nep-bec New Economics Papers
on Business Economics
Issue of 2006‒02‒26
23 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The Effects of Entry on Incumbent Innovation and Productivity By Philippe Aghion; Richard Blundell; Rachel Griffith; Peter Howitt; Susanne Prantl
  2. The Effects of Short-Term Liabilities on Profitability: The Case of Germany By Christopher F. Baum; Dorothea Schaefer; Oleksandr Talavera
  3. Why Did U.S. Market Hours Boom in the 1990s? By Ellen McGrattan; Edward Prescott
  4. The Dog That Did Not Bark: A Defense of Return Predictability By John H. Cochrane
  5. Investment and Uncertainty By Christopher F. Baum; Mustafa Caglayan; Oleksandr Talavera
  6. Conflict, Trust, and Effectiveness in Teams Performing Complex Tasks: A Study of Temporal Patterns By Raes Anneloes M.L.; Heijltjes Mariëlle G.; Glunk Ursula; Roe Robert A.
  7. Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Acceptance Rates By Elena Loutskina; Philip E. Strahan
  8. Individuals and Organizations: Thoughts on a Micro-Foundations Project for Strategic Management and Organizational Analysis By Teppo Felin; Nicolai Foss
  9. Employee Privacy at Workplaces: Some Pertinent Issues By Krishnan Sandeep K; Varkkey Biju; Raghavan Anush
  10. The Long and Short of the Canada-U.S. Free Trade Agreement By Daniel Trefler
  11. Geographic Spillover of Unionism By Thomas J. Holmes
  12. People People: Social Capital and the Labor-Market Outcomes of Underrepresented Groups By Lex Borghans; Bas ter Weel; Bruce A. Weinberg
  13. How Much Do Employers Learn from Referrals? By Joshua C. Pinkston
  14. Mergers and acquisitions in Europe By Martynova,Martina; Renneboog,Luc
  15. Board structure, Ownership structure, and Firm performance : Evidence from Banking By Mohamed Belkhir
  16. Are Multinational Enterprises More Productive? A Test of the Selection Hypothesis By Yukako Murakami
  17. Diagnosing Discrimination: Stock Returns and CEO Gender By Justin Wolfers
  18. Corporate Responsibility Practices of Emerging Market Companies By Jeremy Baskin; Kathryn Gordon
  19. A lost sales inventory model with a compound poisson demand pattern By Springael J.; Van Nieuwenhuyse I.
  20. Identifying technology spillovers and product market rivalry By Nick Bloom; Mark Schankerman; John Van Reenen
  21. Optimal Corporation Tax: An I.O. Approach By Luca Colombo; Paola Labrecciosa; Patrick Paul Walsh
  22. The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation By Friederike Mengel; Axel Ockenfels; Werner Güth
  23. Perception and pursuit of entrepreneurial opportunities: an evolutionary economics perspective By G. Buenstorf

  1. By: Philippe Aghion; Richard Blundell; Rachel Griffith; Peter Howitt; Susanne Prantl
    Abstract: How does firm entry affect innovation incentives and productivity growth in incumbent firms? Micro-data suggests that there is heterogeneity across industries--incumbents in technologically advanced industries react positively to foreign firm entry, but not in laggard industries. To explain this pattern, we introduce entry into a Schumpeterian growth model with multiple sectors which differ by their distance to the technological frontier. We show that technologically advanced entry threat spurs innovation incentives in sectors close to the technological frontier--successful innovation allows incumbents to prevent entry. In laggard sectors it discourages innovation--increased entry threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro-level productivity growth and patent panel data for the UK, and controlling for the endogeneity of entry by exploiting the large number of policy reforms undertaken during the Thatcher era.
    JEL: E2
    Date: 2006–02
  2. By: Christopher F. Baum (Boston College); Dorothea Schaefer (DIW Berlin); Oleksandr Talavera (DIW Berlin)
    Abstract: Using data from Germany this paper examines the direct effect of non-financial firms' use of short-term versus long-term liabilities. We develop a structural model of a firm's value maximization problem that predicts that profitability of the firm will change if firms alter their use of short-term versus long-term liabilities. We find that firms that rely more heavily on short-term liabilities are likely to be more profitable.
