Maria Elena Bontempi

Intangible capital and productivity at the firm level: a panel data assessment

The econometric literature on measuring returns on intangible capital is vast, but we still know little about the effects on productivity of different types of intellectual capital (R&D and patents) and customer capital (trademarks and advertising). The aim of this paper is to estimate the marginal productivity of different types of intangibles by relying on the theoretical framework of the production function, which we apply to a large panel of Italian companies. To this end, the European accounting system makes it possible to compare the impact on productivity of intangibles measured from expenditures (as usual in Anglo-American studies) with the impact of intangible assets reported by companies in their balance sheets (a measure which is available in the Italian context, for example, but less common in the literature). Our results contribute two main findings to the literature. First, among the intangible components, the highest marginal productivity is that of intellectual capital, customer capital and intangible assets. Second, the use of accounting information on intangible investments is crucial to find high effects of intangible assets on productivity, while intangibles measured from expenses seem to play a more limited role. Preliminary results obtained from sub-samples mimicking the presence of spillovers deliver higher effects of intellectual capital on productivity, suggesting that intangibles’ social value is larger than the part we can estimate with individual firm data.

Corporate Taxation and its Reform: The Effects on Corporate Financing Decisions in Italy

The aim of this paper is twofold. First, we measure the relationship between fiscal variables and companies debt choices in Italy using a dynamic representation of the modified pecking order model, where both trade-off and pecking order theories are nested. Second, our estimation results are used, jointly with some tax simulations undertaken with a company microsimulation tax-model (MATIS), to assess the effects on leverage of two recent tax reforms in Italy since 1996. Main results suggest that: (a) fiscal effects are significant and robust explanations of firms’ financial behaviour; (b) the reforms analysed are able to induce similar reductions in firms’ leverage, when compared with the situation prevailing in 1996. However, the routes through which this occurs are different (relative price in the first case, cash flow in the second), tracing some important differences in the overall evaluation of the two reforms.

Implementing a strategy to reduce the instrument count in panel GMM

The problem of instrument proliferation and its consequences (overfitting of the endogenous explanatory variables, biased IV and GMM estimators, weakening of the power of the overidentification tests) are well known. This paper introduces a statistical method to reduce the instrument count. The principal component analysis (PCA) is applied on the instrument matrix, and the PCA scores are used as instruments for the panel generalized method-of-moments (GMM) estimation. This strategy is implemented through the new command pca2.

Investment–uncertainty relationship: differences between intangible and physical capital

ABSTRACT This paper disentangles the effects of uncertainty in explaining the heterogeneity of firms’ investments. In particular, following Bloom [2007. “Uncertainty and the Dynamics of R&D.” American Economic Review 97 (2): 250–255], we test the role of uncertainty and liquidity constraints extending the model to include R&D, non-R&D intangibles, as well as physical capital. The analysis is performed on a large data set of Italian firms, covering both manufacturing and services sectors, as well as large and small firms. We show that non-convex adjustment costs affect different capital inputs in different ways, depending on their degree of firm-specificity. The results confirm the Bloom model: flow adjustment costs explain investment in R&D and, to a lesser extent, in non-R&D intangibles. However, it struggles to explain tangible investment plans because of the ambiguous effect of the stock adjustment costs.

The Effect of Neglecting the Slope Parameters Heterogeneity on Dynamic Models of Corporate Capital Structure

We present a parsimonious representation of debt-ratio dynamics that is able to nest the Trade-Off, Pecking-Order and Market-Timing theoretical models, at the same time avoiding the poolability of the slope parameters. The inference on the heterogeneous speed of adjustment of the firm towards the target debt ratio is based on a comparison of the unit root results from both individual company and (this is a relative novelty in the case of micro-data) panel data. Results show that company behavior is largely heterogeneous with regard to the theory underlying the historical data. Our proposed methodology may be usefully employed in order to identify sub-samples of companies behaving in an homogeneous manner, and can be extended to study the empirical capital structure models with more appropriate quantitative instruments. This would avoid the arbitrary a priori selection of sub-samples and the imposition of untested poolability assumptions as commonly occurs in the empirical literature.

