Abstract: How does the exposure to product market competition affect the investment horizon of firms? When tougher competition reduces future profitability, firms have an incentive to shift investments towards more short-term assets. To study this mechanism empirically, we formulate a stylized theoretical framework of firm investments and derive a within-firm estimator that uses variation across investments with different durabilities. We exploit the Chinese WTO accession as a competition shock for US firms to estimate the effects of product market competition on the composition of firm investments using expenditures across different assets within listed US manufacturing companies. We find that firms that experienced tougher competition shifted their expenditures towards investments with a shorter durability. We find this effect to be larger for firms with lower total factor productivity.

• Ökonomenstimme

ABSTRACT: We study how the international spread of democracy shaped the comparative advantage of countries. Using data on the "Third Wave of Democratization" between 1976 and 2000 we find that democratizing countries shifted their exports towards more contract intensive goods that require a larger portion of relationship-specic inputs. This shift is observed on the intensive margin (volumes of industry-level exports) as well as the extensive margin of trade (number of goods a country exports). Using an instrumental variable strategy based on democracy waves, alternative proxy variables and subsamples suggests that the effects of democratization on trade specialization are causal.

ABSTRACT: In this paper, we incorporate trade in tasks into Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that offshoring of production tasks and of managerial tasks can lead to more decentralized management and to larger executive wages in open economies. We study the predictions of the model with original firm level data and find that offshoring firms are 18% more decentralized than non-offshoring firms. We also find that offshoring of managers increases the level of decentralized management in open industries, but reduces the level of decentralized management in sufficiently closed industries.

News media
• Vox EU

ABSTRACT: How does globalization affect the balance of power between managers and firm owners? This paper studies the effect of economic integration on governance practices within firms. I propose a theory of endogenous corporate governance investments in industry equilibrium with monopolistic competition. Firms can use investments into better corporate governance as a cheap substitute to performance compensation to mitigate agency problems. International integration alters the demand for managers in the economy such that firms may reduce their corporate governance investments and offer higher performance payments. This globalization-induced deterioration of corporate governance in the economy diminishes the welfare gains from globalization. Using data on governance practices in U.S. manufacturing corporations, I provide empirical evidence that conforms to the model predictions. Firms in industries that experienced substantial trade liberalization between 1990 and 2006 have changed their governance practices allowing for more managerial slack and offered higher equity payments to their CEOs. These effects are particularly large in relatively dynamic industries that are characterized by large exit rates.

News media
• National Affairs
• Neue Zürcher Zeitung (NZZ)

ABSTRACT: This paper examines the impact of global sourcing on inequality at the top of corporate hierarchies. I embed a moral hazard problem into a multi-sector talent assignment model to endogenize the level and sensitivity of managerial compensation in general equilibrium. An increase in the supply of foreign production labor raises top inequality in managerial incomes and equity wealth across domestic firms such that managers in larger firms obtain steeper incentives due to a larger pay-performance sensitivity. To test these predictions empirically, I use unique linked manager-firm data that cover more than 25,000 managers across listed firms in Europe and North America during 2000 - 2014. Using international input-output data to obtain cross-border flows in intermediate goods and services, I find support for all these predictions. Global sourcing contributed substantially to rising top inequality, in particular due to an increasing dispersion in the value of managers' equity wealth. This mechanism has increased wealth-performance sensitivities of managers in relatively large firms due to an appreciation of the firms' stock prices.