    Keywords: profitability, short-term liabilities, maturity structure, capital structure.
    JEL: G32 G30
    Date: 2006–02–13
  3. By: Ellen McGrattan; Edward Prescott
    Abstract: During the 1990s, market hours in the United States rose dramatically. The rise in hours occurred as gross domestic product (GDP) per hour was declining relative to its historical trend, an occurrence that makes this boom unique, at least for the postwar U.S. economy. We find that expensed plus sweat investment was large during this period and critical for understanding the movements in hours and productivity. Expensed investments are expenditures that increase future profits but, by national accounting rules, are treated as operating expenses rather than capital expenditures. Sweat investments are uncompensated hours in a business made with the expectation of realizing capital gains when the business goes public or is sold. Incorporating expensed and sweat equity into an otherwise standard business cycle model, we find that there was rapid technological progress during the 1990s, causing a boom in market hours and actual productivity.
    JEL: E3 O4
    Date: 2006–02
  4. By: John H. Cochrane
    Abstract: To question the statistical significance of return predictability, we cannot specify a null that simply turns off that predictability, leaving dividend growth predictability at its essentially zero sample value. If neither returns nor dividend growth are predictable, then the dividend-price ratio is a constant. If the null turns off return predictability, it must turn on the predictability of dividend growth, and then confront the evidence against such predictability in the data. I find that the absence of dividend growth predictability gives much stronger statistical evidence against the null, with roughly 1-2% probability values, than does the presence of return predictability, which only gives about 20% probability values. I argue that tests based on long-run return and dividend growth regressions provide the cleanest and most interpretable evidence on return predictability, again delivering about 1-2% probability values against the hypothesis that returns are unpredictable. I show that Goyal and Welch's (2005) finding of poor out-of-sample R2 does not reject return forecastability. Out-of-sample R2 is poor even if all dividend yield variation comes from time-varying expected returns.
    JEL: G0 G1
    Date: 2006–02
  5. By: Christopher F. Baum (Boston College); Mustafa Caglayan (University of Glasgow); Oleksandr Talavera (DIW Berlin)
    Abstract: In this paper we investigate the linkages between firms' capital investment behavior and uncertainty. In our empirical investigation, we use measures of uncertainty derived from firms' daily stock returns and S\&P 500 index returns along with a CAPM-based risk measure. Using a panel of U.S. manufacturing firm data obtained from COMPUSTAT over the 1984-2003 period, we specifically find that increases in both intrinsic and CAPM-based measures of uncertainty have a significant negative impact on firms' investment spending. Our investigation also provides evidence that the relationship is nonlinear and more complex than previously considered.
    Keywords: capital investment, uncertainty, CAPM, dynamic panel data
    JEL: E22 D81 C23
    Date: 2006–02–15
  6. By: Raes Anneloes M.L.; Heijltjes Mariëlle G.; Glunk Ursula; Roe Robert A. (METEOR)
    Abstract: In this study we analyze the evolution of intra-team conflict and trust in teams that perform complex tasks. Using a longitudinal research design with six time intervals over a period of ten months, we collected data on 41 teams. Our findings suggest the existence of two distinct temporal patterns. One pattern develops in a stable manner and is characterized by high levels of trust and relatively low levels of task and relationship conflict. The other pattern is unstable with low, deteriorating levels of trust and high, amplifying levels of task and relationship conflict. These patterns are associated with significant differences in team effectiveness. On a self-perception as well as a stakeholder measure of team effectiveness, teams with stable patterns outperformed teams with unstable patterns.
    Keywords: management and organization theory ;
    Date: 2006
  7. By: Elena Loutskina; Philip E. Strahan
    Abstract: This paper shows that securitization reduces the influence of bank financial condition on loan supply. Low-cost funding and increased balance-sheet liquidity raise bank willingness to approve mortgages that are hard to sell (jumbo mortgages), while having no effect on their willingness to approve mortgages easy to sell (non-jumbos). Thus, the increasing depth of the mortgage secondary market fostered by securitization has reduced the impact of local funding shocks on credit supply. By extension, securitization has weakened the link from bank funding conditions to credit supply in aggregate, thereby mitigating the real effects of monetary policy.
