Essays on international trade and labour economics

The importance of location in shaping the economic outcomes of different people is well documented. Thus, it lays in the intersection between different areas of research. More importantly, the empirical findings will have major policy implications, since the resilience or sensitivity of local labour markets to changes in economic fundamental is a function of their location and characteristics. And understanding this can be considered as the first step to remedy local economic problems. In the first chapter, I investigate the causal effect of import shocks at local labour markets on the wage distribution using individual-level data from Great Britain in the period 1997-2010. In the analysis, I exploit regional variation in initial industrial structure and its concentration for identification, and apply a group IV quantile approach to estimate the effect of import shocks on workers at different points of the wage distribution. First, I find that the effect of an import shock generated by the increased imports from China is concentrated on the middle of the wage distribution. While the import shock negatively and significantly affects workers at the lower-middle range of the wage distribution, its effect on the very lower and upper part of the wage groups is positive but insignificant. Second, in trying to uncover the mechanism behind these results, I find that the labour adjustment process takes place through a reduction in the hourly wage rather than a decline in hours worked. The second chapter aims at identifying the gains from imported inputs and foreign presence and to verify whether productivity gains from the two are either substitutes or complements. Understanding the relationship between these sources is crucial to evaluate the welfare implications of FDI promotion and trade liberalisation policies, which are particularly important for developing countries. To this end, I rely on a firm-level data-set from Ethiopia for identification. After isolating the productivity gains from the numbers of inputs a firm chooses to import, I assess the role of FDI spillovers. I find evidence of positive gains from imported inputs for both domestic and foreign-owned firms with the magnitude being larger for the latter. I also find limited evidence on the substitutability or complementarity between the gains from imported inputs and FDI spillovers indicating that the productivity gains from the two sources are different in nature and do not interact. The third chapter examines the effect of commuting on residential-mobility preference using data from the UK household longitudinal study. Together with preference to move, I also assess the impact of commuting on expectation to move. For identification strategy, I use a change in commuting time for those individuals who stay with the same employer and remain in the same place of residence. I find that commuting increases the individuals intent to relocate. The paper also finds commuting increases, besides preference to relocate, the expectation to move. The results contribute to the literature on the effect of commuting on residential choice which is crucial for labour market outcomes. Moreover, understanding the impact of commuting on individuals’ preference to relocate have great policy implications, since the commuting and the corresponding decision surrounding it are considered the remedy to local economic problems

Corporate Finance

This book comprises 19 papers published in the Special Issue entitled “Corporate Finance”, focused on capital structure (Kedzior et al., 2020; Ntoung et al., 2020; Vintilă et al., 2019), dividend policy (Dragotă and Delcea, 2019; Pinto and Rastogi, 2019) and open-market share repurchase announcements (Ding et al., 2020), risk management (Chen et al., 2020; Nguyen Thanh, 2019; Štefko et al., 2020), financial reporting (Fossung et al., 2020), corporate brand and innovation (Barros et al., 2020; Błach et al., 2020), and corporate governance (Aluchna and Kuszewski, 2020; Dragotă et al.,2020; Gruszczyński, 2020; Kjærland et al., 2020; Koji et al., 2020; Lukason and Camacho-Miñano, 2020; Rashid Khan et al., 2020). It covers a broad range of companies worldwide (Cameroon, China, Estonia, India, Japan, Norway, Poland, Romania, Slovakia, Spain, United States, Vietnam), as well as various industries (heat supply, high-tech, manufacturing)

You Wei and Wu Wei: Ambivalence of Chinese outbound mergers and acquisitions

China is assuming an increasingly prominent position in the world economy as the investment begins to flow from China to the world. Compared to the ‘West goes to China’, the institutional environment, the cultural roots and the corresponding managerial behaviours are quite distinct. These distinct characteristics may challenge the conventional wisdom in the dominant mainstream theories of international business and multinational strategy. Based on both quantitative study, multi-case studies and over 50 interviews with Chinese and Western professionals, this thesis reflected the ambivalence of the government and Chinese companies in outward M&As. While the Chinese government shows a You Wei attitude towards outward M&As, You Wei acts on outward M&As in an ambivalent manner. On the one hand, the You Wei government positively facilitates outward technology exploration as an essential part of the technology development in China’s high-speed rail industry; on the other hand, the You Wei government distorts the capital allocation for outward M&As between SOEs and POEs, and compensates for the loss by SOEs through low-cost debt financing. Similarly, Chinese companies behave ambivalently towards outward M&As. On the one hand, Chinese companies display a You Wei strategy, proactively coping with the various domestic stakeholders in the M&A legitimization process; on the other hand, they manifest a Wu Wei action, effortlessly dealing with post-acquisition integration in developed economies. Overall, the ambivalence of outward Chinese M&As is characterized by a typical Chinese "both/and" and interdependent opposites’ managerial paradigm

