nep-bec New Economics Papers
on Business Economics
Issue of 2006‒03‒11
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. A Review of Methodological Research Pertinent to Longitudinal Survey Design and Data Collection By Nick Buck; Jonathan Burton; Annette Jäckle; Heather Laurie; Peter Lynn
  2. On Capital Market Imperfections as a Source of Low TFP and Economic Rents By Andres Erosa; Ana Hidalgo
  3. Schumpeterian Restructuring By Patrick Francois; Huw Lloyd-Ellis
  4. Towards a Measure of Financial Fragility By Lea Zicchino; Dimitrios Tsomocos; Charles Goodhart; Oriol Aspachs
  5. Should You Allow Your Agent to Become Your Competitor? .On Non-Compete Agreements in Employment Contracts By Matthias Kräkel; Dirk Sliwka
  6. Financial Constraints, Asset Tangibility, and Corporate Investment By Heitor Almeida; Murillo Campello
  7. I - Q Cycles By Patrick Francois; Huw Lloyd-Ellis
  8. The Interaction of Firing Costs and Firm Training By Wolfgang Lechthaler
  9. Is There Hedge Fund Contagion? By Nicole M. Boyson; Christof W. Stahel; Rene M. Stulz
  10. Les modèles HJM et LMM revisités By Francois-Éric Racicot; Raymond Théoret
  11. Innovation in Small and Medium-Sized Enterprises: A Study of Businesses in New South Wales, Australia By Olsen, Jane; Lee, Boon-Chye; Hodgkinson, Ann
  12. The effect of business regulations on nascent and actual entrepreneurship By Andre van Stel; David Storey; Roy Thurik
  13. The Contribution of Business Ownership in Bringing Down Unemployment in Japan By Andre van Stel; Lendert Baljeu; Roy Thurik; Ingrid Verheul
  14. International Intrafirm Transfer of Management Technology by Japanese Multinational Corporations By Shujiro Urata; Toshiyuki Matsuura; Yuhong Wei
  15. "Personality and Earnings" By Kaye K. W. Lee
  16. Does a change in the ownership of firms, from public to private, make a difference? By Elisabetta BERTERO
  17. CEO Turnover and Relative Performance Evaluation By Dirk Jenter; Fadi Kanaan
  18. Employee Screening: Theory and Evidence By Fali Huang; Peter Cappelli
  19. Financial Fragility and Growth Dynamics of Italian Business Firms By Giulio Bottazzi; Angelo Secchi; Federico Tamagni
  20. Organization of Multinational Activities and Ownership Structure By Christian Mugele; Monika Schnitzer
  21. Issues in measuring the degree of technological specialization with patent data By Nicolas van Zeebroeck; Bruno van Pottelsberghe de la Potterie; Wook Han

  1. By: Nick Buck (Institute for Social and Economic Research); Jonathan Burton (Cabinet Office); Annette Jäckle (Institute for Social and Economic Research); Heather Laurie (Institute for Social and Economic Research); Peter Lynn (Institute for Social and Economic Research)
    Abstract: This paper presents a review of methodological research regarding issues that are pertinent to surveys involving longitudinal data collection, i.e. repeated measurement over time on the same units. The objective of the review is to identify important gaps in our knowledge of issues affecting the design and implementation of such surveys and the use of the data that they provide. This should help to inform the development of an agenda for future methodological research as well as serving as a useful summary of current knowledge. The issues addressed relate to sample design, missing data (as a result of item and unit non-response and attrition) and measurement error (including panel conditioning).
    Keywords: complex surveys, data collection, dependent interviewing, household surveys, item non-response, longitudinal data quality, measurement error, methodology, non-contacts, non-response bias, panel attrition, panel data estimation, questionnaire design, recall error, refusals, respondent incentives, response rates, sampling, seam effect, survey errors, survey methodology, survey non-response, survey quality
    Date: 2005–12
  2. By: Andres Erosa; Ana Hidalgo
    Abstract: We propose a theory in which capital market imperfections are at the origin of cross-country TFP differences. In our theory entrepreneurs have private information about the multifactor productivity of their technology. We study how the contracting environment, as described by the ability to enforce contracts, affects the provision of incentives and resource allocation to and across entrepreneurs. Our theory implies that countries with a low ability to enforce contracts use inefficient technologies in equilibrium and are characterized by differences in productivity across industries. These implications of our theory are supported by the empirical evidence. Our theory also suggests that entrepreneurs have a vested interest in maintaining a status quo with low enforcement since it allows them to extract rents from the factor services they hire.