    JEL: G2
    Date: 2006–01
  8. By: Teppo Felin; Nicolai Foss
    Abstract: Making links between micro and macro levels has been problematic in the social sciences, and the literature in strategic management and organization theory is no exception. The purpose of this chapter is to raise theoretical issues in developing micro-foundations for strategic management and organizational analysis. We discuss more general problems with collectivism in the social sciences by focusing on specific problems in extant organizational analysis. We introduce micro-foundations to the literature by explicating the underlying theoretical foundations of the origins of individual action and interaction. We highlight opportunities for future research, specifically emphasizing the need for a rational choice program in management research.
    JEL: L2 M1
    Date: 2006
  9. By: Krishnan Sandeep K; Varkkey Biju; Raghavan Anush
    Abstract: Employee privacy at the workplace is an issue of debate worldwide. With data security and other organizational interests becoming paramount, the employee rights for privacy and freedom is curtailed. This paper explores the underlying factors that contribute to violation of workplace privacy, the factors that affect how workplace privacy is defined, and debates on how privacy notions change based on cultural differences. We also try to understand the relevance of employee privacy nuances in the Indian context. The paper poses pertinent questions on definition of workplace privacy, and the balance of managing the employee and employer interests.
    Keywords: Workplace privacy, employee rights, human resource management, recruiunent, performance tracking, appraisals, electronic surveillance
    Date: 2006–02–22
  10. By: Daniel Trefler
    Abstract: The Canada-U.S. Free Trade Agreement (FTA) provides a unique windowonto the effects of a reciprocal trade agreement on an industrializedeconomy (Canada). For industries that experienced the deepest Canadiantariff cuts, employment fell by 12 percent and labour productivity rose by 15percent as low-productivity plants contracted. For industries that receivedthe largest U.S. tariff cuts, there were no employment gains, but plant-levellabour productivity soared by 14 percent. These results highlight the conflictbetween those who bore the short-run adjustment costs (displaced workersand struggling plants) and those who are garnering the long-run gains(consumers and efficient plants). Finally, a simple welfare analysis providesevidence of aggregate welfare gains.
    Date: 2006–01
  11. By: Thomas J. Holmes
    Abstract: Unionism in the United States is contagious; it spills out of coal mines and steel mills into other establishments in the neighborhood, like hospitals and supermarkets. The geographic spillover of unionism is documented here using a newly constructed establishment level data on unionism that is rich in geographic detail. A strong connection is found between unionism of health care establishments today and proximity to unionized coal mines and steel mills from the 1950s.
    JEL: J5 R0
    Date: 2006–02
  12. By: Lex Borghans; Bas ter Weel; Bruce A. Weinberg
    Abstract: Despite indications that people skills are important for understanding individual labor-market outcomes and have become more important over the last decades, there is little analysis by economists. This paper shows that people skills are important determinants of labor-market outcomes, including occupations and wages. We show that technological and organizational changes have increased the importance of people skills in the workplace. We particularly focus on how the increased importance of people skills has affected the labor-market outcomes of under represented groups. We show that the acceleration rate of increase in the importance of people skills between the late 1970s and early 1990s can help explain why women’s wages increased more rapidly while the wages of blacks grew more slowly over these years relative to earlier years.
    JEL: J16 J21 J24 J31
    Date: 2006–01
  13. By: Joshua C. Pinkston (U.S. Bureau of Labor Statistics)
    Abstract: This paper tests the hypothesis that referrals from various sources provide employers with more information about job applicants than they would have without a referral. I use data from the 1982 EOPP Survey of employers that contain information on two workers in the same job, allowing me to cancel out differences in job and firm characteristics and control for the possibility that workers with referrals from different sources (or no referral at all) might sort into jobs that put different weights on individual performance. My estimation results provide evidence consistent with referrals from friends and family members providing employers with more information than they would have otherwise. Despite the information they provide, however, it appears as though referrals from family members are associated with jobs that put less weight on performance overall. On the other hand, referrals from other employers or labor unions appear to provide little, if any, information but are associated with jobs that put more weight on performance than the average job does. I find no evidence that referrals from schools, community organizations or other sources provide useful information.
