nep-bec New Economics Papers
on Business Economics
Issue of 2004‒12‒20
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Improving UccNet-compliant B2B Supply-chain Applications Using a Context Interchange Framework By Tu, Steven; Madnick, Stuart; Wu, Luis
  2. Human Capital Specificity: Direct and Indirect Evidence from Canadian and US Panels and Displaced Worker Surveys By Maxim Poletaev; Chris Robinson
  3. An empirical study of the transition from paid work to self-employment By Velamuri, S. Ramakrishna; Venkataraman, Sankaran
  4. Exemplifying Business Opportunities for Improving Data Quality From Corporate Household Research By Madnick, Stuart; Wang, Richard; Chettayar, Krishna; Dravis, Frank; Funk, James; Katz-Haas, Raïssa; Lee, Cindy; Lee, Yang; Xian, Xiang; Bhansali, Sumit
  5. Motor vehicle recalls: trends, patterns and emerging issues By Hilary Bates; Nick Oliver; Matthias Holweg; Michael Lewis
  6. Finance, Firm Size, and Growth By Thorsten Beck; Asli Demirguc-Kunt; Luc Laeven; Ross Levine
  7. Knowledge Management in Knowledge Intensive Service Networks: A Strategic Management Perspective By Günther Blaich; Heiner Evanschitzky; Peter Kenning; Dieter Ahlert
  8. The corporate-fund manager interface: objectives, information and valuation By John Roberts; Paul Sanderson; John Hendry; Richard Barker
  9. Global Outsourcing of Professional Services By Seshasai, Satwik; Gupta, Amar
  10. Unemployment, wages and collective bargaining in the European Union By Eckhard Hein; Thorsten Schulten
  11. Evidence on the Value of Strategic Planning in Marketing: How Much Planning Should a Marketing Planner Plan? By JS Armstrong; David J. Reibstein
  12. Investment Banking and Analyst Objectivity: Evidence from Forecasts and Recommendations of Analysts Affiliated with M&A Advisors By Kolasinski, Adam; Kothari, S.P.
  13. Persistence in Corporate Performance? - Empirical Evidence from Panel Unit Root Tests By Bentzen, Jan; Madsen, Erik Strøjer; Smith, Valdemar; Dilling-Hansen, Mogens
  14. Training and Union Wages By Dustmann; Christian; Schönberg, Uta
  15. Social Irresponsibility in Management By JS Armstrong
  16. The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback By Dellarocas, Chrysanthos
  17. Employment Effects of Skill Biased Technological Change when Benefits are Linked to Per-Capita Income By Matthias Weiss
  18. Strategy formation effects on managerial action: Strategy in the back of your head By Canales, Juan I.; Vila, Joaquim
  19. Executive Compensation, Incentives, and Risk By Jenter, Dirk
  20. In the mirror of the market: the disciplinary effects of company/fund manager meetings By John Roberts; Paul Sanderson; John Hendry; Richard Barker
  21. Manufacturer Liability for Harms Caused by Consumers to Others By Bruce Hay; Kathryn E. Spier
  22. Strategies for Implementing Change: An Experiential Approach By JS Armstrong

  1. By: Tu, Steven; Madnick, Stuart; Wu, Luis
    Abstract: UccNet is a globally centralized B2B electronic data platform for storing trading product item information and hosted by the non-profit international standardization institute EAN-UCC. It is an emerging B2B data communication standard for the retail industry with significant potential impact. Many US retailers are requesting their international suppliers for compulsory subscription by the year-end of either 2004 or 2005 and many major IT software providers and consulting firms specialized in supply chain management are preparing packaged services/solutions for this imminent demand. In light of the increasing importance of UccNet on both the technology and application sides, this paper attempts to advance the following argument: Though UccNet establishes an architectural framework to resolve the many-to-many connectivity issue and data synchronization issue through a centralized product database and a uniform numbering system (i.e., Global Trade Item Numbering), there are context discrepancy issues remaining to be addressed. We show with a real case study that context discrepancy is inherent in the international trading applications where UccNet is intended to be used. Naturally, international trading partners tend to define and describe product item information differently. That difference, either due to the culture or the geographical location, is not considered in the original design of UccNet. As an example, the attribute "width" contained in the database schema of UccNet would be filled by a China-based supplier in 'meter' and yet be interpreted as 'feet' by the US retail buyer. We show how the Context Interchange Framework, operating under the rationale of local autonomy and speaking to the resolution of context mediation issue, can be nicely incorporated into the existing UccNet framework to constitute theoretically a more complete technical solution and practically a more useful B2B supply chain business solution.
