This paper documents the within firm reallocation of inputs and outputs as a result of a trade policy shock on the input side. A unique firm-input level dataset for India with information on different raw material inputs used in production, enables us to identify firms with imported inputs subject to trade policy. To guide the empirics, we first develop a back-bone model of heterogeneous firms that source inputs from abroad. We find that affected firms engage in input reallocation and lower their use of protected inputs by 25-40%, relative to other inputs. Especially large firms and multi-output firms skew their input use towards unprotected inputs. To identify the output reallocation ensuing trade protection on inputs, we develop a firm level input-output correspondence. Firms reduce their sales of outputs made of protected inputs on average by 50-80%, relative to sales of other outputs. We find a firm level decrease in markups, suggesting that the cost of imported inputs is only partially passed through to output prices. Thus, this paper documents a new channel through which trade protection negatively impacts input-using firms.
{"title":"Input Reallocation within Firms","authors":"H. Vandenbussche, Christian Viegelahn","doi":"10.2139/ssrn.2810964","DOIUrl":"https://doi.org/10.2139/ssrn.2810964","url":null,"abstract":"This paper documents the within firm reallocation of inputs and outputs as a result of a trade policy shock on the input side. A unique firm-input level dataset for India with information on different raw material inputs used in production, enables us to identify firms with imported inputs subject to trade policy. To guide the empirics, we first develop a back-bone model of heterogeneous firms that source inputs from abroad. We find that affected firms engage in input reallocation and lower their use of protected inputs by 25-40%, relative to other inputs. Especially large firms and multi-output firms skew their input use towards unprotected inputs. To identify the output reallocation ensuing trade protection on inputs, we develop a firm level input-output correspondence. Firms reduce their sales of outputs made of protected inputs on average by 50-80%, relative to sales of other outputs. We find a firm level decrease in markups, suggesting that the cost of imported inputs is only partially passed through to output prices. Thus, this paper documents a new channel through which trade protection negatively impacts input-using firms.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"33 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82475518","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a formal model that links the design of a firm’s incentive structure to the firm’s rate of growth. Motivated by the prospect of promotion, employees exert effort over and above their formal job requirements to improve processes and make the firm more efficient. Firms that are growing faster, in turn, have more promotion opportunities which links firms’ growth rate and the incentives managers experience. We show that the associated dynamics lead to three distinct epochs of a firm’s lifecycle: rapid growth and high-powered incentives driven by frequent promotion opportunities; moderate growth with infrequent promotion opportunities but large salary increases contingent on promotion; and finally stagnant firms with low-powered incentives.
{"title":"Firm Lifecycles: Linking Employee Incentives and Firm Growth Dynamics","authors":"V. M. Bennett, Daniel A. Levinthal","doi":"10.2139/ssrn.2572709","DOIUrl":"https://doi.org/10.2139/ssrn.2572709","url":null,"abstract":"We develop a formal model that links the design of a firm’s incentive structure to the firm’s rate of growth. Motivated by the prospect of promotion, employees exert effort over and above their formal job requirements to improve processes and make the firm more efficient. Firms that are growing faster, in turn, have more promotion opportunities which links firms’ growth rate and the incentives managers experience. We show that the associated dynamics lead to three distinct epochs of a firm’s lifecycle: rapid growth and high-powered incentives driven by frequent promotion opportunities; moderate growth with infrequent promotion opportunities but large salary increases contingent on promotion; and finally stagnant firms with low-powered incentives.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"211 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86765290","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Maxime C. Cohen, Swati Gupta, Jeremy J. Kalas, G. Perakis
We study a multi-period, multi-item dynamic pricing problem faced by a retailer. The objective is to maximize the total profit by choosing optimal prices while satisfying several important practical business rules. The strength of our work lies in a graphical model reformulation we introduce, which can be used to solve the problem, while providing access to a whole range of ideas from combinatorial optimization. Contrasting to previous literature, we do not make any assumptions on the structure of the demand functions. The complexity of our method depends linearly on the number of time periods but is exponential in the memory of the model (number of past prices that affect the current demand) and in the number of items. Consequently for problems with large memory, we show that the profit maximization problem is NP-hard by presenting a reduction from the Traveling Salesman Problem. We then approximate general demand functions using the commonly used reference price model that accounts for an exponentially smoothed contribution of all the past prices. For the reference price model, we develop a (1 $epsilon$)-approximation with low runtimes. We extend the reference price model to handle cross-item effects among multiple items using the notion of a virtual reference price. To allow for scalability of our approach, we cluster the items into blocks, and show how to adapt our methods to incorporate global business constraints. Finally, we apply our solution approaches using demand models calibrated by supermarket data, and show that we can solve realistic size instances in a few minutes.
