Jan Simon Schymik

Working Papers

Foreign Competition and the Durability of US Firm Investments (with Philippe Fromenteau and Jan Tscheke)
[latest version]
revise and resubmit, RAND Journal of Economics

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 relatively larger for firms with lower total factor productivities.

Trade in Tasks and the Organization of Firms (with Dalia Marin and Alexander Tarasov)
[latest version] [CEPR discussion paper] [VoxEU column]
revise and resubmit, European Economic Review

We incorporate trade in tasks à la Grossman and Rossi-Hansberg (2008) into a small open economy version of the theory of firm organization of Marin and Verdier (2012) to examine how offshoring affects the way firms organize. We show that the offshoring of production tasks leads firms to reorganize with a more decentralized management, improving the competitiveness of the offshoring firms. We show further that the offshoring of managerial tasks relaxes the constraint on managers but toughens competition, and thus has an ambiguous impact on the level of decentralized management and CEO wages of the offshoring firms. In sufficiently open economies, however, managerial offshoring unambiguously leads to more decentralized management and to larger CEO wages. We test the predictions of the model based on original firm level data we designed and collected of 660 Austrian and German multinational firms with 2200 subsidiaries in Eastern Europe. We find that offshoring firms are 22.3% more decentralized than non-offshoring firms. We find further that the average fraction of managers offshored reduces the level of decentralized management by 3.4%, but increases the level of decentralized management by 6.8% in industries with a level of openness above the 25th percentile of the openness distribution. Lastly, we find that one additional offshored manager lowers CEO wages relative to workers by 4.9%.

Top Inequality, Firms and the Global Division of Labor: Evidence from the Executive Labor Market
[slides]

Many industrialized economies have witnessed a rapid rise in top inequality and in the global sourcing of production inputs. This paper investigates how global sourcing has affected employees at the top of corporate hierarchies using unique linked manager-firm data that cover executives and senior managers across Europe and North America. I document that managerial incomes became more dispersed across the firm size distribution since 2000 and then study the role of global sourcing in that development. By exploiting variation in international transport margins and in the world supply of intermediates, I estimate the effects of global sourcing on managerial incomes, within-firm pay income inequality, wealth inequality and financial incentives. I find that 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 market capitalization within offshoring-intensive industries. To rationalize my empirical findings, I introduce a tractable multiplicative model of optimal CEO incentives into an open-economy model of heterogeneous firms where countries differ in their managerial capabilities and globalization allows firms to hire labor inputs from abroad.

Publication

Globalization and the Evolution of Corporate Governance
[working paper version] [published paper] [data package]
European Economic Review, vol. 102, p. 39-61, Feb. 2018

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.