Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance

We explore the nature of Business Groups, that is network-like forms of hierarchical organization between legally autonomous firms spanning both within and across national borders. Exploiting a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide, we find that business groups account for a significant part of value-added generation in both developed and developing countries, with a prevalence in the latter. In order to characterize their boundaries, we distinguish between an affiliate vs. a group-level index of vertical integration, as well as an entropy-like metric able to summarize the hierarchical complexity of a group and its trade-off between exploitation of knowledge as an input across the hierarchy and the associated communication costs. We relate these metrics to host country institutional characteristics, as well as to the performance of affiliates across business groups. Conditional on institutional quality, a negative correlation exists between vertical integration and organizational complexity in defining the boundaries of business groups. We also find a robust (albeit non-linear) positive relationship between a group's organizational complexity and productivity which dominates the already known correlation between vertical integration and productivity. Results are in line with the theoretical framework of knowledge-based hierarchies developed by the literature, in which intangible assets are a complementary input in the production processes

Changing Patterns of International Integration: Germany and Italy in the Countries of EU Enlargement

offshoring undertaken in the new members of EU in the period 1998-2006. Recent empirical evidence (Danninger, Joutz 2007 IMF) shows that dominant factors explaining the increase in German market shares are trade relationships with fast growing countries and regionalized production in the export sector. According to the empirical evidence available for Italy (Di Maio, Tamagni 2006), the productivity/income content of trade specialization has decreased in the last decade. After an in-depth analysis of bilateral trade flows by final goods and intermediate goods categories, trade data are linked to the firm-level productivity analysis of Italian and German presence in the new member states of European Union. The domestic value added content and the imported intermediates content of exports from both countries to new members are disentangled following Hummels, Ishii and Yi (2001), whereas a sample of 38270 firms, located in new member states but owned by residents in old members, allows not only to measure relative firm-level productivity, but also to control for pure ownership effect, vertical versus horizontal FDI strategy and corporate governance characteristics. Data come from different sources: Eurostat-ComExt for trade, national statistics offices for input output tables, AMADEUS for firm-level data.DYNREG

The ‘Invisible Role’ of Business Groups is made Evident

Business Groups collect and coordinate legally autonomous firms spanning both within and across national borders . They represent a lion's share of value added generation on a world scale, and yet they received little attention in economics literature, probably due to a lack of detailed data. In Altomonte and Rungi (2013) we exploited a unique own-built dataset of proprietary linkages to find that: a) Business Groups are present in both developing and developed countries, adapting their organization according to the peculiarities of the hosting environment; b) within Business Groups, choices of integration of production activities are not independent from choices of management coordination; c) eventually, choices of management coordination reveal to be important drivers of productivity and dominate on choices of vertical integration. More in general, here we argue, data are telling us that the adoption of different organizational structures at the firm level can in part explain the endurance of productivity gaps across industries and countries and the phenomenon of Business Groups becomes even more important after the emergence of Global Value Chains

Import Penetration, Intermediate Inputs and Productivity: Evidence from Italian Firms

We test the impact of import penetration on the productivity of a sample of roughly 35,000 Italian manufacturing firms operating in the period 1996-2003, considering the impact on productivity of both import penetration in the same industry and import penetration in the up-stream industries. We find that import penetration has a positive effect on productivity, but the effects are three times as large for import penetration in up-stream industries. Trade-related variables do not account however for the bulk of variation in individual firms' TFP.DYNREG, import penetration, intermediate inputs, productivity

Does corporate control matter to financial volatility?

In our contribution we study how the ownership channel affects the stock price volatility of listed stock markets. In particular, we study how a linkage between a parent company and its affiliates may drive differences in stock price volatility, within and across countries. We exploit a worldwide dataset of stock-exchange listed firms, controlling for several financial dimensions, to assess whether business groups matter to financial volatility. The answer is positive and does not depend on the definition of volatility used. Our results contribute to the corporate finance literature by defining the role of multinational corporate control in financial markets, and to the financial stability literature by assessing corporate control as an undiscovered channel of transmission for financial shocks

Predicting Exporters with Machine Learning

In this contribution, we exploit machine learning techniques to predict out-of-sample firms' ability to export based on the financial accounts of both exporters and non-exporters. Therefore, we show how forecasts can be used as exporting scores, i.e., to measure the distance of non-exporters from export status. For our purpose, we train and test various algorithms on the financial reports of 57,021 manufacturing firms in France in 2010-2018. We find that a Bayesian Additive Regression Tree with Missingness In Attributes (BART-MIA) performs better than other techniques with a prediction accuracy of up to $0.90$. Predictions are robust to changes in definitions of exporters and in the presence of discontinuous exporters. Eventually, we argue that exporting scores can be helpful for trade promotion, trade credit, and to assess firms' competitiveness. For example, back-of-the-envelope estimates show that a representative firm with just below-average exporting scores needs up to $44\%$ more cash resources and up to $2.5$ times more capital expenses to reach full export status.Comment: 40 pages, 10 figure

Assessing the Competitive Behaviour of Firms in the Single Market: A Micro-based Approach

This Report analyses and compares a number of indicators related to the evolution of the competitive behaviour of firms in the Single Market, from 1999 to 2007, in a selected number of both manufacturing and services industries and eight EU countries: Belgium, Germany, France, Italy, Poland, Romania, Spain and Sweden. A novelty of the approach is that the analysis is derived from firm-level observable data, which allow to grasp not only information on the average changes taking place in each industry and across countries, but also the distribution and sources of these changes in terms of individual firms' pricing behaviour and market shares, an information which is impossible to gather in detail from aggregate, traditional sector-level measure

Assessing the Competitive Behaviour of Firms in the Single Market: A Micro-based Approach

This Report analyses and compares a number of indicators related to the evolution of the competitive behaviour of firms in the Single Market, from 1999 to 2007, in a selected number of both manufacturing and services industries and eight EU countries: Belgium, Germany, France, Italy, Poland, Romania, Spain and Sweden. A novelty of the approach is that the analysis is derived from firm-level observable data, which allow to grasp not only information on the average changes taking place in each industry and across countries, but also the distribution and sources of these changes in terms of individual firms' pricing behaviour and market shares, an information which is impossible to gather in detail from aggregate, traditional sector-level measures.european union,eu,setzer,wolff,van den Noord,euro area,money,heterogeneity,money holdings