{"title":"An Efficient Algorithm for Dynamic Pricing Using a Graphical Representation","authors":"Maxime C. Cohen, Swati Gupta, Jeremy J. Kalas, G. Perakis","doi":"10.2139/ssrn.2772231","DOIUrl":"https://doi.org/10.2139/ssrn.2772231","url":null,"abstract":"We study a multi-period, multi-item dynamic pricing problem faced by a retailer. The objective is to maximize the total profit by choosing optimal prices while satisfying several important practical business rules. The strength of our work lies in a graphical model reformulation we introduce, which can be used to solve the problem, while providing access to a whole range of ideas from combinatorial optimization. Contrasting to previous literature, we do not make any assumptions on the structure of the demand functions. The complexity of our method depends linearly on the number of time periods but is exponential in the memory of the model (number of past prices that affect the current demand) and in the number of items. Consequently for problems with large memory, we show that the profit maximization problem is NP-hard by presenting a reduction from the Traveling Salesman Problem. We then approximate general demand functions using the commonly used reference price model that accounts for an exponentially smoothed contribution of all the past prices. For the reference price model, we develop a (1 $epsilon$)-approximation with low runtimes. We extend the reference price model to handle cross-item effects among multiple items using the notion of a virtual reference price. To allow for scalability of our approach, we cluster the items into blocks, and show how to adapt our methods to incorporate global business constraints. Finally, we apply our solution approaches using demand models calibrated by supermarket data, and show that we can solve realistic size instances in a few minutes.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"114 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-04-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85065410","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I study transactions between aircraft manufacturers and airlines as well as airlines’ utilization of their fleet. Aircraft production is characterized by economies of scale via learningby-doing, which creates a trade-off between current profit and future competitive advantage in the aircraft market. The latter consideration makes large buyers more attractive than small buyers and induces quantity discounts. The resulting nonlinear pricing strategy may distort both production and allocation in favor of large buyers. There is a negative correlation between the size of aircraft orders and the per-unit price. There is also a positive correlation between the price paid and the utilization rate of the aircraft model, which suggests that the manufacturers’ price discrimination leads to the misallocation of aircraft. To assess whether there is an inefficient allocation, I model the market and show that price discrimination by upstream firms may lead to an inefficient outcome compared with uniform pricing. Then, I construct and estimate a dynamic model of the aircraft market that includes a model of utilization. Finally, I conduct counterfactual simulations using the estimated parameters. I find that uniform pricing increases aircraft production by 10% and total welfare by 1.6%. ∗I am extremely thankful to Igal Hendel, David Besanko, Aviv Nevo, Rob Porter and seminar participants at Northwestern University for their valuable comments and suggestions. †Northwestern University, Department of Economics. email: onishi@u.northwestern.edu
{"title":"Quantity Discounts and Capital Misallocation in Vertical Relationships: The Case of Aircraft and Airline Industries","authors":"Ken Onishi","doi":"10.2139/ssrn.2739658","DOIUrl":"https://doi.org/10.2139/ssrn.2739658","url":null,"abstract":"I study transactions between aircraft manufacturers and airlines as well as airlines’ utilization of their fleet. Aircraft production is characterized by economies of scale via learningby-doing, which creates a trade-off between current profit and future competitive advantage in the aircraft market. The latter consideration makes large buyers more attractive than small buyers and induces quantity discounts. The resulting nonlinear pricing strategy may distort both