Pre-Trade Transparency and Trade Size

We analyse how Pre-Trade Transparency (PTT) affects the behaviour of different stock traders. To do so, we exploit a natural experiment, that is the PTT change in the equity segment of Italian Stock Exchange (ISE) which occurred in July 2007, with the aim of reducing information asymmetries between individuals and intermediaries/institutional investors. We specify a dynamic empirical model for trade size and estimate it on a large panel of tick-by-tick data. Results suggest that increased transparency affects the dynamic trade pattern emerging from interacting strategic decisions of different traders. In addition, the contribution of the order flow disclosure both in reducing the adverse selection component of the bid--ask spread, and in weakening the sensitiveness to risk of the trade size also emerges. Overall, PTT enhancement should reduce the informative disequilibrium among market participants and improve the quality of the market.

ICT and Non-ICT Investments: Short and Long Run Macro Dynamics

In this paper, we model business investment distinguishing between ICT (communication equipment, hardware and software) and Non-ICT (machinery and equipment, and nonresidential buildings) components and taking into account asset specific characteristics potentially affecting the reactivity of capital accumulation over the business cycle. Business investment and ICT and Non-ICT assets are estimated within a VECM model to test, in a unique framework, the assumptions of the flexible accelerator model (Clark, 1944, and Koyck, 1954) and of the neoclassical model of Hall and Jorgenson (1967), as well as how financial constraints and uncertainty influence investment behaviour (Hall and Lerner, 2010, and Bloom, 2007). Our findings suggest that the long-run relationship with standard macro determinants (output and user cost) is verified for aggregate business capital stock as well as for individual Non-ICT assets but not for ICT. In the short run, liquidity is a key determinant of investment behaviour independently of the asset type. In the long-run, uncertainty significantly affects ICT. Finally, the results of the counterfactual exercises over the latest Italian recession support the idea that ICT is a key policy variable to foster the economic recovery.

Market Power and Duration of R&D Investment in a Panel of Italian Firms

Studies about innovation find evidence of a positive relationship between technological advancement and firm performance, in particular when the innovative effort is continuous. This paper aims to further the analysis on the duration of R&D investment at the firm level. The contribution of this study is threefold: first, we extend Manez et al. [2014], Triguero et al. [2014] analysis for Spain to the Italian case: we use a panel of manufacturing and service companies, thus enlarging the view of R&D duration within the European countries. Secondly, from a methodological point of view, we employ both discrete- and continuous-time duration models, in order to test the Proportional Hazards (PH) assumption, i.e. the assumption that the hazard rate is equivalent over time across groups. Last, but not least, we assess whether a firm’s likelihood of continuing investment in R&D depends on the market power of companies. We test alternative measures for market power: the classical price-cost margin and a new proxy for the firm demand elasticity, obtained from a specific survey question. Results are in line with the hypothesis that R&D presents considerable temporal spill overs and strong persistence, even once unobserved heterogeneity is controlled for. Also, we argue that the appropriate proxy for market power is the firm demand elasticity, and we find support for the Schumpeterian hypothesis.

Pre-Trade Transparency on the Italian Stock Exchange: A Trade Size Model on Panel Data

The purpose of this study was to analyze the effects that have been caused by changes in pre-trade transparency upon the behavior of stock traders. We used a trade size model and tested it before, during and after the period when the Italian Stock Exchange introduced a 20-level order book with disaggregated orders. Tick by tick data of the whole set of stocks (up to 277) listed on the Italian Stock Exchange were studied through fixed-effects panel models, within intra day (every 30 minutes and 150 minutes) and daily time frames. Our results indicate that order flows, bidask spreads, levels of risk and some information events differentially affect trade sizes when investors receive better information prior to negotiation. Both (intra day) informed and uninformed traders operating in a more transparent market became more reticent, with reduced trades sizes and higher orders’ cancellations. Moreover, it appears that the higher degree of order book disclosure permits traders to downsize their level of risk aversion; i.e. it reduces the ’uncertainty’ that would otherwise result in disrupted trading activity under conditions of information opacity.

The Trade-off and Pecking-Order Empirical Effects of Corporate Taxation on Financial Choices: A Unified Approach

The aim of this paper is to measure the relationship between fiscal variables and corporate debt choices. Data on Italian manufacturing companies are used because of the substantial variability of the tax legislation during the sample period, as well as the availability of detailed accounting information which allows for reliable inferences. The reference model is an empirical representation of the modified pecking order (MPO) approach, where both trade-off and pecking-order theories are nested. We find that both the trade-off relative price of debt and equity finance, and the pecking-order net-of-tax cash flow, are significant, robust ways by which corporate taxation affects financing decisions.