investment-cash flow sensitivity debate by creating a new index to identify the supply of finance to firms. We find that firms that are considered constrained according to our index pay a higher interest rate on their debt, and display the highest investment-cash flow sensitivities. Moreover, these findings are not driven by the possible information content of cash flow regarding investment opportunities as we control for oppor- tunities by augmenting our empirical model with firm-level employment growth. We thus provide new evidence consistent with Campbell et al. (2012) that the cost of capital is the driving force behind investment-cash flow sensitivity.
FEB UGent Working Paper 14/890
The contribution of start-ups and young firms to industry–level efficiency growth (with Verschelde M., Dumont M., and Rayp G.)
published Applied Economics
This paper examines the impact of start-ups (1 up to 5 years active) and young firms (6 up to 10 years active) on industry-level efficiency growth in six EU countries. Evidence indicates that entrants gradually raise their efficiency level through a phase of learning and adaptation. Starting firms have a high probability to be forced to exit at an early stage but a small share of surviving start-ups explain a disproportionate part of industry-level efficiency dynamics. Results show that efficiency growth of young firms is more important for industry-level efficiency than entry and exit. The relative contribution of efficiency growth of young firms is the only component that is found to have a statistically significant positive impact on industry-level efficiency.
Does it Take Time to Travel Distance? Geography, Entry Timing and Knowledge Spillovers (with V. Purice)
published Papers in Regional Science
This paper investigates the effect of foreign direct investment on the productivity of local firms. We decompose traditional country-wide spillover measures in different components according to both distance between foreign and domestic firms and time- since-foreign-entry. We find larger and faster spillover effects for local suppliers of foreign firms at shorter distance, driven mainly by recent foreign entrants. Irrespective of distance, foreign firms of medium maturity generate backward spillover effects that fade away with longer presence. A positive effect on local competitors is not significantly affected by distance and requires the presence of mature foreign firms.
FEB UGent Working Paper 14/896
Supply Chain Fragmentation and Spillovers from Foreign Direct Investment (with K. Lenaerts)
published Economic Systems Research
The literature on FDI spillovers to domestic firm productivity increasingly points to supply chain linkages with multinational firms as the main channel for positive effects. To determine local and multinational firms’ relative position in the supply chain, the literature relies on input-output tables. For a panel of Romanian firms we show that the level of industry ag- gregation in these tables and the commonly applied definitions for vertical spillovers bear an important impact on results. The use of aggregated input-output tables gives rise to significant and large horizontal spillover effects, whereas backward spillovers tend to be small and only marginally significant. Using detailed input-output tables, backward spillovers become highly significant and dominate horizontal spillover effects whose impact is considerably reduced. Assuming that the true nature of the backward spillover is to be found in a supplier-customer relationship, we show that -for the detailed IO-tables- including within-industry intermediate supply (excluded in the commonly used definition) results in a larger impact of the backward spillover, whereas the horizontal spillovers disappear.
FEB UGent Working Paper 12/822
European competitiveness: A semiparametric stochastic metafrontier analysis at the firm level (with Verschelde M., Dumont M., and Rayp G.)
published Journal of Productivity Analysis
In this paper a semiparametric stochastic metafrontier approach is used to ob- tain insight into firm-level competitiveness in Europe. We differ from standard TFP studies at the firm level as we simultaneously allow for inefficiency, noise and do not impose a functional form on the input-output relation. Using AMADEUS firm-level data covering 10 manufacturing sectors from seven EU15 countries, (i) we document substantial, persistent differences in competitiveness (with Belgium and Germany as benchmark countries and Spain lagging behind) and a wide technology gap, (ii) we confirm the absence of convergence in TFP between the seven selected countries, (iii) we confirm that the technology gap is more pronounced for smaller firms, (iv) we highlight the role of post-entry growth for competitiveness.