production and allocation in favor of large buyers. There is a negative correlation between the size of aircraft orders and the per-unit price. There is also a positive correlation between the price paid and the utilization rate of the aircraft model, which suggests that the manufacturers’ price discrimination leads to the misallocation of aircraft. To assess whether there is an inefficient allocation, I model the market and show that price discrimination by upstream firms may lead to an inefficient outcome compared with uniform pricing. Then, I construct and estimate a dynamic model of the aircraft market that includes a model of utilization. Finally, I conduct counterfactual simulations using the estimated parameters. I find that uniform pricing increases aircraft production by 10% and total welfare by 1.6%. ∗I am extremely thankful to Igal Hendel, David Besanko, Aviv Nevo, Rob Porter and seminar participants at Northwestern University for their valuable comments and suggestions. †Northwestern University, Department of Economics. email: onishi@u.northwestern.edu","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"36 4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-02-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84152007","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Kung‐Cheng Ho, Shih‐Cheng Lee, Chien-ting Lin, Lee-Hsien Pan
This study examines the relationship between information disclosures and firm value under different levels of product market competition. Using a unique information rating scheme that draws from 114 measures over five dimensions of information disclosure from 2005 to 2013, we find that firms with higher levels of information disclosure (better information transparency) are related to higher industry-adjusted Tobin’s Q. We also find that the levels of information disclosure and product market competition interact in affecting firm value. This relationship is robust after controlling for a number of firm-specific factors and agency-based measures. Our paper brings two streams of research that aim to explain the variation in firms’ value together, and suggests that information disclosure and product market competition complement each other in enhancing a firm’s value.
{"title":"Information Disclosure, Product Market Competition, and Firm Value","authors":"Kung‐Cheng Ho, Shih‐Cheng Lee, Chien-ting Lin, Lee-Hsien Pan","doi":"10.2139/ssrn.2717997","DOIUrl":"https://doi.org/10.2139/ssrn.2717997","url":null,"abstract":"This study examines the relationship between information disclosures and firm value under different levels of product market competition. Using a unique information rating scheme that draws from 114 measures over five dimensions of information disclosure from 2005 to 2013, we find that firms with higher levels of information disclosure (better information transparency) are related to higher industry-adjusted Tobin’s Q. We also find that the levels of information disclosure and product market competition interact in affecting firm value. This relationship is robust after controlling for a number of firm-specific factors and agency-based measures. Our paper brings two streams of research that aim to explain the variation in firms’ value together, and suggests that information disclosure and product market competition complement each other in enhancing a firm’s value.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"17 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-01-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81824762","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We use information from product descriptions in firm 10-Ks to analyze whether product market competition influences analysts’ decisions to cover firms, the accuracy and consistency of their earnings reports and their likelihood of obtaining Analyst All-Star status. We find that a firm’s analyst coverage and analyst forecast accuracy and consistency increase with product market competition measured by product similarity. Analyst decisions to cover new firms or drop firms from the firms that they cover are also related to a firm’s competition relation with the other firms in their coverage portfolios. We also show that analysts whose portfolios comprise firms with greater product competition are more likely to obtain Analyst All-Star status.