Voluntary Disclosure of Listed Chinese Companies~2008-2012: An Empirical Study

The Chinese stock exchanges are an integral part of Chinese and global economy having a combined market capitalization of 3697 billion USD at end of year 2012. Due to their size and economic impact it is important that they maintain growth and stability. Writers have maintained that voluntary corporate disclosure can help to achieve growth and stability thus the aim of this research is to examine recent Chinese listed companies’ voluntary disclosure practice. The purpose of this study is to investigate voluntary disclosure level of top 50 listed Chinese companies on Shanghai Stock Exchange during 2008-2012 period. This study primarily utilizes a quantitative approach. The author constructs a Voluntary Disclosure Index (VDI) based on legislative/regulatory consideration, investor demand, investor sophistication and previous studies. This VDI score is then used to measure companies’ voluntary disclosure level. The results of this study indicate that the overall voluntary disclosure level did not increase during 2008-2012, rather it dropped. Some interesting findings about disclosure level and individual disclosure item scores in certain disclosure categories stood out; for example, nearly all companies detached their CSR report or sustainability report from their annual reports in 2010, resulted a sharp decline in voluntary disclosure level in certain related disclosure category. Further there was little employment information disclosed particularly of note are the areas of minority and gender, and little forward looking corporate focused financial information as opposed to general economic expectations was disclosed. By using more recent data and considering the changes in China’s corporate disclosure regulation system in recent years, this study addresses certain gaps from previous Chinese studies. This study also explores some regulatory loopholes in China’s disclosure regulation system and certain insufficiencies in investors’ education, thus this study can be of value to policy makers. Overall it is hoped that this study can lead to greater engagement between Chinese corporations and investors particularly in the area of voluntary disclosure

Essays in Behavioral Labor Economics

This dissertation consists of three essays in Behavioral Labor Economics. The first two chapters contribute to the understanding of non-standard preferences of individuals in the workplace, and the third studies how cultural values affect firm behavior. The first chapter studies the incentive effects of top-down favoritism in employee promotions on workers and its organization-wide productivity consequences, and provides evidence on social preferences and fairness concerns among co-workers. Using data from public high schools in four Chinese cities, I first show that teachers with hometown or college ties to the school principal are twice as likely to be promoted, after controlling for characteristics on their application profiles and their value-added in teaching. I then use the results from a survey in which I asked teachers to select anonymous peers to promote from a pool of applicants applying for promotion to infer each teacher’s revealed fairness views regarding promotion qualifications. Contrasting these with actual past promotions in turn allows me to measure if and when a teacher might have observed unfair promotions in her own school in the past. Exposure to unfair promotions adversely affects non-applicant teachers’ output, lowering their value-added and raising the probability that high-value-added teachers quit. The value-added effect appears to be driven primarily by teachers’ social preferences for peer workers and the consequent erosion of their morale when peers suffer unfair treatment, while the quitting effect comes mainly from non-favored prospective applicants’ career concerns as they learn about the principal’s bias and leave due to poor promotion prospects. These adverse spillover incentive effects lead to a substantial reduction in school-wide output, which is only slightly mitigated by increased productivity among favored teachers. Finally, a transparency reform that required principals to disclose to their peers the profiles of teachers that apply for promotion reduced the principals’ bias and improved the overall productivity of schools. The second chapter documents daily targeting behavior in workers’ labor supply decisions. Using a novel dataset on the daily production of a group of piece-rate manufacturing workers combined with their quasi-random daily income shocks from lunch break card game gambling, I show that the workers’ afternoon labor supply responds negatively to instantaneously-paid quasi-random gambling income, although wages are paid monthly. The workers’ labor supply decisions were consistent with daily mental accounting and reference dependence where the target was set on the sum of the face - valued daily (receivable) labor and (paid) unearned income, as opposed to the neoclassical model of inter-temporal labor supply. Estimation of two structural models of daily labor supply yields a coefficient of loss aversion parameter of 1.8 to 2.0, significantly different from the neoclassical value of 1; and individual specific loss aversion structural estimates correlate positively with survey measures. Using estimated preference parameters, I back out the implied total wage elasticity of daily labor supply as well as a sizable negative reference-dependent component of it. This study overcomes the common identification issues in the daily labor supply literature by exploiting high-frequency, actively taken-up and unanticipated income shifters that are independent of other labor supply and demand confounders. In the third chapter, we show that many employers anchor their wages at establishments outside of the home region to headquarter levels, and begin to study the consequences. Our analysis makes use of an unusual 2005-2015 establishment-year level dataset of average wages by narrowly-defined occupation. The dataset covers 1,800 large employers that span many different sectors and each operate in a subset of 170 observed capital city locations. We show that, across the occupational skill range—including for low-skill support staff— the average wage multinationals pay domestic workers in a given occupation at foreign establishments is robustly and remarkably highly correlated with the average wage they pay workers in the same occupation in the home country. We then instrument for headquarter wage levels with changes in home country minimum wage laws and show that externally imposed wage increases at home causally raise wages abroad. The relationships we establish between headquarters’ and their foreign establishments’ wage levels and wage changes are both driven by employers from inequality-averse societies. Occupations are more (less) likely to be removed from, and less (more) likely to be added to the foreign establishments (headquarters) of such employers after a (minimum wage-induced) wage increase originating at the headquarter. Our results point towards the existence of “wage cultures” that influence how production is organized across space

