Publications
Foreign Competition and the Durability of U.S. Firm Investments
with Philippe Fromenteau and Jan Tscheke
[Abstract],
[Media Coverage],
[Working Paper Version]
RAND Journal of Economics, Vol. 50(3), p. 532-567, Fall 2019
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.
Trade in Tasks and the Organization of Firms
with Dalia Marin and Alexander Tarasov
[Abstract],
[Data and Code],
[Media Coverage],
[Working Paper Version]
European Economic Review, Vol. 107, p. 99-132, Aug. 2018
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.
Globalization and the Evolution of Corporate Governance
[Abstract], [Data and Code]
[Media Coverage], [Working Paper Version]
European Economic Review, Vol. 102, p. 39-61, Feb. 2018.
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.
Democratization, Contracts and Comparative Advantage
with Felix Samy Soliman
[Abstract], [Working Paper Version]
Economics Letters, Vol. 173, p. 73-77, Dec. 2018.
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-specific 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.
Work in Progress
Trade Adjustment and Competition in the Eurozone
with Harald Fadinger
Capital (Mis)Allocation and Managers
with Alex Schramm and Alex Schwemmer
[Abstract], [Slides]
Abstract: We study how firm investment policies and the allocation of capital are shaped by managerial incentives. To study the empirical
relation between managerial incentives and investment policies, we exploit the introduction of an accounting reform in the US that effectively
shortened the horizon of managerial incentives for some firms (FAS 123R). Using a within-firm estimator based on variation across investments
with different durabilities, we find evidence that firms with more short-term incentives systematically shift their expenditures towards
investments with a shorter durability and lower the durability of firms' capital stock. We then present a dynamic model of firm investments in
which the firm's investment policy is distorted by managerial incentives. We show that equity-based compensation contracts can induce managers
to make investment decisions corresponding to quasi-hyperbolic time preferences such that there is systematic overinvestment in assets with shorter
durability and underinvestment in assets with longer durability. We quantify the model to match observations on public US firms and aggregate
data moments and find that small deviations from value-maximizing incentives lead to sizable distortions of aggregate output and investment.
