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on Business Economics |
| By: | Vicenzo Quadrini; Claudio Michelacci (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | We analyze how the financial conditions of the firm affect the compensation structure of workers, the size of the firm, and its dynamics. Firms that are financially constrained offer long-term wage contracts characterized by an increasing wage profile, that is,they pay lower wages today in exchange of higher future wages, effectively borrowing form their employees. Because constrained firms also operate at a suboptimal scale, which then increases gradually over time, we have that younger and smaller firms grow faster and pay lower wages. |
| Keywords: | Investment financing, long-term contracts, wages. |
| JEL: | G31 J31 E24 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2005_0501&r=bec |
| By: | Abel Elizalde; Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | This paper analyzes the determinants of regulatory capital (the minimum required by regulation) and economic capital (the capital that shareholders would choose in absence of regulation) in the context of the single risk factor model that underlies the New Basel Capital Accord (Basel II). The results show that economic and regulatory capital do not depend on the same set of variables and values, they are both increasing in the loans' probability of default and loss given default, but variables that affect economic but not regulatory capital, such as the intermediation margin and the cost of capital, can move them significantly apart. The results also show that market discipline, proxied by the coverage of deposit insurance, increases economic capital, although the effect is generally small. |
| Keywords: | Bank regulation, capital requirements, market discipline, credit risk, Basel II. |
| JEL: | G21 G28 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2004_0422&r=bec |
| By: | Bruno S. Frey; Margit Osterloh |
| Abstract: | Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause considerable damage. Agency theory’s insistence on linking the compensation of managers and directors as closely as possible to firm performance is a major reason for these scandals. They cannot be overcome by improving variable pay for performance, as selfish extrinsic motivation is reinforced. Based on the common pool approach to the firm, institutions are proposed which serve to raise intrinsically motivated corporate virtue. More importance is to be attributed to fixed pay and strengthening the legitimacy of authorities by procedural fairness, relational contracts and organizational citizenship behavior. |
| Keywords: | agency theory, intrinsic motivation, crowding theory, management compensation, pay for performance, organizational citizenship |
| JEL: | D21 D23 J33 L20 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1379&r=bec |
| By: | Kevin X.D. Huang; Zheng Liu; Qi Zhu |
| Abstract: | This paper empirically estimates a balanced-growth consistent, dynamic, structural model of intertemporal consumption and asset pricing that allows for, but does not assume, the Gul-Pesendorfer preferences of temptation and self-control, using synthetic panel data constructed from the Consumer Expenditure Survey. One novelty of our model is that the cross-sectional distribution of wealth-consumption ratio is a potentially important determinant for the implied pricing kernel, additional to the cross-sectional distribution of consumption growth, while the importance of this additional factor depends on the strength of temptation and self-control. The estimates that we obtain provide evidence supporting the existence of temptation and self-control in preferences. With reasonable precision, we estimate a significant present-biased temptation strength, and we reject the null hypothesis of no temptation at common confidence levels. We explore the quantitative implications of the self-control problems for equity premium, risk-free rate, and asset price volatility. |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0507&r=bec |
| By: | Thomas Krichel (Palmer School, Long Island University); Christian Zimmermann (University of Connecticut) |
| Abstract: | In this paper, we discuss the provision of bibliographic data as an extension of the open source concept. Our particular concern is the sustainability of such endeavors. We describe the RePEc (Research Papers in Economics) project, probably the largest "open source" bibliographic database. It demonstrates that open-source bibliographic data collection is sustainable. |
| Keywords: | open source, dissemination of research, open library, network economies |
| JEL: | L39 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-01&r=bec |
| By: | Christian Grund; Niels Westergaard-Nielsen |
| Abstract: | In this contribution we examine the interrelation between intra-firm wage increases and firm performance. Previous studies have focused on the dispersion of wages in order to examine for the empirical dominance of positive monetary incentive effects compared to adverse effects due to fairness considerations. We argue that the dispersion of wage increases rather than wage levels is a crucial measure for monetary incentives in firms. The larger the dispersion of wage increases the higher the amount of monetary incentives in firms. In contrast, huge wage inequality without any promotion possibilities does not induce any monetary incentives. Evidence from unique Danish linked employer employee data shows that large dispersion of wage growth within firms is generally connected with low firm performance. The results are mainly driven by white collar rather than blue collar workers. |
| Keywords: | Fairness, Firm performance, Inequality, Monetary Incentives, Wage increases, Wage Dispersion |
| JEL: | M52 J31 L25 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse3_2005&r=bec |
| By: | Angel Leon; Diego Piñeiro (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | The aim of this paper consists of valuating a real biotechnology firm that is based on a portfolio of several drug development projects at different phases. They are patentprotected R&D projects and their values are obtained by implementing an extension of the real options approach in Schwartz (2004). To be precise, the life cycle of the drug is modeled by considering an alternative and more realistic behavior for the evolution of the FCF, different from the standard Geometric Brownian motion, once the peak sales is reached till the patent expiration, we will also allow for the possibility of the generic entrance once the patent expires. Different expected costs to completion are considered here, that is one equation to each compound; a different probability of catastrophic event depending on the phase and so on. It is shown that the abandonment value is higher for those compounds being in preclinical testing than those in clinical trials. |
