nep-bec New Economics Papers
on Business Economics
Issue of 2005‒06‒14
fourteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Consumption, Wealth, the Elasticity of Intertemporal Substitution and Long-Run Stock Market Returns By Carlo Favero
  2. Gestation lags for capital, cash flows, and Tobins's Q By Jonathan N. Millar
  3. Sales persistence and the reductions in GDP volatility By F. Owen Irvine
  4. The Determinants of Firm Performance: Unions, Works Councils, and Employee Involvement/High Performance Work Practices By John T. Addison
  5. Compétences, conflits et création de valeur:vers une approche intégrée de la gouvernance By Peter Wirtz
  6. Theory, measurement, and calibration of macroeconomic models By Paul Gomme; Peter Rupert
  7. Rising Foreign Outsourcing and Employment Losses in U.S. Manufacturing, 1987-2002 By James Burke; Gerald Epstein; Minsik Choi
  8. Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives By Christian Belzil; Michael Bognanno
  9. Group versus individual discrimination among young workers: a distributional approach By Donata Favaro; Stefano Magrini
  10. Endogenous Leadership in Teams By Pedro Rey Biel; Steffen Huck
  11. Origin and Concentration: Corporate Ownership, Control and Performance By Jan Hanousek; Evzen Kocenda; Jan Svejnar
  12. Corporate Governance and Management Succession in Family Businesses By Phillip Phan; John E. Butler; Soo Hoon Lee
  13. Management team and technology strategy for success of high- growth SMEs By Daniel Tarka; Kanes Rajah
  14. Precise Rates in the Law of the Logarithm in the Hilbert Space By Wei Huang

  1. By: Carlo Favero
    Abstract: Consumption is striking back. Some recent evidence indicates that the well-known asset pricing puzzles generated by the difficulties of matching fluctuations in asset prices with high frequency fluctuations in consumption might be solved found by considering consumption in the long-run. A first strand of the literature concentrates on multiperiod differences in log consumption, a second concentrates on the cointegrating relation for consumption. Interestingly, only the (multiperiod)Euler Equation for the consumer optimization problem is considered by the first strand of the literature, while the cointegrationbased literature concentrates exclusively on the (linearized) intertemporal budget constraint. In this paper, we show that using the first order condition in the linearized budget constraint to derive an explicit long-run consumption function delivers an even more striking strike back.
  2. By: Jonathan N. Millar
    Abstract: Investment models typically assume that capital becomes productive almost immediately after purchase and that there is no lead time needed to plan. In the case, marginal q is usually sufficient for investment. This paper develops a model of aggregate investment where competitive firms face no adjustment costs other than building and planning delays. In this context, both Tobin's Q and cash flow can be noisy indicators of investment because some shocks fail to outlast the combined gestation lag. The paper demonstrates some empirical facts that challenge prevailing theories of investment but are consistent with gestation requirements. Regressions using aggregate data suggest that it takes at least four quarters for investment to respond to technology shocks and as many as eight additional quarters before productive capacity is affected. Estimates from structural VARs show that only permanent shocks affect investment, but that cash flow and Q react to both permanent and transitory shocks.
    Date: 2005
  3. By: F. Owen Irvine
    Abstract: A number of explanations for the observed decline in GDP volatility since the mid-1980s have been offered. Valerie Ramey and Daniel Vine (2003a, 2003b) in a couple of recent papers offer the hypothesis that a decline in the persistence of sales is an explanation for the decline in GDP volatility. Their models show that a decrease in sales persistence leads to a decline in the variance of production relative to the variance of sales. They provide econometric evidence that the persistence of unit automobile sales has declined at both the aggregate and model level. This paper explores reasons why sales persistence may have declined and then tests the Ramey-Vine hypothesis with monthly chain-weighted sales data from 2- and 3-digit manufacturing and trade industries. The estimates confirm the Ramey-Vine findings for motor vehicle retailers, wholesalers, and manufacturers. For a number of industries outside of motor vehicles, especially those in wholesaling and nondurable manufacturing, considerable evidence is found of declines in sales persistence. These declines seem to be consistent with changes in supply and distribution chains that have occurred as the result of the introduction of new information, inventory, and production control systems. However, in equations estimated for aggregate manufacturing, wholesaling, and retail sector sales, declines in sales persistence are not found.
    Keywords: Gross domestic product
    Date: 2004
  4. By: John T. Addison (University of South Carolina, Universidade de Coimbra and IZA Bonn)
    Abstract: Drawing on evidence from the United States and Germany, this paper offers a survey of the effects of worker representation (in unions and works councils) and innovative work practices on firm performance. The focus is on the growing links between these two historically separate literatures. The interaction between worker representation and high performance work practices provides a practical means of peering inside the black box of collective voice, even if there is as yet no well-determined hierarchy for productivity performance and certainly no blue-print for the future of unions.