Corporate Governance During Market Transition: Heterogeneous Responses to Institutional Tensions in China

Corporate governance in transition economies does not fit in the dominant normative models. China embodies institutional tensions between an inherited system of political governance and new laws transplanted from Western countries that empower external shareholders on capital markets. The two empirical studies in this dissertation apply set theoretic methods on large samples of Chinese listed firms to uncover the causal complexity involved in corporate governance problems, focusing on the complementarities, functional equivalence and causal asymmetry. The first study analyses the configurations that facilitate and deter the most salient governance problem: the diversion of cash flow from the firm by controlling shareholders through tunneling. The second study analyses the diversity of governance forms in successful firms, including politically embedded firms, those that rely on outsider control systems resembling the Anglo-American model, as well as creative hybrid forms. The dissertation shows that, even in transition economies, property rights matter for allocating decision making rights between large and minority shareholders. Also, political connections matter, but not as much as is commonly assumed since many private firms operate profitably without any political ties. Finally, the thesis commands caution regarding the role of independent directors, who not only fail to provide effective monitoring on insiders, but often facilitate collusion easing tunneling behavior

Do political connections matter? Empirical evidence from listed firms in Pakistan

The purpose of this thesis is to enhance understanding of the way in which political connections benefit or impair connected firms. For this purpose, the current study employs the data of Pakistani listed non-financial firms from 2002–2010, and examines the impact of political connections on the economic life of individual firms. More specifically, this thesis comprises three empirical studies: the first enquires into the way in which political connectedness influences firms’ access to finance; the second empirical chapter examines the impact of political connections on the performance of the connected firms; and lastly, the third empirical chapter explores the channels through which connected politicians intervene in business operations. The findings in the first empirical chapter provide strong and robust evidence of preferential lending in the credit market. Political connectedness appears to be a determining factor of the total and long-term leverage of the firms; nevertheless, short-term financing is indifferent to political connections. The study also finds that having connections with a winning politician or politician affiliated to the winning parties (coalition) have a larger impact on the firm’s total and long-term leverage, thus implying that the benefits associated with political connections ultimately depend on electoral outcomes. In addition, firm size and business group affiliation have increasing effect on the borrowing capabilities of the connected firms, whilst connections underplay the significance of collateral. Through the use of an instrumental variable framework focused on the long-term panel and cross-sectional data of Pakistani listed firms, the second empirical chapter finds that political connections distort the performance of the connected firms. Consistent results are found for various accounting and marketing measures of performance. So as to investigate the impact of connectedness on performance in different political environments, the sample period is stratified into two contrasting government periods: autocratic; and democratic government periods. The result is more pronounced in the autocratic regime, providing evidence of excessive managerial inefficiencies and rent-extraction of affiliated politicians in dictatorship regime. It was also found that the performance of connected firms increased further if they belonged to business groups, whilst the large firms were subject to severe performance distortions more so than small firms. Finally, those firms with low growth opportunities were more prone to the negative effects of political connectedness in terms of their performances. The findings in the second empirical chapter (connections insert negative effect on the firm performance) inspired us to progress one step further and investigate the intriguing question: what are the channels through which politicians interfere and distort the performance of the connected firms? In quest to answer this question, the last empirical chapter provides strong and robust evidence of political intervention in the investment and employment decisions. More specifically, results find the existence of investment inefficiencies and excessive employment in the connected firms. Importantly, the effect of political interference is more pronounced for employment decisions, indicating the presence of clientelism in the Pakistani market, where politicians distribute job favours in exchange of electoral support. The study also reveals that connected firms with high growth opportunities experience political interference less often than their peers with low growth opportunities. Lastly, the economic cost of such political intervention in employment decisions is estimated to be 0.15% GDP annually