    Keywords: B2B, Retail Supply-Chain, UccNet, Data Connectivity and Synchronization, Context Interchange, Data Semantics,
    Date: 2004–12–10
  2. By: Maxim Poletaev (University of Western Ontario); Chris Robinson (University of Western Ontario)
    Abstract: Recent papers by Neal (1995) and Parent (2000), using different methods, provided evidence in support of the hypothesis that previously estimated firm tenure effects are, in fact, capturing industry specific human capital investments due to a correlation between firm and industry tenure. This paper uses both methods applied to both US and Canadian data sets to provide evidence in support of an alternative hypothesis that human capital is, for the most part, not narrowly specific to firm or industry. An analysis using either the indirect method of Neal, or the direct approach of Parent, provides evidence against the importance of industry specific capital and in favor of broad skill based specificity.
    Keywords: Not available.
    Date: 2004
  3. By: Velamuri, S. Ramakrishna (IESE Business School); Venkataraman, Sankaran (Darden Graduate School of Business Administration)
    Abstract: We explore the relationship between the probability of a transition from paid work to self-employment and three explanatory variables: paid income, predicted income, and income for ability. We use panel data for heads of households from the PSID SRC sample for eight pairs of years. Our results show that therelationship between paid income and self-employment is not linear. We then break up paid income into two components: a)predicted income based on human capital, demographic, and locational variables, and b) income for ability. Again, we find nolinear relationship between self-employment and either predicted income or income for ability. We then test for curvilinear relationships between these three variables (i.e., paid income, predicted income, and income for ability) and the transition to self-employment. We find that individuals with low incomes are more likely to take up self-employment. Further, income for ability is a stronger predictor of the transition to self-employment than predicted income. We show that the relationship between ability and self-employment is U shaped: very low ability and very high ability individuals are more likely to take up self-employment than medium ability individuals. We use prospect theory to explain this result.
    Keywords: Entrepreneurship; self-employment; opportunity costs; value creation;
    Date: 2004–10–21
  4. By: Madnick, Stuart; Wang, Richard; Chettayar, Krishna; Dravis, Frank; Funk, James; Katz-Haas, Raïssa; Lee, Cindy; Lee, Yang; Xian, Xiang; Bhansali, Sumit
    Abstract: Corporate household (CHH) refers to the organizational information about the structure within the corporation and a variety of inter-organizational relationships. Knowledge derived from this data is becoming increasingly important for improving data quality in applications, such as Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), Supply Chain Management (SCM), risk management, and sales and market promotion. Extending the concepts from our previous CHH research, we exemplify in this paper the importance of improved corporate household knowledge and processing in various business application areas. Additionally, we provide examples of CHH business rules that are often implicit and fragmented - understood and practiced by different domain experts across functional areas of the firm. This paper is intended to form a foundation for further research to systematically investigate, capture, and build a body of corporate householding knowledge across diverse business applications.
