The effects of tax incentives for small firms on employment levels

This paper will examine the effects of tax incentives for small businesses on employment level evaluating a program with this purpose implemented in Brazil in the 1990s. We first develop a theoretical framework which guides both the de nition of the parameters of interest and their identi cation. Selection problems both into the treatment group and into the data sample are tackled by combining fixed effects methods and regression discontinuity design on alternative sub-samples of a longitudinal database of manufacturing firms. The results show that on the one hand the size composition of the treated fi rms may be changed due to the survival of some smaller firms that would have exited had it not been eligible to the program. On the other hand, the treated firms who do not depend on the program to survive do employ more workers.

Debt composition and exchange rate balance sheet effects in Brazil: A firm level analysis

In this paper we study the interaction between macroeconomic environment and firms’ balance sheet effects in Brazil during the 1990’s. We start by assessing the influence of macroeconomic conditions on firms’ debt composition in Brazil. We found that larger firms tend to change debt currency composition more in response to a change in the exchange rate risk than small firms. We then proceed to investigate if and how exchange rate balance sheet effects affected the firms’ investment decisions. We test directly the exchange rate balance sheet effect on investment. Contrary to earlier findings (Bleakley and Cowan, 2002), we found that firms more indebted in foreign currency tend to invest less when there is an exchange rate devaluation. We tried different controls for the competitiveness effect. First, we control directly for the effect of the exchange rate on exports and imported inputs. We then pursue an alternative investigation strategy, inspired by the credit channel literature. According to this perspective, Tobin’s q can provide an adequate control for the competitiveness effect on investment. Our results provide supporting evidence for imperfect capital markets, and for a negative exchange rate balance sheet effect in Brazil. The results concerning the exchange rate balance sheet effect on investment are statistically significant and robust across the different specifications. We tested the results across different periods, classified according to the macroeconomic environment. Our findings suggest that the negative exchange rate balance sheet effect we found in the whole sample is due to the floating exchange rate period. We also found that exchange rate devaluations have important negative impact on both cash flows and sales of indebted firms. Furthermore, the impact of exchange rate variations is asymmetric, and the significant effect detected when no asymmetry is imposed is engendered by exchange rate devaluations.

Endogenous normative indices for the industry concentration

This paper presents new indices for measuring the industry concentration. The indices proposed (C n ) are of a normative type because they embody (endogenous) weights matching the market shares of the individual firms to their Marshallian welfare shares. These indices belong to an enlarged class of the Performance Gradient Indexes introduced by Dansby&Willig(I979). The definition of Cn for the consumers allows a new interpretation for the Hirschman-Herfindahl index (H), which can be viewed as a normative index according to particular values of the demand parameters. For homogeneous product industries, Cn equates H for every market distribution if (and only if) the market demand is linear. Whenever the inverse demand curve is convex (concave), H underestimates( overestimates) the industry concentration measured by the normative indexo For these industries, H overestimates (underestimates) the concentration changes caused by market transfers among small firms if the inverse demand curve is convex(concave) and underestimates( overestimates) it when such tranfers benefit a large firm, according to the convexity (or the concavity) of the demand curve. For heterogeneous product industries, an explicit normative index is obtained with a market demand derived from a quasi-linear utilility function. Under symmetric preferences among the goods, the index Cn is always greater than or equal the H-index. Under asymmetric assumptions, discrepancies between the firms' market distribution and the differentiationj substitution distributions among the goods, increase the concentration but make room for some horizontal mergers do reduce it. In particular, a mean preserving spread of the differentiation(substitution) increases(decreases) the concentration only if the smaller firms' goods become more(less) differentiated(substitute) w.r.t. the other goods. One important consequence of these results is that the consumers are benefitted when the smaller firms are producing weak substitute goods, and the larger firms produce strong substitute goods or face demand curves weakly sensitive to their own prices.