    JEL: O40 J24 D24
  3. By: Patrick Francois (University of British Columbia); Huw Lloyd-Ellis (Queen's University)
    Abstract: We develop a Shumpeterian theory of business cycles that relates job creation, job destruction and wages over the cycle to the processes of firm restructuring, innovation and implementation that drive long-run growth. Due to incentive problems, production workers are employed via relational contracts and experience involuntary unemployment. Job destruction and firm turnover are counter-cyclical, but labour productivity growth and job creation are pro-cyclical. Endogenous fluctuations in job creation on the intensive margin are the dominant source of changes in employment growth. Our framework also highlights the counter-cyclical forces on wages due to restructuring, and illustrates the relationship between the cyclicality of wages and long-run productivity growth. 052<p type="texpara" tag="Body Text" et="abstract" >
    Keywords: Intrinsic business cycles, job creation and destruction, innovation, wage cyclicality
    JEL: E0 E3 O3 O4
    Date: 2005–07
  4. By: Lea Zicchino; Dimitrios Tsomocos; Charles Goodhart; Oriol Aspachs
    Abstract: This paper proposes a measure of financial fragility that is based on economic welfare in a general model calibrated against UK data. The model comprises a household sector, three active hetrogeneous banks, a central bank/regulator, incomplete markets and endogenous default. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors and how the response of the economy to shocks relates to our measure of financial fragility. Finally we use panel VAR techniques to investigate the relationships between the factors that characterise financial fragility in our model i.e. banks' probabilities of default and banks' profits - to a proxy of welfare
    Date: 2006–03
  5. By: Matthias Kräkel (University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany, tel: +49 228 733914, fax: +49 228 739210.; Dirk Sliwka (University of Cologne, Herbert-Lewin-Str. 2, D-50931 Köln, Germany, tel: +49 221 470-5888, fax: +49 221 470-5078.
    Abstract: We discuss a principal-agent model in which the principal has the opportunity to include a non-compete agreement in the employment contract. We show that if the agent faces limited liability and there is an incentive problem the principal prefers not to impose such a clause if and only if the principal's profits from entering the market are sufficiently large relative to the agent's outside option. If the principal can impose a fine on the agent for leaving the firm, she will never prefer a non-compete agreement.
    Keywords: fine, incentives, incomplete contracts, non-compete agreements
    JEL: D21 J3 K1 M5
    Date: 2006–03
  6. By: Heitor Almeida; Murillo Campello
    Abstract: When firms are able to pledge their assets as collateral, investment and borrowing become endogenous: pledgeable assets support more borrowings that in turn allow for further investment in pledgeable assets. We show that this credit multiplier has an important impact on investment when firms face credit constraints: investment-cash flow sensitivities are increasing in the degree of tangibility of constrained firms' assets. If firms are unconstrained, however, investment-cash flow sensitivities are unaffected by asset tangibility. Crucially, asset tangibility itself may determine whether a firm faces credit constraints - firms with more tangible assets may have greater access to external funds. This implies that the relationship between capital spending and cash flows is non-monotonic in the firm's asset tangibility. Our theory allows us to use a differences-in-differences approach to identify the effect of financing frictions on corporate investment: we compare the differential effect of asset tangibility on the sensitivity of investment to cash flow across different regimes of financial constraints. We implement this testing strategy on a large sample of manufacturing firms drawn from COMPUSTAT between 1985 and 2000. Our tests allow for the endogeneity of the firm's credit status, with asset tangibility influencing whether a firm is classified as credit constrained or unconstrained in a switching regression framework. The data strongly support our hypothesis about the role of asset tangibility on corporate investment under financial constraints.
    JEL: G31
    Date: 2006–03
  7. By: Patrick Francois (University of British Columbia); Huw Lloyd-Ellis (Queen's University)
    Abstract: We develop a model of "intrinsic" business cycles, driven by the decentralized behaviour of entrepreneurs and firms making continuous, divisible improvements in their productivity. We show how equilibrium cycles, associated with strategic delays in implementation and endogenous innovation, arise even in the presence of reversible investment. We derive the implications for the cyclical evolution of both tangible (physical) and intangible (knowledge) capital. In particular, our framework is consistent with key aspects of the somewhat puzzling relationship between fixed capital formation and the stockmarket at business cycle frequencies.
    Keywords: Tobin\'s Q, fixed capital formation, intangible investment, cycles and growth
    JEL: E0 E3 O3 O4
    Date: 2005–10
  8. By: Wolfgang Lechthaler
    Abstract: This paper analyzes the effects of firing costs in a broader setup than what is usually done, allowing for on-the-job training. By doing so the traditional analysis is extended with respect to two points: On the one hand firing costs clearly increase firm training because worker and firm are less likely to separate. On the other hand, firm training gives firms the opportunity to lower the costs of firing restrictions: After all the value of output of a well-trained worker is less likely to turn negative. Through these two channels firm training is able to diminish the negative effects of firing restrictions usually discussed in the literature.
