nep-bec New Economics Papers
on Business Economics
Issue of 2005‒11‒12
twenty papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Has Financial Development Made the World Riskier? By Raghuram G. Rajan
  2. "The United States and Her Creditors: Can the Symbiosis Last?" By Wynne Godley; Dimitri B. Papadimitriou; Claudio H. Dos Santos; Gennaro Zezza
  3. Understanding Order Flow By Martin D. D. Evans; Richard K. Lyons
  4. Nonparametric Risk Management with Generalized Hyperbolic Distributions By Michal Benko; Alois Kneip
  5. Is investment-cash flow sensitivity caused by the agency costs or asymmetric information? : Evidence from the UK By Pawlina,G.; Renneboog,L.
  6. Entrepreneurship and Liquidity Constraints: Evidence from Sweden By Nykvist, Jenny
  7. Learning Paths to Offshore Outsourcing - From Cost Reduction to Knowledge Seeking By Peter Maskell; Torben Pedersen; Bent Petersen; Jens Dick-Nielsen
  8. Arbitrage in the foreign exchange market: Turning on the microscope By Q. Farooq Akram,; Dagfinn Rime; Lucio Sarno
  9. European Unemployment: The Evolution of Facts and Ideas By Olivier Blanchard
  10. Capital structure and managerial compensation : the effects of remuneration seniority By Calcagno,R.; Renneboog,L.
  11. The International Allocation of R&D Activity by US Multinationals: The East Asian Experience in Comparative Perspective By Prema-chandra Athukorala; Archanun Kohpaiboon
  12. Control structures and payout policy By Renneboog,L.; Trojanowski,G.
  14. The governance of services By Ruys,P.H.M.
  15. Modeling Logistics Costs using Time-Driven ABC: A Case in a Distribution Company By W. BRUGGEMAN; P. EVERAERT; S. R. ANDERSON; Y. LEVANT
  16. "Is More Mobility Good? Firm Mobility and the Low Wage -- Low Productivity Trap" By Stephanie Seguino
  17. Self-esteem achievement through work and socio-demographic disparities in the labor market. By Olivier Baguelin
  18. La production et valorisation des compétences sur le marché du travail : des approches néo-classiques à l'économie des conventions By Fatima Suleman
  19. "Not So Footloose after All: Locational Behavior of Information Technology Establishments in the United States, 1989-1998" By William R. Latham; Simon Condliffe
  20. Do Temporary Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from Random Assignments By David H. Autor; Susan Houseman

  1. By: Raghuram G. Rajan
    Abstract: Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much greater access to finance for firms and households. On net, this has made the world much better off. Concurrently, however, we have also seen the emergence of a whole range of intermediaries, whose size and appetite for risk may expand over the cycle. Not only can these intermediaries accentuate real fluctuations, they can also leave themselves exposed to certain small probability risks that their own collective behavior makes more likely. As a result, under some conditions, economies may be more exposed to financial-sector-induced turmoil than in the past. The paper discusses the implications for monetary policy and prudential supervision. In particular, it suggests market-friendly policies that would reduce the incentive of intermediary managers to take excessive risk.
    JEL: G0 G1 G2 G3
    Date: 2005–11
  2. By: Wynne Godley; Dimitri B. Papadimitriou; Claudio H. Dos Santos; Gennaro Zezza
    Abstract: The main arguments in this paper can be simply stated: 1) If output in the US grows fast enough to keep unemployment constant between now and 2010 and if there is no further depreciation in the dollar, the deficit in the balance of trade is likely to get worse, perhaps reaching 7.5 per cent by the end of the decade. 2) If the trade deficit does not improve, let alone if it gets worse, there will be a large further deterioration in the US's net foreign asset position so that, with interest rates rising, net income payments from abroad will at last turn negative and the deficit in the current account as a whole could reach at least 8.5 per cent of GDP. . . .
    Date: 2005–09
  3. By: Martin D. D. Evans; Richard K. Lyons
    Abstract: This paper develops a model for understanding end-user order flow in the FX market. The model addresses several puzzling findings. First, the estimated price-impact of flow from different end-user segments is, dollar-for-dollar, quite different. Second, order flow from segments traditionally thought to be liquidity-motivated actually has power to forecast exchange rates. Third, about one third of order flow's power to forecast exchange rates one month ahead comes from flow's ability to forecast future flow, whereas the remaining two-thirds applies to price components unrelated to future flow. We show that all of these features arise naturally from end-user heterogeneity, in a setting where order flow provides timely information to market-makers about the state of the macroeconomy.
