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Crime's Impact on the Survival Prospects of Young Urban Small Businesses
October 2007
Working Paper Number:
CES-07-30
High prevailing levels of criminal activity have numerous impacts on the viability of urban small businesses and the various impacts are not uniformly negative. It is the negative impacts, however, that are most often noted. Either the perception or reality of rampant crime can scare away customers, potential employees, lending institutions, even casualty insurance underwriters. Yet, competitors may also be driven away. Operating in a high-crime area can be advantageous, on balance, for some firms. Our analysis of nearly 5,000 urban businesses started between 1986 and 1992 indicates that those most seriously impacted by crime exhibit no measureable disadvantage regarding firm size, capitalization, survival rates, or other traits, relative to firms whose owners report that crime has not impacted them negatively.
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Industry Learning Environments and the Heterogeneity of Firm Performance
December 2006
Working Paper Number:
CES-06-29
This paper characterizes inter-industry heterogeneity in rates of learning-by-doing and examines how industry learning rates are connected with firm performance. Using data from the Census Bureau and Compustat, we measure the industry learning rate as the coefficient on cumulative output in a production function. We find that learning rates vary considerably among industries and are higher in industries with greater R&D, advertising, and capital intensity. More importantly, we find that higher rates of learning are associated with wider dispersion of Tobin's q and profitability among firms in the industry. Together, these findings suggest that learning intensity represents an important characteristic of the industry environment.
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Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?
September 2005
Working Paper Number:
CES-05-11
There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high 'productivity' businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.
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Prices, Spatial Competition, and Heterogeneous Producers: An Empirical Test
August 2004
Working Paper Number:
CES-04-16
In markets where spatial competition is important, many models predict that average prices are lower in denser markets (i.e., those with more producers per unit area). Homogeneous-producer models attribute this effect solely to lower optimal markups. However, when producers instead differ in their production costs, a second mechanism also acts to lower equilibrium prices: competition-driven selection on costs. Consumers' greater substitution possibilities in denser markets make it more difficult for high-cost firms to profitably operate, truncating the equilibrium cost (and price) distributions from above. This selection process can be empirically distinguished from the homogenous-producer case because it implies that not only do average prices fall as density rises, but that upper-bound prices and price dispersion should also decline as well. I find empirical support for this process using a rich set of price data from U.S. ready-mixed concrete plants. Features of the industry offer an arguably exogenous source of producer density variation with which to identify these effects. I also show that the findings do not simply result from lower factor prices in dense markets, but rather because dense-market producers are low-cost because they are more efficient.
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The Survival of Industrial Plants
October 2002
Working Paper Number:
CES-02-25
The study seeks to explain the attrition rate of new manufacturing plants in the United States in terms of three vectors of variables. The first explains how survival of the fittest proceeds through learning by firms (plants) about their own relative efficiency. The second explains how efficiency systematically changes over time and what augments or diminishes it. The third captures the opportunity cost of resources employed in a plant. The model is tested using maximum-likelihood probit analysis with very large samples for successive census years in the 1967-97 period. One sample consists of an unbalanced panel of about three-fourths of a million plants of single and multi-unit firms, or alternatively of about 300,000 plants if only the most reliable data are considered. The second is restricted to the plants of multi-unit firms in the same time span and consists of an unbalanced panel of more than 100,000 plants. The empirical analysis strongly confirms the predictions of the model.
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Survival of the Best Fit: Competition from Low Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants
October 2002
Working Paper Number:
CES-02-22
We examine the relationship between import competition from low wage countries and the reallocation of US manufacturing from 1977 to 1997. Both employment and output growth are slower for plants that face higher levels of low wage import competition in their industry. As a result, US manufacturing is reallocated over time towards industries that are more capital and skill intensive. Differential growth is driven by a combination of increased plant failure rates and slower growth of surviving plants. Within industries, low wage import competition has the strongest effects on the least capital and skill intensive plants. Surviving plants that switch industries move into more capital and skill intensive sectors when they face low wage competition.
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Mergers and Acquisitions and Productivity in the U.S. Meat Products Industries: Evidence from the Micro Data
March 2002
Working Paper Number:
CES-02-07
This paper investigates the motives for mergers and acquisitions in the U.S. meat products industry from1977-92. Results show that acquired meat and poultry plants were highly productive before mergers, and that meat plants significantly improved productivity growth in the post-merger periods, but poultry plants did not.
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Diversification Discount or Premium? New Evidence from BITS Establishment-Level Data
December 2001
Working Paper Number:
CES-01-13
This paper examines whether the finding of a diversification discount in U.S. stock markets is only a data artifact. Segment data may give rise to biased estimates of the value effect of diversification because segments are defined inconsistently across firms, and that inconsistency does not occur at random. I use a new establishment-level database that covers the whole U.S. economy (BITS) to construct business units that are more consistently and objectively defined across firms, and thus more comparable. Using a common methodological approach on a sample of firms which exhibit a diversification discount according to segment data, I find that, when BITS data are used, diversified firms actually trade at a significant average premium. The premium is robust to variations in the method, sample, business unit definition, and measures of excess value and diversification used.
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The Impact of Ownership Changes: A View from Labor Markets
March 2000
Working Paper Number:
CES-00-02
Previous studies of mergers and acquisition often focus on firms' performance such as profits, productivity and market shares. However, from a broad competition policy perspective, the impacts on labor and wages are crucial. In this study, we use plant-level data for the entire U.S. manufacturing for the period 1977-87 to examine the effects of ownership changes on employment, wages and plant closing. Our principal findings are that ownership changes are not a primary vehicle for cuts in employment and wages, or closing plants. Instead, the typical ownership change appear to increase jobs and their quality as measured by wages. However, some ownership changes, particularly those in bigger plants, are associated with job loss, and the typical worker fares much worse than the typical plant. Finally, we find that plants that changed owners have a higher probability of survival than those that did not. Overall, the impact of ownership changes on labor markets are positive.
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Preferential Procurement Programs Do Not Necessarily Help Minority-Owned Business
January 1995
Working Paper Number:
CES-95-01
Some minority business enterprises (MBEs) benefit from their participation in government preferential procurement programs and some do not. A subset of minority vendors identified in this study behaves in ways suggesting sensitivity to penalties for violating minority business certification and procurement program regulations. These firms flourish in the absence of fraud penalties. A different group of minority vendors selling to government benefits from an environment in which MBE certification is comprehensive, bonding and working capital assistance are available, and assistance is delivered by a staff dedicated to aiding potential and actual MBE vendors. The preferential procurement program can serve as either a valuable economic development tool for fostering minority business development, or it can promote MBE front companies that pass on their procurement contracts to nonminority firms. Some governments choose to operate the former type of program; others opt for the latter.
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