    Keywords: Corporate Householding, Data Quality, Organizational Structures, Interdependence, Name Matching, Entity Aggregation, Information Quality, Account Consolidation, Conflict of Interest, Risk Management, Customer Relationship Management (CRM), Supply Chain Management (SCM), Regulation and Disclosure,
    Date: 2004–12–10
  5. By: Hilary Bates; Nick Oliver; Matthias Holweg; Michael Lewis
    Abstract: This paper examines patterns and trends in motor vehicle safety recalls using a dataset based on 23.1 million vehicles registered in the UK between 1992 and 2002. A safety recall occurs when vehicle manufacturers call vehicles that have been sold and are in use back to their dealerships for safety-related remedial work. Safety recalls can be costly for car makers, and potentially harmful to brand and image. The data show that the incidence of vehicle recalls has been increasing Ð between 1998 and 2002 there was an average of over 120 recall incidents per annum in the UK, compared to less than 50 per annum between 1992 and 1994. Total numbers of vehicles recalled show no trend over time, but absolute level of recalls year on year is very high: 10.8 million vehicles were recalled during 1992-2002, representing 47% of all vehicle registrations in the period. Moreover, there are substantial differences in recall rates between different car manufacturers, suggesting that recall rates may be a useful final indicator of process performance in the car design-and-production chain. European and American producers have recall rates that are nearly three times greater than their East Asian counterparts. This paper offers some suggestions for corporate differences in propensity to recall, and concludes with an agenda for further research.
    JEL: L62 L6 M1
    Date: 2004–12
  6. By: Thorsten Beck; Asli Demirguc-Kunt; Luc Laeven; Ross Levine
    Abstract: This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.
    JEL: G2 L11 L25 O1
    Date: 2004–12
  7. By: Günther Blaich (University of Münster); Heiner Evanschitzky (University of Münster); Peter Kenning (University of Münster); Dieter Ahlert (University of Münster)
    Abstract: Knowledge is the key to gaining and sustaining competitive advantage. Driven by a change in consumer needs towards “comprehensive service solutions”, more and more services are offered through networks. By so doing, individual firms can concentrate on their distinctive competencies and by combining these with those of partner firms such a network is able to offer complex, knowledge-intensive services at high quality and at reasonable prices. It is clear that the success of such knowledge intensive service networks depends strongly on the effective and efficient combination and use of the distinctive competencies of the network partners. That ability to combine and use distinctive competencies represents the core competency of the network as a whole. Understanding knowledge as a key resource for those distinctive competencies the combination problem can be seen as a knowledge management problem. The main contribution of this paper is to analyze knowledge management in service networks. We use a strategic management approach instead of a more technology-oriented approach since we believe that managerial problems still remain after technological problems have been solved. Therefore the question arises how to guarantee an effective and efficient combination and utilization of the distributed knowledge in knowledge-intensive service networks. The objective of this paper is to analyze the problems concerning the management of knowledge in service networks. It outlines possible solutions for these knowledge management problems in order to provide sustaining competitive advantage for the network as a whole.
    Keywords: knowledge management, networks, knowledge-intensive services
    JEL: A
    Date: 2004–12–17
  8. By: John Roberts; Paul Sanderson; John Hendry; Richard Barker
    Abstract: Fund managers are the primary investment decision-makers in the stock market, and corporate executives are their primary sources of information. Meetings between the two are therefore central to stock market investment decisions but are surprisingly under-researched. There is little in the academic literature concerning their aims, content and outcomes. We report findings from interview research conducted with chief financial officers (CFOs) and investor relations managers from FTSE 100 companies and with chief investment officers (CIOs) and fund managers (FMs) from large institutional investors. Of particular interest we note that FMs place great reliance on discounted cash flow valuation models (despite informational asymmetry in favour of CFOs). This leads the former to seek to control encounters with the latter and to place great store on the clarity and consistency of corporate messages, ultimately relying on them for purposes other than estimating fundamental value. We consider some of the consequences of this usage.
    Keywords: valuation, institutional shareholders, investor relations
    JEL: G30 G34 O16
    Date: 2004–09
  9. By: Seshasai, Satwik; Gupta, Amar
    Abstract: As a growing number of firms outsource more of their professional services across geographic and temporal boundaries, one is faced with a corresponding need to examine the long-term ramifications on business and society. Some persons are convinced that cost considerations should reign as the predominant decision-making factor; others argue that outsourcing means permanent job loss; and still others believe outsourcing makes U.S. goods and services more competitive in the global marketplace. We assert that if outsourcing options need to be analyzed in detail with critical objectivity in order to derive benefits for the concerned constituencies.