    Keywords: worker representation, employee involvement mechanisms, innovative work practices, training, firm/establishment performance
    JEL: J51 J53 M54
    Date: 2005–06
  5. By: Peter Wirtz (Université Louis Lumière (Lyon 2))
    Abstract: L’approche dominante de la gouvernance d’entreprise s’inscrit dans une logique d’essence disciplinaire. Pourtant, la création de valeur ne se réduit pas à un simple problème de discipline, mais comporte également une dimension cognitive, notamment dans le cas des entreprises innovantes. Fort de ce constat, le présent article tente de contribuer à un effort d’intégration des explications disciplinaire et cognitive des phénomènes de gouvernance, en défendant l’hypothèse selon laquelle le poids respectif des variables disciplinaires et cognitives n’est pas figé, mais dépend du stade de développement des entreprises étudiées. Ce cadre théorique est illustré à travers l’histoire longue du Groupe Air Liquide.
    Keywords: gouvernance;approche cognitive;approche disciplinaire;coût cognitif
    JEL: G32
    Date: 2005–05
  6. By: Paul Gomme; Peter Rupert
    Abstract: Calibration has become a standard tool of macroeconomics. This paper extends and refines the calibration methodology along several important dimensions. First, accounting for home production is important both in measuring calibration targets and in organizing the data in a model-consistent fashion. For this reason, thinking about home production is important even if the model under consideration does not include home production. Second, investment-specific technological change is included because of its strong balanced growth parameter restrictions. Third, the measurement strategy is laid out as transparently as possible so that others can easily replicate the underlying calculations. The data and calculations used in this paper are available on the web.
    Date: 2005
  7. By: James Burke; Gerald Epstein; Minsik Choi
    Abstract: Foreign outsourcing, otherwise known as off-shoring, has become a matter of intense public debate and great concern in the United States presidential contest, especially in light of the large job losses experienced by U.S. workers since George Bush became president. Yet, there is a lack of good data on foreign outsourcing since the early 1990s. This paper presents updated measures of foreign outsourcing for the recent period. Its main findings are that the share of foreign-sourced goods in total manufactured inputs almost doubled – from 12.4% to 22.1%– in U.S. manufacturing between 1987 and 2002. Since the early 1990s, outsourcing has accelerated in key industries and has been associated with a loss of employment. In particular, for the period from 1997 to 2002, there has been a strong association between manufacturing job losses and foreign outsourcing.
    Date: 2004
  8. By: Christian Belzil (CNRS-GATE, CIRANO, CIREQ and IZA Bonn); Michael Bognanno (Temple University and IZA Bonn)
    Abstract: This paper explores the dynamics of wage growth in corporate hierarchies. Using panel data techniques, we estimate the causal effect of current and past transitions in reporting level and past earnings growth on components of current earnings and earnings growth using a large panel of US executives. After conditioning on unobserved heterogeneity, current compensation growth is positively correlated with past promotion outcomes but negatively correlated with past compensation growth. In a flexible model of wage growth, there is an important asymmetry between the effect of a promotion and a demotion. The effect of promotion is smaller in magnitude than the effect of a demotion. The causal effect of a promotion is positive on both growth in base pay and total cash compensation but is negative on bonus growth. The effect of a demotion is negative on growth in all pay components.
    Keywords: earnings growth, promotions, halo effects, hierarchies, internal labor markets
    JEL: C33 J41 M5 M51
    Date: 2005–06
  9. By: Donata Favaro (Università degli Studi di Padova, Dipartimento di Scienze Economiche 'Marco Fanno'); Stefano Magrini (Università degli Studi di Venezia 'Ca' Foscari', Dipartimento di Scienze Economiche)
    Abstract: We evaluate the gender wage gap and the unexplained gender wage differential for workers 15-29 year old during the period 1990-1997, using a particularly rich set of data from the Italian Social Security System covering all individuals in the labour markets of two Italian provinces. We estimate separate earnings functions for men and women correcting for endogeneity of education and we evaluate gender discrimination by studying the entire distribution of the unexplained wage gap as suggested by Jenkins (1994). We evaluate discrimination against females by means of bivariate density functions. This innovation makes it possible to condition the density distribution on the marginal distribution of any characteristic and to evaluate more precisely the existence of group and individual discrimination. Our analysis suggests that discrimination is not evenly distributed among women, in relation to their characteristics; in particular, there is evidence of lower discrimination against highly educated females. Moreover in 1997, compared to 1990, discrimination increased in a appreciable way, affecting human capital rich females more significantly. While our work is based in a very local context the richness of the data and the methodological innovation give the results a wider application.