    JEL: F3 F4 G1
    Date: 2005–11
  4. By: Michal Benko; Alois Kneip
    Abstract: Functional data analysis (FDA) has become a popular technique in applied statistics. In particular, this methodology has received considerable attention in recent studies in empirical finance. In this talk we discuss selected topics of functional principal components analysis that are motivated by financial data.
    Keywords: nonparametric risk management, generalized hyperbolic distribution, functional data analysis
    JEL: C13 G19
    Date: 2005–03
  5. By: Pawlina,G.; Renneboog,L. (TILEC (Tilburg Law and Economics Center))
    Date: 2005
  6. By: Nykvist, Jenny (Department of Economics)
    Abstract: Do potential entrepreneurs face liquidity constraints? Or to put it differently, does a person have to be wealthy to start a new business? This question has been discussed in a large literature that has documented a positive relationship between initial wealth and entrepreneurship. However, in a recent paper Hurst and Lusardi (2004) use higher order of polynomials in wealth and find that there is no relationship between household initial wealth and the probability of starting an own business throughout most of the wealth distribution in the United States. In this paper we examine this relationship using similar methods on Swedish data. The data set used is LINDA, a register-based longitudinal data set for Sweden. The relationship is estimated using probit models with different specifications of wealth. However, the result that wealth is not important for new entrepreneurs cannot be replicated. Instead, the main finding of the paper is that the relationship between wealth and transition into entrepreneurship is positive but diminishing for the major part of the wealth distribution. Moreover, the relationship between wealth and entrepreneurship gets stronger as the models get less restricted with respect to wealth. Our result leads us to the conclusion that liquidity constraints do play a significant role when determining transition into entrepreneurship in Sweden.
    Keywords: Liquidity constraints; wealth; entrepreneurship; starting capital; business ownership
    JEL: D31 J23 J24 M13
    Date: 2005–09–10
  7. By: Peter Maskell; Torben Pedersen; Bent Petersen; Jens Dick-Nielsen
    Abstract: A corporation’s offshore outsourcing may be seen as the result of a discrete, strategic decision taken in response to an increasing pressure from worldwide competition. However, empirical evidence of a representative cross-sector sample of international Danish firms indicates that offshore sourcing in low-cost countries is best described as a learning-by-doing process in which the offshore outsourcing of a corporation goes through a sequence of stages towards sourcing for innovation. Initially, a corporation’s outsourcing is driven by a desire for cost minimization. Over a period of time the outsourcing experience lessens the cognitive limitations of decision-makers as to the advantages that can be achieved through outsourcing in low-cost countries: the insourcer/ vendor may not only offer cost advantages, but also quality improvement and innovation. The quality improvements that offshore outsourcing may bring about evoke a realization in the corporation that even innovative processes can be outsourced.
    Keywords: Offshore outsourcing; cost reduction; innovation; experiential learning; low-cost countries
    JEL: L22 L23 D83 M55
    Date: 2005
  8. By: Q. Farooq Akram, (Norges Bank (Central Bank of Norway)); Dagfinn Rime (Norges Bank (Central Bank of Norway)); Lucio Sarno (University of Warwick and CEPR)
    Abstract: This paper investigates the presence and characteristics of arbitrage opportunities in the foreign exchange market using a unique data set for three major capital and foreign exchange markets that covers a period of more than seven months at tick frequency, obtained from Reuters on special order. We provide evidence on the fre- quency, size and duration of round-trip and one-way arbitrage opportunities in real time. The analysis unveils the existence of numerous short-lived arbitrage oppor- tunities, whose size is economically significant across exchange rates and comparable across different maturities of the instruments involved in arbitrage. The duration of arbitrage opportunities is, on average, high enough to allow agents to exploit devia- tions from the law of one price, but low enough to explain why such opportunities have gone undetected in much previous research using data at lower frequency.
    Keywords: exchange rates; arbitrage; foreign exchange microstructure
    JEL: F31 F41 G14 G15
    Date: 2005–11–09
  9. By: Olivier Blanchard
    Abstract: In the 1970s, European unemployment started increasing. It increased further in the 1980s, to reach a plateau in the 1990s. It is still high today, although the average unemployment rate hides a high degree of heterogeneity across countries. The focus of researchers and policy makers was initially on the role of shocks. As unemployment remained high, the focus has progressively shifted to institutions. This paper reviews the interaction of facts and theories, and gives a tentative assessment of what we know and what we still do not know.