    Date: 2004–12–10
  10. By: Eckhard Hein (WSI in der Hans Boeckler Stiftung); Thorsten Schulten (WSI in der Hans Boeckler Stiftung)
    Abstract: The paper questions the predominant view on unemployment and wages in the European Un-ion according to which high unemployment is primarily caused by labour market rigidities, i.e. social institutions and regulations which prevent “market-clearing” real wage levels and structures. It is shown that the foundations of that view coming either from neo-classical or new-Keynesian theory are not convincing, neither theoretically nor empirically. Analysing the developments in the EU during the last four decades, no strictly inverse relationship between real wage growth and unemployment can be found. On the contrary, persistently high unem-ployment has had strong adverse effects on nominal wage growth and on the labour income share. Weakened labour union bargaining power and changing collective bargaining strategies have contributed to this result. It is therefore concluded that the current EU economic and employment policies aiming at further wage restraint, wage differentiation and decentralisa-tion of collective bargaining are deeply misguided and have to be replaced by an alternative wage policy in Europe as part of a growth and employment oriented coordination of macro-economic policies.
    Keywords: European employment policy, wage theory, wage trends, collective bargaining
    JEL: E24 J50
    Date: 2004–12–10
  11. By: JS Armstrong (The Wharton School - University of Pennsylvania); David J. Reibstein (The Wharton School - University of Pennsylvania)
    Abstract: What evidence exists on the value of formal planning for strategic decision-making in marketing? This paper reviews the evidence. This includes two tests of face validity. First, we use the market test: Are formal procedures used for marketing planning? Next, we examine expert prescriptions: What do they say is the best way to plan? More important than face validity, however, are tests of construct or predictive validity: What empirical evidence exists on the relative value of formal and informal approaches to marketing planning? The paper concludes with suggestions on the types of research that would be most useful for measuring the value of formal marketing planning. Before reviewing the evidence, we present a framework for the formal planning process.
    Keywords: strategic planning, marketing
    JEL: A
    Date: 2004–12–10
  12. By: Kolasinski, Adam; Kothari, S.P.
    Abstract: Previous research finds some evidence that analysts affiliated with equity underwriters issue more optimistic earnings growth forecasts and optimistic recommendations of client stock than unaffiliated analysts. Unfortunately, these studies are unable to discriminate between three competing hypotheses for the apparent optimism. Under the bribery hypothesis, underwriting clients, with the promise of underwriting fees, coax analysts to compromise their objectivity. The execution-related conflict of hypothesis postulates that the investment banks employing analysts who are more bullish on a particular stock are better able to execute the deal, and so the banks pressure their analysts to be bullish in order to enhance their execution ability. Finally, the selection bias hypothesis postulates that analysts are objective, but because of the enhanced execution ability, banks with more optimistic analysts are more likely to get selected as underwriters. We test these hypotheses in a previously unexplored setting, namely M&A activities. Depending on whether an analyst is affiliated with the target or the acquirer and whether the analyst report is about the target or the acquirer, the hypotheses predict analyst optimism in some cases and pessimism in other. Therefore, examining the issue of analyst bias in the M&A context allows us to shed some light on alternative explanations for the impact of analyst affiliation on the properties of analyst forecasts and recommendations.
    Keywords: Corporate Finance, Investment Banking, Analysts, Conlict of Interest,
    Date: 2004–12–10
  13. By: Bentzen, Jan (Department of Economics, Aarhus School of Business); Madsen, Erik Strøjer (Department of Economics, Aarhus School of Business); Smith, Valdemar (Department of Economics, Aarhus School of Business); Dilling-Hansen, Mogens (Department of Economics, University of Aarhus)
    Abstract: Persistence in corporate performance is analyzed in the framework of empirical tests of unit root behavior concerning firm profits. Data for firm-specific rates of return is applied in a set of panel unit root tests to address the question of persistence in profits both at firm level and for the aggregate level of industry-specific profits. The firm data all reject a null hypothesis of random walk behavior of profits but when smoothing profit rates at a two-digit NACE-code level for industries, the empirical evidence is more mixed as most industries show up with a unit root in aggregate rates of return, i.e. indicating persistence in corporate performance.
