Mu-Jeung Yang

Assistant Professor of Economics
University of Washington, Seattle
Department of Economics
Savery Hall, 327
Seattle, WA 98195-3330
Contact Information
Email: mjyang (at)
Phone number: (206) 543-8983
Research Fields: Productivity, Innovation, International Trade
Research Interests: Firm Dynamics: Internal and external alignment; Innovation; Strategy Process; Competitiveness; Emerging markets
Google scholar profile


Working Papers

``Micro-Level Misallocation and Entry Selection" (Paper | Appendix)

      (2nd round R&R at AEJ: Macro)

How large are the aggregate productivity losses from the misallocation of resources across firms? If entry is endogenous, the same set of measured distortions potentially induce much larger aggregate productivity losses, as the efficiency composition of entering firms is shifted towards inefficient startups. I develop and calibrate a model with plant-level micro-data for Indonesia to quantify this entry selection effect. My estimates show that entry selection can increase aggregate TFP losses from micro-distortions by over 50%, compared to existing estimates. The magnitude of this entry selection effect does not vary much for small changes in the calibrated entry probability but does increase strongly with the elasticity of substitution.

``Global Superstars under Log-Normally distorted Gravity"(paper)

Recent empirical work has argued that log-normality is important to match data on firm and exporter heterogeneity. This paper analyzes the impact of domestic entry barrier reductions on international trade in a general-equilibrium Melitz model with log-normal firm heterogeneity. Allowing for cross-country differences in firm productivity dispersions turns out to be important for quantifying international spillovers. Higher firm productivity dispersions imply more superstar entrants, which then select into exporting and endogenously generate asymmetric trade patterns. In the baseline calibration, this effect magnifies the international spillover effects of domestic entry barrier reductions by a factor of 3 to 4.

``Complementarity of Performance Pay and Task Allocation" (paper)

      (2nd round R&R at Management Science)

with Bryan Hong (Ivey Business School) and Lorenz Kueng (Kellogg School of Management)
Complementarity between different management practices has been argued to be one potential explanation for persistent performance differences across firms. Using detailed data on internal organization for a nationally representative sample of firms, we empirically test for the existence of complementary joint adoption of performance pay incentives and decentralization of decision-making authority for tasks. To address endogeneity concerns, we exploit regional variation in income tax progressivity as an instrument for the adoption of performance pay. We find systematic evidence of complementarity between performance pay and decentralization of decision-making from principals to employees. However, adopting performance pay also leads to centralization of decision-making authority from non-managerial to managerial employees. The findings suggest that performance pay adoption leads to a concentration of decision-making control at the managerial employee level, as opposed to a general movement towards more decentralization throughout the organization.

``Financial Dampening" (paper)

      (under review)

with Johannes Wieland (UC San Diego)
We propose a novel mechanism, ``financial dampening," whereby loan retrenchment by banks attenuates the effectiveness of monetary policy. The theory unifies an endogenous supply of illiquid local loans and risk-sharing among subsidiaries of bank holding companies (BHCs). We derive an IV-strategy that separates supply-driven loan retrenchment from local loan demand, by exploiting linkages through BHC-internal capital markets across spatially-separate BHC member-banks. We estimate that retrenching banks increase loan supply substantially less in response to exogenous monetary policy rate reductions. This relative decline has persistent effects on local employment and thus provides a rationale for slow recoveries from financial distress.

``Generic Strategy-Structure Configurations: Theory and Empirics" (paper)

      (revision requested: Strategy Science)

with Lorenz Kueng (Kellogg School of Management) and Bryan Hong (Ivey Business School)
We derive a new typology of generic product market strategies, in which pure types differ according to whether they pursue a competitive advantage of lower cost, higher quality or novel products. In our theory, these types are driven by two key organizational margins: employee initiative vs. coordination as well as exploration vs. exploitation of business opportunities. We then take our typology to the data by empirically analyzing the relation of firmsí generic strategies and their management practices using a unique, detailed dataset on strategic priorities, internal firm organization, performance and innovation, which is representative of the entire Canadian economy. We document how our theoretical pure types differ along a variety of organizational dimensions, such as allocation of decision authority within the managerial hierarchy, the adoption of various forms of performance pay, job-design for non-managerial employees,delayering and downsizing. Furthermore, we show that our generic strategy types are strongly correlated with current performance along the lines suggested by our theory, even after controlling for firm fixed effects and unobserved profit shocks.

``Sources of Firm Life Cycle Dynamics: Differentiating Size and Age Effects" (old draft; under revision)

      (Major revision requested: Journal of Finance)

with Lorenz Kueng (Kellogg School of Management) and Bryan Hong (Ivey Business School)
What determines the life-cycle of businesses? Exploiting unique firm-level panel data on internal organization and innovation we establish three key sets of stylized facts to inform recent theories of firm life-cycles. First, life-cycle effects are driven by startups, not by new establishments of existing firms. Second, organizational restructuring and innovation are both strongly correlated with firm growth but not with firm age, in contrast to passive learning theories of firm dynamics. Third, there are important sectoral differences in innovation activities which are monotonically increasing in firm size for manufacturing firms but hump-shaped for firms in service industries.