    JEL: E24 J24 J63 J68 M53
    Date: 2006–01
  9. By: Nicole M. Boyson; Christof W. Stahel; Rene M. Stulz
    Abstract: We examine whether hedge funds experience contagion. First, we consider whether extreme movements in equity, fixed income, and currency markets are contagious to hedge funds. Second, we investigate whether extreme adverse returns in one hedge fund style are contagious to other hedge fund styles. To conduct this examination, we estimate binomial and multinomial logit models of contagion using daily returns on hedge fund style indices as well as monthly returns on indices with a longer history. Our main finding is that there is no evidence of contagion from equity, fixed income, and foreign exchange markets to hedge funds, except for weak evidence of contagion for one single daily hedge fund style index. By contrast, we find strong evidence of contagion across hedge fund styles, so that hedge fund styles tend to have poor coincident returns.
    JEL: G11 G12 G18
    Date: 2006–03
  10. By: Francois-Éric Racicot (Département des sciences administratives, Université du Québec (Outaouais) et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal))
    Abstract: In this paper, we study the following models : Heath-Jarrow-Morton (1992) and Libor-Market- Model, also known as Brace-Gatarek-Musiela model (1997). We survey the extensions of these models and their representation in the Black and Scholes world. Our approach is pedagogical and is based on an exhaustive elaboration of the developments of these models. Finally, we discuss the evolution of these models towards the pricing of more complex structured derivatives, like TARN and we also briefly analyse more advanced versions like the SV Cheyette model.
    Keywords: derivatives; financial engineering; asset valuation; computational finance.
    JEL: G12 G13 G33
    Date: 2006–01–03
  11. By: Olsen, Jane; Lee, Boon-Chye (University of Wollongong); Hodgkinson, Ann (University of Wollongong)
    Abstract: This paper examines the process of innovation within SMEs, focusing on a sample of firms in New South Wales, Australia. The trend of the last several decades towards increased integration of global markets, or globalization, has meant that many firms are experiencing continuously increasing pressure to remain viable as their markets expand, and they begin competing with a larger number of firms. SMEs, in particular, are vulnerable to this pressure, since they tend to be disadvantaged relative to larger firms that generally have better access to funding and other resources. The ways in which SMEs operate to remain economically viable, and contribute to economic performance, is of especial interest to governments given the prominent roles that they play in most economies. One way of doing so is through innovation. In this paper, we present a more complex model of the innovation process than the traditional linear model involving R&D investment, what we term the "Ripple Effect Model", building upon recent developments in the literature. The Ripple-Effect Model appears to be substantially supported.
    Keywords: Structural break, unit root test, Lebanon economy
    Date: 2006
  12. By: Andre van Stel; David Storey; Roy Thurik
    Abstract: This paper investigates the effect of business regulations on various measures of entrepreneurship. Using data for a sample of countries participating in the Global Entrepreneurship Monitor between 2002 and 2005, we estimate a two-equation model explaining the nascent and the actual entrepreneurship rate, while taking into account the interrelationship between the two variables. Various determinants of entrepreneurship reflecting the demand and supply side of entrepreneurship as well as business regulation measures are incorporated in the model. Data on various categories of business regulations are taken from the World Bank Doing Business data base. Our estimation results suggest that, while entry regulations only have a small and indirect impact on the actual entrepreneurship rate, the impact of labour market regulations is more important. We also find that the determinants of opportunity and necessity entrepreneur-ship are fundamentally different.
    Keywords: nascent entrepreneurship, young businesses, business regulations, Global Entrepreneurship Monitor, World Bank Doing Business
    JEL: K20 L51 M13 O57
    Date: 2006–02
  13. By: Andre van Stel; Lendert Baljeu; Roy Thurik; Ingrid Verheul
    Abstract: The relationship between entrepreneurship, measured by fluctuations in the business ownership rate, and unemployment in Japan is examined for the period 1972-2002. We conclude that, although Japan's unemployment rate has been influenced by different exogenous shocks as compared to other OECD countries, the effects of entrepreneurship on unemployment are not distinct. In the past small firms in Japan benefited from the protective environment of the keiretsu structure. This secure environment no longer exists, and a new market environment conducive to new venture creation and growth is not yet established. We argue that the Japanese government should actively stimulate an entrepreneurial culture.