    Keywords: Corporate performance; Persistence in profits; Panel unit root tests
    JEL: C30 L20
    Date: 2004–12–10
  14. By: Dustmann; Christian (University College London, CEPR, IFS London and IZA Bonn); Schönberg, Uta (University of Rochester and IZA Bonn)
    Abstract: This paper tests the hypothesis that unions, through imposing wage floors that lead to wage compression, increase on-the-job training. Our analysis focuses on Germany which provides an interesting context to test this hypothesis, due to its large scale apprenticeship programme and its collective bargaining system that is based on voluntary union recognition. To guide the empirical analysis, we first develop a model of firm-financed training. A novel feature of our model is that a unionised and non-unionised sector coexist, and only unionized firms are bound by union wages. The model creates a rich set of empirical implications regarding apprenticeship training, layoffs, wage cuts, and wage compression in unionized and nonunionised firms. Our empirical analysis is based on firm panel data matched with administrative employee data, and provides strong support for our model. Our main results are that unionisation increases training, and that wage floors and wage compression play a more important role in unionised than in non-unionised firms.
    Keywords: training, unions, wage compression, matched firm-worker data
    JEL: J24 J40 J51 I2
    Date: 2004–12
  15. By: JS Armstrong (The Wharton School - University of Pennsylvania)
    Abstract: Previously published research suggested that the typical manager may be expected to harm others in his role as a manager. Further support for this was drawn from the Panalba role-playing case. None of the 57 control groups in this case were willing to remove a dangerous drug from the market. In fact, 79% of these groups took active steps to prevent its removal. This decision was classified as irresponsible by 97% of the respondents to a questionnaire. Because the role exerts such powerful effects, an attempt was made to modify subject’s perceptions of their role so that managers would feel responsible to all of the firm’s interest groups. Some subjects were told that board members should represent all interest groups; other subjects were placed on boards of directors where the different groups were represented. Subjects in both groups also received information on the impact of the decisions upon stockholders, employees, and customers. The percentage of irresponsible decisions was reduced under these conditions as only 22% of the 116 groups selected the highly irresponsible decision.
    Keywords: obedience to authority, Panalba, role-playing, social accounting, social responsibility, stakeholder theory
    JEL: A
    Date: 2004–12–10
  16. By: Dellarocas, Chrysanthos
    Abstract: Online feedback mechanisms harness the bi-directional communication capabilities of the Internet in order to engineer large-scale word-of-mouth networks. Best known so far as a technology for building trust and fostering cooperation in online marketplaces, such as eBay, these mechanisms are poised to have a much wider impact on organizations. Their growing popularity has potentially important implications for a wide range of management activities, such as brand building, customer acquisition and retention, product development, and quality assurance. This paper surveys our progress in understanding the new possibilities and challenges that these mechanisms represent. It discusses some important dimensions in which Internet-based feedback mechanisms differ from traditional word-of-mouth networks and surveys the most important issues related to their design, evaluation, and use. It provides an overview of relevant work in game theory and economics on the topic of reputation. It discusses how this body of work is being extended and combined with insights from computer science, management science, sociology, and psychology in order to take into consideration the special properties of online environments. Finally, it identifies opportunities that this new area presents for OR/MS research.
    Keywords: Online Feedback Mechanisms, Reputation Systems, E-commerce, Internet, Game Theory, Management Science, Operations Research,
    Date: 2004–11–23
  17. By: Matthias Weiss (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: This paper studies the employment effects of technological change when benefits are endogenous. If the (i) level of welfare aid depends on the general income level in the economy and (ii) wages for unskilled workers cannot fall below the level of welfare aid, there is a link between the wage for unskilled labor and the productivity of skilled labor. An increase in the latter will lead to an increase in average income and hence the level of welfare aid. This in turn leads unions to ask for higher wages for unskilled workers. Technological change is shown to have employment effects (only) if it is skill-biased and if this link exists.