    Keywords: wage differentials, wage discrimination, gender
    JEL: J
    Date: 2005–06–07
  10. By: Pedro Rey Biel (University College London); Steffen Huck (University College London)
    Abstract: In this paper we study the mechanics of ``leading by example'' in teams. Leadership is beneficial for the entire team when agents are conformists, i.e., dislike effort differentials. We also show how leadership can arise endogenously and discuss what type of leader benefits a team most.
    Keywords: team production; conformism; leadership; leading by example; endogenous timing
    JEL: C72 D23 D63 J31 L23
    Date: 2005–06–08
  11. By: Jan Hanousek; Evzen Kocenda; Jan Svejnar
    Abstract: We analyze the effects of different types and concentration of ownership on performance using a population of firms in a model transition economy after mass privatization. Specifications based on first-differences and unusual instrumental variables show that contrary to conventional wisdom, the effects of privatization and different types of ownership are limited and many types of private owners do not generate performance that is different from that of firms with state ownership. Concentrated ownership has a positive effect but only in some instances and a positive effect of foreign ownership is detectable primarily for majority ownership and foreign industrial firms. The effects of concentrated ownership support the agency theory and go against theories stressing the positive effects of managerial autonomy. Our results are also consistent with managers or stockholders “looting” the firms. The state as a holder of the golden share has a positive effect on employment and in some specifications also on output and profitability. Overall, our results suggest that the expectations and earlier findings of positive effects of privatization on performance were premature, with the effects of many types of ownership being indistinguishable from that of state ownership.
    Keywords: Ownership, performance, privatization, corporate governance, panel data, endogeneity, industrial.
    JEL: C33 D20 G32 G34 L20
    Date: 2005–05
  12. By: Phillip Phan (Rensselaer Polytechnic Institute); John E. Butler (Hong Kong Polytechnic University); Soo Hoon Lee (Old Dominion University)
    Abstract: Family businesses carry the weight of economic wealth creation in most economies. In the U.S. alone, family businesses account for 80 to 90 percent of the 18-million business enterprises in the United States, and 50 percent of the employment and GNP. In many ways, the family business is synonymous with the entrepreneurial organization as many were started as a means to provide for the financial well being of the founder's family. Founders who went on to build family empires started many of today's large corporations (e.g., Anheuser-Busch, Dupont, and Seagrams). Still, we know relatively little about the issues peculiar to a family business, such as the process and impact of succession planning. Yet, no recurring event in the life of the family firm is more critical to survival than the transfer of power from the incumbent to the successor. Organizations are especially susceptible to loss of vision and purpose during periods of CEO transition, as the leaders who helped shape the vision are replaced by others who may not share the same values and abilities. This study addresses the importance of understanding business succession planning by proposing and empirically verifying a model of succession planning and firm effectiveness in the family business. It links aspects of succession planning and successor preparation to the effectiveness of transition and from performance. The model depicts multiple interactive relationships, with emphasis placed not only on the planning and process-specific but also on successor-specific factors that lead to effectiveness.
    Keywords: corporate governance, family businesses, management succession, firm performance, successor characteristics
    JEL: G34 L21 L23 M12 M13
    Date: 2005–06–04
  13. By: Daniel Tarka (University of Greenwich, London); Kanes Rajah (University of Greenwich,London)
    Abstract: This article explores two of the five major factors that determine success in high-growth small and medium-sized enterprises (SMEs). Research has shown that the internal characteristics of SMEs such as technology strategy and the demographics of the management team are critical and related to the organisational success. High-growth SMEs have been defined as innovative technology companies that introduce new products or services, opening new channels of distribution, pioneering novel production methods and management approaches. A sectorial classification* of “high technology” industries developed at the Department of Trade and Industry was used as a basis for selecting the sample in the study. This embraces the communications, IT, computing, biotechnology, electronics, and medical / life sciences industries.
    Keywords: Small firms, success, high-growth, technology strategy, management team.
    JEL: E
    Date: 2005–06–07
  14. By: Wei Huang (Department of Mathematics, Carleton University, LRSP)
    Keywords: Complete Convergence, Tail Probabilities of Sums of i.i.d Random Variables, the Law of the Logarithm, Strong Approximation
    JEL: C10 C40
    Date: 2004–04–01

This nep-bec issue is ©2005 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.