    JEL: E24 J6
    Date: 2005–11
  10. By: Calcagno,R.; Renneboog,L. (TILEC (Tilburg Law and Economics Center))
    Date: 2004
  11. By: Prema-chandra Athukorala; Archanun Kohpaiboon
    Abstract: This paper examines patterns and determinants of overseas R&D expenditure of MNEs, with emphasis on the East Asian experience, using a new panel dataset relating to US-based manufacturing MNEs over the period 1990-2001. It is found that inter-country differences in R&D intensity of operation of US MNE affiliates are fundamentally determined by the domestic market size, overall R&D capability and cost of hiring R&D personnel. The impact of domestic market orientation of affiliates on R&D propensity varies among countries depending on their stage of global economic integration. Intellectual property protection seems to matter largely for mature economies with complementary endowments. There is no evidence to suggest that financial incentives have a significant impact on inter-country differences in R&D intensity when controlled for other relevant variables. Nor is there a statistically significant relationship between the size of the capital stock of MNEs and R&D intensity of their operation across countries. Overall, our findings serve as a caution against paying too much attention by host country governments on turning MNEs affiliates into technology creators as part of their foreign direct investment policy.
    Date: 2005–09
  12. By: Renneboog,L.; Trojanowski,G. (TILEC (Tilburg Law and Economics Center))
    Date: 2005
  13. By: Fabio Feriozzi
    Abstract: In a duopoly model I study the effects of increased competitive pressure on the implicit incentives provided by career concerns. By building a good reputation, managers are able to capture on the labor market part of the profits that they produce in excess with respect to less talented managers. Increased competition, then, has an ambiguous effect: it raises the reputational concern to the extent that it makes to hire a good manager more valuable. The threat of a hostile takeover is then introduced and it is shown to reduce managerial salary while having a potentially negative effect on ex ante incentives. In particular, it is argued that if alternative governance systems are already available, the threat of a hostile takeover can be harmful.
    Date: 2005–11
  14. By: Ruys,P.H.M. (TILEC (Tilburg Law and Economics Center))
    Date: 2005
    Abstract: Purpose: The purpose of this paper is to study whether time-driven Activity-based Costing (ABC) is more appropriate to capture the complexity of logistics transactions than traditional ABC. <br>Methodology: This paper explores the method of time-driven ABC and presents the results of a case study at a distribution company. <br>Findings: The case shows that a traditional ABC was not appropriate. Almost 60% of the activities contained more than one subtask, with different time drivers. Ignoring this complexity resulted in a misallocation of 54% of costs. Splitting-up all the subtasks resulted in a traditional ABC model that was too complex. Contrary, the time-driven ABC model captured the full complexity of the logistics transactions through time equations that employ multiple time drivers. <br>Research implications: This paper formulates the underlying mathematical model of timedriven ABC, leading to a better understanding of the time equations. Different types of complexities in logistics were identified in the case. <br>Practical implications: The study explains the technique of time-driven ABC and provides some real company examples of time equations in logistics. <br>Value of the paper: This is one of the first papers on time-driven ABC in a European context. The mathematical representation allows to a better understanding of this new costing technique and provides a new methodology to model complexity of logistics activities.
    Keywords: Logistics, Time-driven Activity-based Costing, time equations, mathematical model, complexity
    Date: 2005–09
  16. By: Stephanie Seguino
    Abstract: This paper explores the possibility that unregulated FDI flows are causally implicated in the decline in labor productivity growth in semi-industrialized economies. These effects are hypothesized to operate through the negative impact of firm mobility on worker bargaining power and thus affecting wages. Downward pressure on wages can reduce the pressure on firms to raise productivity in defense of profits, contributing to a low wageÐlow productivity trap. This paper presents empirical evidence, based on panel data fixed effects and GMM estimation for 37 semi-industrialized economies, that supports the causal link between increased firm mobility and lower wages, as well as slower productivity growth over the period 1970Ð2000.
    Date: 2005–05
  17. By: Olivier Baguelin (EUREQua)
    Abstract: We develop a model in which agents choose whether to achieve self-esteem through work. When they do, they develop an intrinsic motivtion to effort. Depending on the characteristics of the job to be filled, an employer may try, or not, to encourage this intrinsic motivation by an adequately designed contract. Although equally productive, assuming that agents from distinct socio-demographic groups differ in their propensity to achieve self-esteem through work, this may lead to unequal access to employment. We analyse the consequences of this model on labor market outcomes. The model can give an account of many important traits of socio-demographic disparities in the labor market (notably of vertical occupational segregation.