    Date: 2004–01–22
  18. By: Canales, Juan I. (IESE Business School); Vila, Joaquim (IESE Business School)
    Abstract: This paper examines the interplay between top and middle level managers as strategy-making settles and in subsequent managerial action. It reports on an exploratory case study at a car service company that has an aggressive expansion strategy. The study examines the context and characteristics of the strategy-making process and the specific evolution of fourteen strategic initiatives. Of particular interest was that the interplay between top managers and middle managers was resolved through a legitimizing mechanism. This interplay took place through deliberation and agreement, with extensive participation, and developed into shared views of strategy which provided legitimation. Once settled, strategic initiatives were subsequently developed in harmony with the strategic intent. This agreement provided guidance to carry out strategic initiatives and was a source of resilient strategic conversation. From analysis of the case, a model presenting how strategic intent interacts with the creation of strategic initiatives is presented. This model aims at overcoming the mutually exclusive bottom-up and top-down sources of influence, integrating both in a process model.
    Keywords: Strategy-making; middle management; top management; managerial action;
    Date: 2004–10–10
  19. By: Jenter, Dirk
    Abstract: This paper analyzes the link between equity-based compensation and created incentives by (1) deriving a measure of incentives suitable for both linear and non-linear compensation contracts, (2) analyzing the effect of risk on incentives, and (3) clarifying the role of the agent's private trading decisions in incentive creation. With option-based compensation contracts, the average pay-forperformance sensitivity is not an adequate measure of ex-ante incentives. Pay-for-performance covaries negatively with marginal utility and hence overstates the created incentives. Second, more noise in the performance measure implies that the manager is less certain about the effect of effort on performance, which in turn makes her less willing to exert effort. Finally, the private trading decisions by the manager have first-order effects on incentives. By reducing her holdings of the market asset, the manager achieves an effect similar to "indexing" the stock or option grant, making explicit indexation of the contract redundant.
    Keywords: executive compensation, equity-based compensation, created incentives,
    Date: 2004–12–10
  20. By: John Roberts; Paul Sanderson; John Hendry; Richard Barker
    Abstract: We consider the consequences of the regular private meetings between directors of FTSE 100 companies and their major institutional shareholders. Whilst the economic incentives for both the flow of information and the formation of Ôstrategic informational relationshipsÕ between the two have been described elsewhere, little attention has been paid to date to the effects that increased levels of monitoring and surveillance have on the conduct and performance of company directors. We present findings from a qualitative study in which we interviewed finance directors and fund managers, and observed a series of meetings between them. We draw on FoucaultÕs analysis of the operation of disciplinary power to suggest that the meetings serve as ritual reminders to directors that their primary objective must be the pursuit of shareholder value, a task that whilst empowering, may also have unintended consequences.
    Keywords: corporate insolvency, corporate rescue, secured credit
    JEL: D83 D84 G23 G34 O16
    Date: 2004–06
  21. By: Bruce Hay; Kathryn E. Spier
    Abstract: Should the manufacturer of a product be held legally responsible when a consumer, while using the product, harms someone else? We show that if consumers have deep pockets then manufacturer liability is not economically efficient. It is more efficient for the consumers themselves to bear responsibility for the harms that they cause. If homogeneous consumers have limited assets, then the most efficient rule is "residual-manufacturer liability" where the manufacturer pays the shortfall in damages not paid by the consumer. Residual-manufacturer liability distorts the market quantity when consumers' willingness to pay is correlated with their propensity to cause harm. It distorts product safety when consumers differ in their wealth levels. In both cases, consumer-only liability may be more efficient.
    JEL: K13 D62
    Date: 2004–12
  22. By: JS Armstrong (The Wharton School - University of Pennsylvania)
    Abstract: An attitude survey and a role-playing case were used to identify the typical approaches people use to implement important changes in organizations. This typical strategy, suggested or used by over 90% of the subjects, was not successful in producing change in any of the fourteen role-playing trials. However, with ten minutes of instruction in the ”Delta Technique,” 86% of the subjects were successful in introducing change in another fourteen role-playing trials. The ”Delta Technique” consists of simple rules drawn from half a century of research.
    Keywords: strategies, change, delta technique
    JEL: A
    Date: 2004–12–10

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