Determinants of Capital Structure –Evidence from Listed Information Technology Firms in India

This paper studies the leverage decisions of Indian information technology (IT) sector firms. It attempts to explain the variation in capital structure of IT firms and determining variables using a regression model. It aims to explore the various factors that determine the choice of long term financing for listed firms. The impact of firms’ tangibility, size, profitability, liquidity and earning variability on capital structure of listed Information Technology is investigated. Data of 30 IT firms from 2009-2014 is studied through regression analysis. Multi co-linearity test was performed at first to find out any relation among variables and it was found that none of the variables are strongly correlated, then regression test was run. Profitability is reported to have significantly negative impact while other factors have insignificant positive effect on capital structure. The results are mostly consistent with much of the previous literature. The outcome shows that all these determinants affect the capital structure of a firm in some degree. The study also indicates that firm leverage is positively related to median industry leverage. Additionally, firm size and growth opportunities have positive relationship with firm leverage. On the other hand, profitability and leverage are negatively related. The results support pecking order theory as higher profitability firms tend to have less debt and firms with higher growth opportunities tend to have greater leverage. Keywords: Leverage, liquidity, profitability, regression, tangibility

Do Managers In Chinese Family Firms Learn From The Market? Evidence From Chinese Private Placement

Recent empirical papers report managers’ learning in merger and acquisition (M&A) decisions and family control is central in many countries. Does learning exist in family firms’ financing decisions? Based on the announced private placements from Chinese family firms, we investigate the relation between managers’ final decisions in family firms and the market reaction to the announcement. Our analysis suggests that a non-linear relation exists between managers’ learning and family control. Managers generally learn from the market when making final decisions but family involvement can reduce this probability. Supplementary testing indicates that managers in family firms with low ownership are less likely to learn from the market than those in family firms with high ownership. Further analysis suggests that corporate governance can influence managers’ learning. Family member’ participation in purchasing the placed shares and serve as the top managers can make manager’ learning less likely when the ownership is low. Independent directors in family firms don’t play their due role in supervising the behavior of managers and large shareholders

Deepening Reform for China’s Long-term Growth and Development

The Chinese economy has entered a new phase of development in which sources of growth are not so much dependent upon pure increases in labour, investment and credit expansion, but from productivity improvement, structural changes, technological progress and the benefits from improvement of the social security and welfare improvement. When market functions are fully established to become a main channel for allocating resources, the entrepreneurship will flourish engaging in more innovative activities, workers will move more freely and have more incentives to improve their skills, firms will become more productive through market entry and exit, the economic structure will become more balanced because of the improved resource allocation, and in the end, growth will become more spontaneous and sustainable. In this sense, reforms could deliver ‘dividend’ by raising China’s potential economic growth rates. For China to confront all the challenges it faces at present, the reforms undertaken now have to be deep, comprehensive and far-reaching in order to succeed in paving the way for China to complete the task of transformation in the long-term. There is no better alternative than deepening the market-oriented reform in advancing the course of China’s modernisation for future development and prosperity and lifting China to the status of a developed economy in the next two decades. The recent China update books have covered the topic of reform from different angles and this new book is another attempt to address this important issue