    Keywords: Employment relation, self-esteem, intrinsic motivation, (seeming) hiring discrimination, occupational segregation, socio-demographic earnings gaps.
    JEL: J15 J24 J71 J16 Z13
    Date: 2005–09
  18. By: Fatima Suleman (IREDU - Institut de recherche sur l'éducation : Sociologie et Economie de l'Education - - CNRS : FRE5211 - Université de Bourgogne)
    Abstract: Partant des contributions du capital humain nous étudions la problématique de la production et de la valorisation des compétences sur le marché du travail.Tenant en compte les potentialités et les limites du paradigme dominant, des incursions dans d'autres champs disciplinaires sont proposées. Les notions de l'économie de l'éducation - capital humain et salaires, sont nécessaires mais insuffisantes pour expliquer le niveau de compétence de l'individu et son niveau de rémunération.Nous proposons d'intégrer les outils théoriques et méthodologiques de l'économie de l'éducation, de l'économie des conventions et des ressources humaines. Nous appuyons sur les contributions de la sociologie, de l'ergonomie et de la gestion des ressources humaines. Cette interdisciplinarité découle de la problématique choisie.La recherche commence par l'évaluation du rôle de l'éducation dans la production des compétences. Le concept de compétence implique également que le rôle des organisations dans ce processus de production soit explicité.La relation formation-emploi est réexaminée à partir du concept de compétence et il est souligné l'interaction et la complémentarité du système éducatif et des entreprises dans la production des compétences. Nous proposons l'analyse de la valorisation des compétences et des obstacles qui empêchent la diffusion d'une rémunération basée sur les compétences. Aussi que des politiques salariales et des phénomènes traditionnels du marché du travail - la discrimination salariale et professionnelle entre hommes et femmes.Le travail permet d'identifier des principales contraintes, inconvénients et avantages du modèle de la compétence, discutant sa viabilité sociale.
    Keywords: Analyse néo-classique ; Capital humain ; Utilisation des compétences ; Marché du travail ; Relation éducation-revenu ; Economie de l'éducation ; Economie des conventions ; Ressource humaine ; GRH ; Compétence professionnelle ; Relation formation-emploi ; Politique salariale
    Date: 2005–11–03
  19. By: William R. Latham (Department of Economics,University of Delaware); Simon Condliffe
    Abstract: Among the benefits that technology can provide is greater connectivity among economic agents. Commerce now occurs across great geographic distances at nominal transaction costs. Technology, therefore, seems to have the potential to unshackle economic agents from their suppliers and customers, enabling them to seek out alternative locations without being at a comparative disadvantage to other businesses. This possibility has spawned the “death of distance” notion that distance no longer matters, that technology has made all locations equal. Such thinking has been encouraged by phenomena such as the widespread “outsourcing” of many back-office and service functions by U.S. firms and/or the location of many of these functions in India and other foreign countries.
    Keywords: industrial location, distance, footloose, information technology, establishments births, agglomeration economies
    JEL: R30 O33
    Date: 2005
  20. By: David H. Autor; Susan Houseman
    Abstract: A disproportionate share of low-skilled U.S. workers is employed by temporary help firms. These firms offer rapid entry into paid employment, but temporary help jobs are typically brief and it is unknown whether they foster longer-term employment. We draw upon an unusual, large-scale policy experiment in the state of Michigan to evaluate whether holding temporary help jobs facilitates labor market advancement for low-skilled workers. To identify these effects, we exploit the random assignment of welfare-to-work clients across numerous welfare service providers in a major metropolitan area. These providers feature substantially different placement rates at temporary help jobs but offer otherwise similar services. We find that moving welfare participants into temporary help jobs boosts their short-term earnings. But these gains are offset by lower earnings, less frequent employment, and potentially higher welfare recidivism over the next one to two years. In contrast, placements in direct-hire jobs raise participants' earnings substantially and reduce recidivism both one and two years following placement. We conclude that encouraging low-skilled workers to take temporary help agency jobs is no more effective - and possibly less effective - than providing no job placements at all.
    JEL: I38 J20 J30 J40
    Date: 2005–11

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