Essays on economic growth

A fundamental question in development economics is why some economies are rich and others poor. To illustrate the income per capita gap across economies consider that the average gross domestic product (GDP) per capita of the richest 10 percent of economies in the year 2010 was a factor of 40-fold that of the poorest 10 percent of economies. In other words, the average person in a rich economy produces in just over 9 days what the average person in a poor economy produces in an entire year. What are the factors that can explain this difference in standard of living across the world today? With this in view, this dissertation is a conjunction of three essays on the economic growth field which we seek a possible responses to this question. The first essay investigates the existence of resource misallocation in the Brazilian manufacturing sector and measures possible distortions in it. Using a similar method of measurement to the one developed by Hsieh and Klenow (2009) and firm-level data for 1996-2011 we find evidence of misallocation in the manufacturing sector during the observed period. Moreover, our results show that misallocation has been growing since 2005, and it presents a non-smooth dynamic. Significantly, we find that the Brazilian manufacturing sector operates at about 50% of its efficient product. With this, if capital and labor were optimally reallocated between firms and sectors we would obtain an aggregate output growth of approximately 110-180% depending on the mode in which the capital share is measured. We also find that the economic crisis did not have a substantial effect on the total productivity factor or on the sector's misallocation. However, small firms in particular seem to be strongly affected in a global crisis. Furthermore, the effects described would be attenuated if we consider linkages and complementarity effects among sectors. Despite Brazil's well-known high tax burden, there is not evidence that this is the main source of resource misallocation. Moreover, there is a distinct pattern of structural change between the manufacturing sectors in industrialized countries and those in developing countries. Therefore, the second essay demonstrate that this pattern differs because there are some factors that distort the relative prices and also affect the output productivity. For this, we present a multi-sector model of economic growth, where distortions affect the relative prices and the allocation of inputs. This phenomenon imply that change of the production structure or perpetuation of the harmful structures to the growth rate of aggregate output. We also demonstrate that in an environment with majority decision, this distortion can be enhanced and depends on the initial distribution of firms. Furthermore, distortions in relative prices would lead to increases in the degree of misallocation of resources, and that imply that there are distinct patterns of structural changes between economies. Finally, the calibrated results of the framework developed here converge with the structural change observed in the firm-level data of the Brazilian manufacturing sector. Thereafter, using a cross-industry cross-country approach, the third essay investigates the existence of an optimal level of competition to enhance economic growth. With that in mind, we try to show that this optimal level is different from industrialized and under development economies due to the technology frontier distance, the terms of trade, and each economy's idiosyncratic characteristics. Therefore, the difference in competition industry-country level is a channel to explain the output for worker gap between countries. The theoretical and empirical results imply the existence of an inverted-U relationship between competition and growth: starting for an initially low level of competition, higher competition stimulates innovation and output growth; starting from a high initial level of competition, higher competition has a negative effect on innovation and output growth. Given on average industries in industrialized economies present higher competition level. With that if we control for the terms of trade and the industry-country fixed effect, if the industries of the developing economy operated under the same competition levels as of the industrialized ones, there is a potential increase of output of 0.2-1.0% per year. This effect on the output growth rate depends on the competition measurement used.

The revenge of the market on the rentiers why neo-liberal reports of the end of history turned out to be premature

Starting from the perspective of heterodox Keynesian-Minskyian-Kindlebergian financial economics, this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis. These include excess liquidity, income polarisation, conflicts between financial and productive capital, lack of intelligent regulation, asymmetric information, principal-agent dilemmas and bounded rationalities. However, the paper then proceeds to argue that perhaps more than ever the ‘macroeconomics’ that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated. Taking the perspective of critical social theories the paper concludes that, ultimately, the current financial crisis is the outcome of something much more systemic, namely an attempt to use neo-liberalism (or, in US terms, neo-conservatism) as a new technology of power to help transform capitalism into a rentiers’ delight. And in particular, into a system without much ‘compulsion’ on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while inflicting exactly the opposite fate on workers and small firms). A key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital. The architects of this experiment include some capitalist groups (in particular rentiers from the financial sector as well as capitalists from the ‘mature’ and most polluting industries of the preceding techno-economic paradigm), some political groups, as well as intellectual networks with their allies – including most economists and the ‘new’ left. Although rentiers did succeed in their attempt to get rid of practically all fetters on their greed, in the end the crisis materialised when ‘markets’ took their inevitable revenge on the rentiers by calling their (blatant) bluff.

The Brazilian credit market for small and medium-sized firms: an adaptive marketing approach