| Keywords: | Patent, R&D phase, drug, real options, investment cost, free cash flow, generics, life cycle, Monte Carlo simulation. |
| JEL: | C15 C61 C63 G13 G31 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2004_0420&r=bec |
| By: | Jong, A. de; DeJong, D.V.; Mertens, G.; Roosenboom, P. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam) |
| Abstract: | Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures in corporate governance, suffering a complete meltdown in 2003. This clinical study analyzes Ahold?s growth strategy through acquisitions and isolates the cause of the failed strategy, i.e. the absence of internal as well as external oversight of management?s strategy. This study details the consequences of the strategy: bad acquisitions, an accounting scandal and the loss of investor confidence. It illustrates how initially a family and later professional management exploited the intent of the law and existing regulatory structures to maintain absolute control of the company. It analyzes in detail the applicable governance mechanisms of Ahold that were designed to hold the self-interest of the parties in check. It asks the reader to consider whether these governance mechanisms, properly implemented, might have helped prevent Ahold or a situation similar to Ahold. |
| Keywords: | international economics;financial economics;law and economics;corporate governance;regulation; |
| Date: | 2005–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:30002016&r=bec |
| By: | D. MEURS; A. VIGNES |
| Date: | 2005–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:erm:papers:0501&r=bec |
| By: | Agarwal, Sanjeev; Barone, Michael J. |
| Abstract: | Branding strategies centering on the geographical origins of a product can provide a basis for differentiating commodity products. The use of such “geographical indications” (or GIs) can involve unique quality characteristics associated with a particular location or quality images that are based on the history, tradition, and folklore in a region. In this paper we describe the benefits and pitfalls (such as the threat of new entrants, oversupply, the broadening of boundaries to include more producers, and limiting generic use of such names) of using GI branding strategies. We also focus on trademark issues germane to a company’s ability to (1) adopt GI-based trademarks as a means of gaining a competitive advantage and (2) protect the rights associated with such marks in order to sustain this source of competitive advantage. |
| Date: | 2005–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12236&r=bec |
| By: | Caroline Richardson (University of Michigan); Jennifer T. Hanlon (University of Michigan); Hillary J. Mull (University of Michigan); Sandeep Vijan (University of Michigan); Rodney Hayward (University of Michigan); Linda A. Wray (Pennsylvania State University); Kenneth M. Langa (University of Michigan) |
| Abstract: | The effects of poor health habits on mortality have been studied extensively. However, few studies have examined the impact of these health behaviors on workforce disability. In the Health and Retirement Study, a nationally representative cohort of 6044 Americans who were between the ages of 51 and 61 and who were working in 1992, we found that both baseline smoking status and a sedentary lifestyle predict workforce disability six years later. If this relationship is causal, cost-benefit analyses of health behavior intervention that neglect workforce disability may substantially underestimate the benefits of such interventions. |
| Date: | 2003–06 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp057&r=bec |
| By: | Yohanes E. Riyanto (National University of Singapore); Linda A. Toolsema (University of Groningen) |
| Abstract: | This paper presents a formal model of tunneling and propping in a pyramidal ownership structure. Tunneling refers to controlling shareholders shifting resources from one firm to another in the same pyramid. Propping is tunneling that is done to save the receiving firm from bankruptcy. We compare the pyramidal ownership structure to the horizontal ownership structure, in which shifting resources between firms is not possible (i.e. illegal). We show that tunneling may justify the pyramidal structure only in the presence of myopic investors or in combination with propping. |
| Keywords: | Tunneling; Propping; Pyramids; Ownership Structure; Business Groups |
| JEL: | G32 L22 |
| URL: | http://d.repec.org/n?u=RePEc:nus:nusewp:wp0409&r=bec |
| By: | Richard M. Bird (University of Toronto) |
| Abstract: | This paper discusses what the growth of e-commerce means for tax policy and administration, both within countries and between them. Although the fiscal implications of such commerce as yet remain limited, the future may be different and the issues are important. The issues are first discussed with respect to consumption taxes, noting some differences in the situations facing the United States (US) on one hand, the European Union (EU) on the other, and Canada, which in some ways combines characteristics of both. When it comes to income taxes, however, everybody seems to be in more or less the same boat, although the new technology may offer solutions as well as problems for those in the tax business. The paper concludes that, while of course the future remains unknown, when it comes to taking action to deal with the potential implications of e-commerce for taxation, we are by no means at the beginning of the end, but we may, perhaps, be at the end of the beginning. |
| Keywords: | taxation, electronic commerce, value-added tax, retail sales tax |
| JEL: | H20 H71 H87 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:ttp:itpwps:0502&r=bec |
| By: | Shilpa Manaktala (University of Connecticut, School of Business); John D. Phillips (University of Connecticut, School of Business); Karen Teitel (Department of Economics, College of the Holy Cross) |
| Abstract: | We identify 133 firms that between July and December 2002, announced plans to voluntarily adopt the fair value method of accounting for stock-based compensation. We investigate whether such announcements increased the quality of these firms’ earnings as perceived by market participants. Answering this research question not only provides evidence relevant to the debate surrounding the expensing of employee stock options, but doing so provides evidence that conservative accounting choices in general lead to higher perceived earnings quality. Using two measures of earnings quality, the price-earnings relation and the earnings response coefficient, we find evidence consistent with an increase in perceived earnings quality for these firms relative to a control set of firms that in 2002 did not announce plans to adopt the SFAS 123 stock-based compensation recognition provisions. |
| Keywords: | SFAS, stock options, accounting, expensing options, fair value method |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:hcx:wpaper:0413&r=bec |