    Keywords: Referrals; Recruiting Methods; Labor Market Information
    JEL: J6 M51 J31 D83
    Date: 2006–02
  14. By: Martynova,Martina; Renneboog,Luc (Tilburg University, Center for Economic Research)
    Abstract: This paper provides a comprehensive overview of the European takeover market. We characterize the main features of the domestic and cross-border corporate takeovers involving European companies in the period 1993-2001. We provide detailed and comparable information on the size and dynamics of takeover activity in 28 Continental European countries, the UK and Ireland. The data is supplemented with the characteristics of takeover transactions, including the type of takeovers (negotiated acquisition or tender offer), bid attitude (friendly or hostile), payment method (all-cash, all-equity, or mixed deals), legal status of the target firm (public or private), takeover strategy (focus or diversification), amongst other factors. In addition, we investigate the shortterm wealth effects of 2,419 European mergers and acquisitions. We find announcement effects of 9% for target firms compared to a statistically significant announcement effect of only 0.5% for the bidders. Including the price run-up, the share price reaction amounts to 21% for the targets and 0.9% for the bidders. We show that the estimated shareholder wealth effect strongly depends on the different attributes of the takeovers. The type of takeover bid has a large impact on the short-term wealth effects for the target firm shareholders with hostile takeovers triggering substantially larger price reactions than friendly transactions. When a UK target is involved, the abnormal returns are higher than those of bids involving a Continental European target. There is strong evidence that the means of payment has a large impact on the share prices of both bidder and target.
    Keywords: takeovers;mergers and acquisitions;diversification;takeover waves;means of payment
    JEL: G34
    Date: 2006
  15. By: Mohamed Belkhir (LEO - Laboratoire d'économie d'Orleans - - CNRS : FRE2783 - Université d'Orléans)
    Abstract: This paper examines the interrelations among five ownership and board characteristics in a sample of 260 bank and savings-and-loan holding companies. These governance characteristics, designed to reduce agency problems between shareholders and managers, are insider ownership, blockholder ownership, the proportion of outside directors, board leadership structure, and board size. Using two-stage least squares regressions, we present evidence of interdependencies between board and ownership structures. The results suggest that banks substitute between governance mechanisms that align the interests of managers and shareholders. These findings suggest that cross-sectional OLS regressions of bank performance on single governance mechanisms may be misleading. Indeed, we find statistically significant relationships between performance and insider ownership and blockholder ownership when using OLS regressions. However, these statistically significant relationships disappear when the simultaneous equations framework is used. Together, these findings are consistent with optimal use of each governance mechanism by banks.
    Keywords: Corporate governance ; board structure ; ownership structure ; performance ; banking ; simultaneous equations
    Date: 2006–02–16
  16. By: Yukako Murakami
    Abstract: This paper investigates whether differences in productivity explain why some Japanese manufacturing firms sell only in the domestic market, while others serve foreign markets, either through exports, overseas production, outsourcing or licensing. Using firm level data, it is shown empirically that the productivity of multinational firms differs significantly from that of firms that sell only in the domestic market. It shows therefore that the heterogeneous productivity levels explain the channels of multinational enterprises.
    Keywords: FDI, exports, outsourcing, licensing, TFP
    JEL: F2
    Date: 2006–02
  17. By: Justin Wolfers
    Abstract: A vast labor literature has found evidence of a “glass ceiling”, whereby women are under-represented among senior management. A key question remains the extent to which this reflects unobserved differences in productivity, preferences, prejudice, or systematically biased beliefs about the ability of female managers. Disentangling these theories would require data on productivity, on the preferences of those who interact with managers, and on perceptions of productivity. Financial markets provide continuous measures of the market’s perception of the value of firms, taking account of the beliefs of market participants about the ability of men and women in senior management. As such, financial data hold the promise of potentially providing insight into the presence of mistake-based discrimination. Specifically if female-headed firms were systematically under-estimated, this would suggest that female-headed firms would outperform expectations, yielding excess returns. Examining data on S&P 1500 firms over the period 1992-2004 I find no systematic differences in returns to holding stock in female-headed firms, although this result reflects the weak statistical power of our test, rather than a strong inference that financial markets either do or do not under-estimate female CEOs.