``Accounting for the New Gains from Trade Liberalization" (paper)

      (under review) In media: Vox

with Chang-Tai Hsieh (Booth School of Business), Nicholas Li (University of Toronto) and Ralph Ossa (University of Zurich)
We measure the ``new" gains from trade reaped by Canada as a result of the Canada-US Free Trade Agreement (CUSFTA). We think of the ``new" gains from trade of a country as all welfare effects pertaining to changes in the set of firms serving that country as emphasized in the so-called ``new" trade literature. To this end, we first develop an exact decomposition of the gains from trade which separates ``traditional" and ``new" gains. We then apply this decomposition using Canadian and US micro data and find that the ``new" welfare effects of CUSFTA on Canada were negative.

``The Impact of Emerging Market Competition on Innovation and Business Strategy" (paper)

      (under review) In media: HBR Online

with Lorenz Kueng (Kellogg School of Management) and Nicholas Li (University of Toronto)
How do firms in high-income countries adjust to emerging market competition? We estimate how a representative panel of Canadian firms adjusts innovation activities, business strategies, and exit in response to large increases in Chinese imports. Whether firms invest in process or product innovation matters: on average, the number of process innovations declines more strongly than the number of product innovations. In addition, firms that initially pursue process innovation strategies and survive have higher profits ex-post, but are ex-ante more likely to exit. In contrast, firms that initially pursue product innovation strategies have higher profits if they survive, without significant impact on exit. Both empirical patterns are consistent with our theory, which suggests that innovation strategies do not ensure insulation against competitive shocks, but instead increase risk.

``Ties that Differentiate: How Board Networks shape Innovation and Competitive Positioning" (paper)

with Yang Fan (University of Washington)
What determines the direction or similarity of firmsí innovative activity? We explore the role that networks of shared board members play in shaping competitive positioning and innovation at public companies. To estimate causal effects, we exploit exogenous variation of director deaths to show that firms that are closer connected through board networks are more differentiated in terms of product market shares, product similarity and even patenting and patent citations. Furthermore, we find evidence of significant spillover effects to third-party firms in the network, which are not directly affected by a director death. We investigate the degree to which these results can be explained by tacit collusion as opposed to optimal product differentiation.


``World Strategy Survey" (coming soon)

      In media: HBR Online

with Nick Bloom (Stanford University), Jan Rivkin (Harvard Business School) and Raffaella Sadun (Havard Business School)
What are the origins of competitive strategies? We develop a new survey tool to measure companies' strategy process, defined as processes and routines to develop, evaluate and implement strategies. In particular, we measure the processes behind questions such as: How do executives come up with new strategic ideas? How do they decide which strategies to pursue? How are strategies implemented and how do executives learn from strategic outcomes? Our new methodology allows us to gather comparable data on strategy processes across companies, industries and countries.

``Managing Known Unknowns: The Response of Firm Investment to Pure Uncertainty Shocks" (draft coming soon)

with Anthony Sanford (University of Washington)
What is the effect of uncertainty about the aggregate economy on investment, holding news shocks constant? Recent empirical studies have struggled to answer this question, as times of high economic uncertainty are typically also times of bad news. We propose a new methodology to measure and separate uncertainty and news shocks in stock return data. By using option prices to adjust abnormal returns for time-varying risk premia, we are able to estimate the impact of uncertainty shocks on firm investment while controlling for news shocks. Using quarterly data from 1996 to 2015 on public firms, we find that uncertainty shocks systematically depress investment, even after controlling for bad news. Moreover, lumpy investments reinforce the negative effect of uncertainty on investment, while better management systematically attenuates this negative effect.

``Credit Supply Shocks and House Price Boom-Bust Cycles" (coming soon)

with John Mondragon (Kellogg School of Management) and Johannes Wieland (UC San Diego)
What is the impact of credit supply shocks on housing price dynamics? We investigate this question empirically using a spacial instrumental variables strategy, which allows us to construct local credit supply shocks that are orthogonal to local credit demand. We construct location specific credit supply shocks by aggregating the bank-specific credit supply shocks at local banks from Wieland and Yang (2016). Our measures vary at the quarterly frequency, spanning three decades and allow us to fully characterize the short and long-term housing price responses to credit supply shocks. We find that credit supply shocks cause significant boom-bust cycles in both local credit quantities and local housing prices.

``Credit Supply Shocks and Firm Dynamics"

with Johannes Wieland (UC San Diego)

``News in Firm Dynamics across Sectors and Countries" (US Census and IRS approved)

with Lorenz Kueng (Kellogg School of Management)

``Data-driven Constraints on Strategic Communication and Delegation in Firms"

with Erik Brynjolfsson (MIT Sloan School of Management) and Kristina McElheran (Rotman School of Management)


Discussion of ``The Role of Startups in Sectoral Reallocation", by Dent, Karahan, Pugsley and Sahin

Discussion of ``Exporters' and Multinational Firms' Life Cycle Dynamics", by Gumpert, Moxnes, Ramondo and Tintelnot


Short CV

(long version in pdf)



Other Experience