{"title":"Does Product Market Competition Influence Analyst Coverage and Analyst Career Success?","authors":"Charles Hsu, Xi Li, Zhiming Ma, G. Phillips","doi":"10.2139/ssrn.2698331","DOIUrl":"https://doi.org/10.2139/ssrn.2698331","url":null,"abstract":"We use information from product descriptions in firm 10-Ks to analyze whether product market competition influences analysts’ decisions to cover firms, the accuracy and consistency of their earnings reports and their likelihood of obtaining Analyst All-Star status. We find that a firm’s analyst coverage and analyst forecast accuracy and consistency increase with product market competition measured by product similarity. Analyst decisions to cover new firms or drop firms from the firms that they cover are also related to a firm’s competition relation with the other firms in their coverage portfolios. We also show that analysts whose portfolios comprise firms with greater product competition are more likely to obtain Analyst All-Star status.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75721881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With non-homothetic preferences, a monopolistic competition equilibrium is inefficient in the way inputs are allocated towards production. This paper quantifies a gains from trade component that is present only when reallocation is properly measured in a setting with heterogeneous firms that charge variable markups. Due to variable markups, reallocations initiated by aggregate shocks impact allocative efficiency depending on the adjustment of the market power distribution. My measurement compares real income growth with the hypothetical case of no misallocation in quantities. Using firm and industry-level data from Chile during a period with large terms of trade gains, I find that cost reductions are associated with losses in allocative efficiency because firms pass-through measured productivity gains into markups. From industry-year variation, there is also evidence that industries that import a larger share of their inputs become more misallocated as a result of exchange rate appreciations compared to open sectors whose output competition becomes fiercer.
{"title":"Markups and Misallocation with Trade and Heterogeneous Firms","authors":"Ariel Weinberger","doi":"10.24149/gwp251","DOIUrl":"https://doi.org/10.24149/gwp251","url":null,"abstract":"With non-homothetic preferences, a monopolistic competition equilibrium is inefficient in the way inputs are allocated towards production. This paper quantifies a gains from trade component that is present only when reallocation is properly measured in a setting with heterogeneous firms that charge variable markups. Due to variable markups, reallocations initiated by aggregate shocks impact allocative efficiency depending on the adjustment of the market power distribution. My measurement compares real income growth with the hypothetical case of no misallocation in quantities. Using firm and industry-level data from Chile during a period with large terms of trade gains, I find that cost reductions are associated with losses in allocative efficiency because firms pass-through measured productivity gains into markups. From industry-year variation, there is also evidence that industries that import a larger share of their inputs become more misallocated as a result of exchange rate appreciations compared to open sectors whose output competition becomes fiercer.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"28 13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73639129","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT: Using a recently expanded dataset on supplier-customer links, we introduce a dynamic relationship life-cycle hypothesis. We hypothesize that the relation between customer-base concentration and profitability is significantly negative in the early years of the relationship, but becomes positive as the relationship matures. The key driver of this dynamic is the customer-specific investments that the relationship entails. These investments result in larger fixed costs, greater operating leverage, and a higher probability of losses early in the relationship, but can significantly benefit the firm as the relationship matures. Although many of these money-losing firms in early-stage relationships were not studied in Patatoukas (2012), we find a market reaction to increases in customer concentration similar to that in his paper. This result provides powerful confirmatory evidence of the value of customer concentration. We document one of the intangible benefits of customer concentration, technology sha...
{"title":"Customer-Base Concentration, Profitability and the Relationship Life Cycle","authors":"Paul Irvine, Shawn Saeyeul Park, Celim Yildizhan","doi":"10.2139/ssrn.2347095","DOIUrl":"https://doi.org/10.2139/ssrn.2347095","url":null,"abstract":"ABSTRACT: Using a recently expanded dataset on supplier-customer links, we introduce a dynamic relationship life-cycle hypothesis. We hypothesize that the relation between customer-base concentration and profitability is significantly negative in the early years of the relationship, but becomes positive as the relationship matures. The key driver of this dynamic is the customer-specific investments that the relationship entails. These investments result in larger fixed costs, greater operating leverage, and a higher probability of losses early in the relationship, but can significantly benefit the firm as the relationship matures. Although many of these money-losing firms in early-stage relationships were not studied in Patatoukas (2012), we find a market reaction to increases in customer concentration similar to that in his paper. This result provides powerful confirmatory evidence of the value of customer concentration. We document one of the intangible benefits of customer concentration, technology sha...","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-07-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83272912","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We investigate the effects of a non-financial firm’s entry on competition in the retail payments market, from the perspective of duopoly between an incumbent and an entrant in conditions of vertical restraints. Considering the cross-platform externalities in payment processing, differentiated preferences for payment platforms, and competitive bottleneck on the consumer side, we derive the following results. When only the entry of a vertically integrated (or end-to-end service) provider is allowed, either all merchants choose to multi-home or no entry occurs, regardless of the regulatory requirement. On the other hand, if the entry of a downstream-only (or front-end service) provider is possible, a partial multi-homing equilibrium result can emerge for some conditions under which the entry of an end-to-end service provider does not occur. In addition, due to the lowered entry cost, the overall welfare is greater when the entry of downstream-only service is possible although the entire increase in welfare goes to the entrant. Without regulation, however, the vertically integrated incumbent does not voluntarily provide the back-end service to the entrant when the merchant’s benefit from the payments service is not sufficiently high. It suggests the need for proper regulatory measures to reach a socially desirable outcome from the new entry in the retail payments market.