    JEL: G14 G3 J16 J4
    Date: 2006–01
  18. By: Jeremy Baskin; Kathryn Gordon
    Abstract: Emerging market companies make up 3.8 per cent of the FT500, the 500 largest global traded companies1 and 4.6 per cent of the Dow Jones Global Index of 2,500 companies. OECD statistics show that, while the bulk of international investment flows originate in the OECD, non-OECD countries are increasingly important sources of investment flows. This paper presents a fact finding study of the...
    Date: 2005–09
  19. By: Springael J.; Van Nieuwenhuyse I.
    Abstract: In this paper, we study the decision problem of a retailer, who wants to optimize the amount of shelf inventory of a particular product, given that the demand for the product is stochastic and replenishment lead times (from the store’s stockroom to the shelf) are negligible. The shelf inventory is managed according to a (0,B*)-inventory policy: when the shelf inventory is sold out, the retailer gets a fixed amount of B* units from the central stockroom to replenish the shelf inventory. To adequately reflect the shopping behavior of retail customers, the demand process is modeled as a compound Poisson process, with Poisson distributed purchase quantities. When the purchase quantity of a customer exceeds the amount of shelf inventory still available, the unsatisfied demand is considered to be lost sales. As the demand process is stochastic, the runout time of the shelf inventory will be stochastic too. The costs per cycle related to keeping inventory on the shelf can be split up into three components: average holding costs (which may be related to the scarcity of shelf space), a fixed handling cost (per replenishment trip), and an average lost sales cost. The purpose of the model is to determine the value of B* that minimizes the average total cost per time unit.
    Date: 2005–07
  20. By: Nick Bloom; Mark Schankerman; John Van Reenen
    Abstract: Support for many R&D and technology policies relies on empirical evidence that R&D "spills over" between firms. But there are two countervailing R&D spillovers: positive effects from technology spillovers and negative effects from business stealing by product market rivals. We develop a general framework showing that technology and product market spillovers have testable implications for a range of performance indicators, and exploits these using distinct measures of a firm's position in technology space and product market space. We show using panel data on U.S. firms between 1981 and 2001 that both technology and product market spillovers operate, but that net social returns are several times larger than private returns. The spillover effects are also revealed when we analyze three hightech sectors in detail - pharmaceuticals, computer hardware andtelecommunication equipment. Using the model we evaluate three R&Dsubsidy policies and show that the typical focus of support for small and medium firms may be misplaced.
    Keywords: Spillovers, R&D, market value, patents.
    JEL: F23
    Date: 2005–01
  21. By: Luca Colombo; Paola Labrecciosa; Patrick Paul Walsh
    Abstract: Theory predicts that optimal effective corporation tax rates will benegatively related to industry specific sunk costs, and hence industryconcentration. Governments should tax industries with monopolistic powersoftly. Evidence suggests that this Schumpeterian (1942) principle ofcorporate taxation was used widely across industries in France, Italy and theUK in the 1990s.
    Keywords: Effective Corporation Tax Rate, Industry Sunk Costs,Industry Concentration.
    JEL: H25 L52
    Date: 2006–02
  22. By: Friederike Mengel; Axel Ockenfels; Werner Güth
    Abstract: Applying an evolutionary framework, we investigate how a reputation mechanism and a buyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthiness and trust. Our analysis suggests that the costs involved in giving reliable feedback determine the gains from trade that can be obtained in equilibrium. Buyer insurance, on the other hand, can affect the trading dynamics and equilibrium selection. We find that, under reasonable conditions, buyer insurance crowds out trust and trustworthiness.
    Date: 2006–01
  23. By: G. Buenstorf
    Abstract: Considerable debate surrounds the concept of entrepreneurial opportunities. This paper contributes to the discussion by bringing in concepts and findings from evolutionary economics. It makes three points. First, adopting an evolutionary market process perspective sheds new light on the nature of opportunities. Second, not only the pursuit of entrepreneurial opportunities, but also the further development of the entrepreneurial venture is dependent on subjective opportunity perception and interpretation. Third, findings on industry evolution help understand how opportunities, as well as agents’ ability and willingness to pursue them, change over time. Effects of pre-entry experience on opportunity recognition and firm performance are also discussed.
    Keywords: opportunities, market process, business conceptions, industry evolution, spin-offs
    JEL: B25 D21 M13 L10
    Date: 2006–01

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