Neste trabalho, o mercado brasileiro de crédito para pequenas e médias empresas (PMEs) é analisado sob a perspectiva do marketing adaptativo, em que se assume que atividades mercadológicas como segmentação, gestão de relacionamento com clientes, apreçamento e desenvolvimento de produtos, são determinadas pela utilidade obtida por agentes de mercado ao atenderem a demanda. Identifica-se que a existência de assimetria de informações e de custos de transação limita e direciona as atividades de marketing no mercado estudado. A partir de uma amostra com 65.535 propostas de crédito, recebidas e avaliadas por um grande banco brasileiro entre janeiro de 2004 e setembro de 2006, estima-se a utilidade do banco em operações de crédito. Adicionalmente, 17.149 transações de empréstimos concedidos pelo banco ao segmento de pequenas empresas entre abril de 2006 e março de 2007, são investigadas. Finalmente, um conjunto de dados com 1,636 registros obtidos pela junção das bases de dados de propostas e de transações mencionados, é analisado em termos das relações entre taxas de juros e os totais de cobertura oferecidas por meio de garantias de crédito. Os resultados revelam a existência de um ambiente de marketing adaptativo, em que os pequenos tomadores de crédito produtivo são racionados, e aceitam pagar taxas de juros mais elevadas do que outros segmentos. Produtos de créditos baseados em garantias líquidas e com altas taxas de juros são desenvolvidos para suprir de maneira oportuna este segmento racionado de pequenas empresas. Ademais, a utilidade do banco em operações de crédito é afetada pela informação privada que captura ao longo de relacionamentos mantidos com seus cientes. Os resultados implicam que o sistema de marketing financeiro brasileiro não desempenha papel formativo no desenvolvimento econômico, que seria de fomento ao crédito produtivo por meio de empréstimos a baixo custo para pequenas e médias empresas. Um sistema formativo de marketing é improvável em um ambiente com informação imperfeita, como o mercado de crédito brasileiro. O estudo traz informações úteis àqueles interessados no desenvolvimento de mercados de crédito produtivo, tais como profissionais de instituições financeiras; agentes responsáveis por políticas públicas e monetárias de fomento ao crédito; e empreendedores de pequeno e médio porte que necessitem de financiamento externo para seus negócios.

Company size, organisational culture and human resource management in small to medium sized professional services firms: a case study

Cultura organizacional e gestão de recursos humanos (GRH) são componentes fundamentais para a estratégia corporativa raramente estudada no contexto das pequenas e médias empresas (PME) no setor de serviços profissionais, um ambiente no qual o capital humano das empresas companhias é particularmente importante. Um estudo de caso de uma empresa de gestão de investimentos inglesa foi realizado. A PME quase triplicou o seu quadro de funcionários, de menos de 50 a mais de 140, nos últimos seis anos. Cultura e GRH foram pesquisadas tanto historicamente quanto no momento atual por meio de uma combinação de entrevistas individuais, observação direta durante as visitas ao local e análise documental. Foi verificado que a G RH (junto com um número de outras estruturas e processos internos) tornou-se mais formal, apesar do fato de que a empresa começou com políticas de RH relativamente desenvolvidas, em comparação com outras pequenas empresas. Uma possível explicação para esta estruturação das práticas de RH é que empresas do setor de serviços profissionais tendem a dar uma importância especial à qualidade da sua força de trabalho. Esta relativa estabilidade cultural pode ser explicada pelo fato da cultura ser forte e é mantida tanto inconscientemente quanto conscientemente, por meio de mecanismos como o planejamento de pessoal, recrutamento e remuneração. As conclusões, por conseguinte, demonstram que as atitudes e percepções nem sempre mudam tão rápido quanto sistemas organizacionais, e que a relação entre cultura e gestão de recursos humanos pode ser complexa; a formalização da GRH pode reforçar a mudança cultural em certos aspectos, ao mesmo tempo abrandá-lo em outros.

The effects of small firm tax incentives on employment levels

This paper aims to evaluate the impact on employment growth of a tax incentive program targeting Brazilian manufacturing small businesses (SIMPLES). This evaluation is conducted for two distinct periods: for the year 1997, when the program was first implemented, and for the year 1999, when the eligibility rule was modified to allow the eligibility of a broader group of firms. The evaluation takes into account two distinct channels through which the charted effects operate. The first is the employment variation in the firms that became eligible for the incentives, and the second is the change in the survival probability experienced by the same group of firms. Moreover, each of these channels can be activated either by the tax reduction dimension of the program or by its dimension of red tape simplification. Our results identify positive effects on employment growth for the tax incentive program only in the dimension of red tape simplification and its effects on the 1997 sample.

Mitigating high ‘equity capital’ risk exposure to ‘small cap’ sector in India: analysing ‘key factors of success’ for ‘Institutional Investors’ whilst Investing in small cap sector in India

This paper deals with the subject of mitigating high ‘Equity Capital’ Risk Exposure to ‘Small Cap’ Sector in India. Institutional investors in India are prone to be risk averse when it comes to investing in the small cap sector in India as they find the companies risky and volatile. This paper will help analyse ‘Key Factors of success’ for ‘Institutional Investors’ whilst investing in Small Cap sector in India as some of these Indian small cap stocks offer handsome returns despite economic downturn. This paper has been harnessed carefully under the influence of expert investors, which includes Benjamin Graham (Security Analysis); Warren Buffet; Philip Fisher (Common Stocks and Uncommon Profits); and Aswath Damodaran.