International Trade, Finance, and the Organization of Firms

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We are planning to examine the following two topics: First, we want to open the blackbox of multiproduct firms by introducing an internal capital market to understand which products firms finance and export. Introducing the theory of the firm (internal capital market) allows us to bring together two separate strands of the international trade literature: the literature on export finance and the literature on multiproduct firms. This way we will endogenize the credit constraint and the number of products financed by firms. We expect that trade liberalization will make the internal capital market more efficient, thereby reducing the conglomerate discount discussed in the finance literature. We plan to test the model with US, German and French firm level data. Second, based on our previous theories we want to test empirically whether international trade leads to a convergence in corporate culture and executive pay across countries. More specifically, we want to investigate whether a decentralized firm organization, empowering the middle management, emerges in the global economy. To test the convergence hypothesis we want to construct a measure of firm organization based on data for 22.000 firms with 243.000 managers in 70 countries. We plan to use the accession of China to the WTO as a natural experiment to quantify the causal impact of international trade on the firma organization and executive pay.