{"title":"Entry of Non-Financial Firms and Competition in the Retail Payments Market","authors":"Jooyong Jun","doi":"10.2139/ssrn.2628481","DOIUrl":"https://doi.org/10.2139/ssrn.2628481","url":null,"abstract":"We investigate the effects of a non-financial firm’s entry on competition in the retail payments market, from the perspective of duopoly between an incumbent and an entrant in conditions of vertical restraints. Considering the cross-platform externalities in payment processing, differentiated preferences for payment platforms, and competitive bottleneck on the consumer side, we derive the following results. When only the entry of a vertically integrated (or end-to-end service) provider is allowed, either all merchants choose to multi-home or no entry occurs, regardless of the regulatory requirement. On the other hand, if the entry of a downstream-only (or front-end service) provider is possible, a partial multi-homing equilibrium result can emerge for some conditions under which the entry of an end-to-end service provider does not occur. In addition, due to the lowered entry cost, the overall welfare is greater when the entry of downstream-only service is possible although the entire increase in welfare goes to the entrant. Without regulation, however, the vertically integrated incumbent does not voluntarily provide the back-end service to the entrant when the merchant’s benefit from the payments service is not sufficiently high. It suggests the need for proper regulatory measures to reach a socially desirable outcome from the new entry in the retail payments market.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"95 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-07-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83720021","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT We predict that access to cross-border financing by the industrial sector reduces firms' reliance on domestic banks, thereby leading to lower rents for banks and greater competition in the domestic banking sector. We also predict that banks take on more risk to offset these lost rents and remain competitive. Using mandatory adoption of International Financial Reporting Standards (IFRS) to identify variation in cross-border financing, we find evidence consistent with our hypotheses. Additional tests verify that the effects emanate from the demand side (i.e., firms not relying on banks) rather than the supply side (i.e., banks not willing to lend to firms). Overall, we document how competition from overseas financial markets influences the domestic banking sector.
{"title":"Cross-Border Financing by the Industrial Sector Increases Competition in the Domestic Banking Sector","authors":"Sudarshan Jayaraman, S. Kothari","doi":"10.2308/ACCR-51199","DOIUrl":"https://doi.org/10.2308/ACCR-51199","url":null,"abstract":"ABSTRACT We predict that access to cross-border financing by the industrial sector reduces firms' reliance on domestic banks, thereby leading to lower rents for banks and greater competition in the domestic banking sector. We also predict that banks take on more risk to offset these lost rents and remain competitive. Using mandatory adoption of International Financial Reporting Standards (IFRS) to identify variation in cross-border financing, we find evidence consistent with our hypotheses. Additional tests verify that the effects emanate from the demand side (i.e., firms not relying on banks) rather than the supply side (i.e., banks not willing to lend to firms). Overall, we document how competition from overseas financial markets influences the domestic banking sector.","PeriodicalId":11837,"journal":{"name":"ERN: Other IO: Empirical Studies of Firms & Markets (Topic)","volume":"os-57 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87099385","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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