    Keywords: entrepreneurship, business ownership, unemployment, Japan
    JEL: L11 M13 O53
    Date: 2006–03
  14. By: Shujiro Urata; Toshiyuki Matsuura; Yuhong Wei
    Abstract: Authors analyze the pattern of intrafirm transfer of management technology from Japanese multinational corporations (MNCs) to their overseas affiliates by using firm-level micro data and discern the determinants of the extent of technology transfer achieved. Defining intrafirm transfer of technology achieved as the case where responsibility of the task such as top management, sales, and labor management is given to local staff rather than Japanese staff, authors found that top management has been transferred at a limited number of affiliates, while the task of labor management has been transferred at many affiliates. Among the affiliates in different regions, technology transfer has been relatively more extensively achieved at affiliates in Europe, while it has been relatively limited at affiliates in ASEAN countries. An examination of the determinants of technology transfer revealed that the length of operation of the affiliates, and the quality of labor in the host countries have significantly positive impacts for the affiliates in Asia. These observations indicate the importance of providing an FDI friendly environment, under which MNCs are likely to stay for a long period, and the importance of improving the quality of human resources through education and training, in order to promote intrafirm transfer of management technology.
    Date: 2006–02
  15. By: Kaye K. W. Lee
    Abstract: This paper studies personality as a potential explanation for wage differentials between apparently similar workers. This follows initial studies by Jencks (1979) that suggest that certain personality traits, such as industriousness and leadership, have an impact on earnings. The paper aims to provide a theoretical framework within which these effects may be analyzed. The study begins by outlining four issues as a backdrop to the model: rationality, the industry, firms, and workers. A crucial factor to the model is the memeÑa mental gene that affects personality. Taking these four factors into consideration, the Contested Exchange model from Bowles and Gintis (1990) is used. Then, it is adapted to study memetic effects on the wage rate. This is followed by an analysis of how memes may affect personality and thus earnings. The issues that require further study and resolution are 1) which traits create wage differentials, and 2) two-way causality: does personality affect the wage, or does a wage premium become an incentive for a person to adopt new memes?
    Date: 2006–02
  16. By: Elisabetta BERTERO
    Abstract: The economic impact of privatisation is hard to assess. This pape r extends the analysis of Florio (2004) in four directions. It ar gues that a welfare assessment of privatisation must include an e valuation of the performance of public enterprises in light of th eir originally broad set of objectives including, for example, th e promotion of employment. It highlights the importance of financ ial pressure, independently of privatisation, in improving the pe rformance of public firms. It goes on to discuss the potential ro le of supranational institutions in bringing about this pressure, and identifies the relevance of the 1976 IMF intervention in the UK. International empirical evidence is then presented in suppor t of Florio’s argument that privatisation was not decisive in imp roving labour productivity. Finally, the paper argues that instit utional differences across countries make cross-country analyses of privatisation problematic.
    Keywords: Privatization, Great Britain, Public Ownership
  17. By: Dirk Jenter; Fadi Kanaan
    Abstract: This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks to firm performance when deciding on CEO retention. Using a new hand-collected sample of 1,590 CEO turnovers from 1993 to 2001, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry and bad market performance. A decline in the industry component of firm performance from its 75th to its 25th percentile increases the probability of a forced CEO turnover by approximately 50 percent. This finding is robust to controls for firm-specific performance. The result is at odds with the prior empirical literature which showed that corporate boards filter exogenous shocks from CEO dismissal decisions in samples from the 1970s and 1980s. Our findings suggest that the standard CEO turnover model is too simple to capture the empirical relation between performance and forced CEO turnovers, and we evaluate several extensions to the standard model.
    JEL: G30 G34 D20 D23 M51
    Date: 2006–03
  18. By: Fali Huang; Peter Cappelli
    Abstract: Arguably the fundamental problem faced by employers is how to elicit effort from employees. Most models suggest that employers meet this challenge by monitoring employees carefully to prevent shirking. But there is another option that relies on heterogeneity across employees, and that is to screen job candidates to find workers with a stronger work ethic who require less monitoring. This should be especially useful in work systems where monitoring by supervisors is more difficult, such as teamwork systems. We analyze the relationship between screening and monitoring in the context of a principal-agent model and test the theoretical results using a national sample of U.S. establishments, which includes information on employee selection. We find that employers screen applicants more intensively for work ethic where they make greater use of systems such as teamwork where monitoring is more difficult. This screening is also associated with higher productivity and higher wages and benefits, as predicted by the theory: The synergies between reduced monitoring costs and high performance work systems enable the firm to pay higher wages to attract and retain such workers. Screening for other attributes, such as cognitive ability, does not produce these results.
    JEL: J2 J3
    Date: 2006–03
  19. By: Giulio Bottazzi; Angelo Secchi; Federico Tamagni
    Abstract: In this work we explore the relationship between the overall financial condition of a firm and the properties of its size and growth dynamics. We use the financial rating index provided by Centrale dei Bilanci, the Italian rating agency, as a general indicator of firms' financial health and access to external financing and, conditioning upon it, we analyse the statistical properties of three different measures of firm size, namely Total Sales, Value Added and Tangible Assets. We first focus on size, exploring the properties of the yearly distributions and the inter-temporal dynamics in terms of autoregressive structure. Then, we move to the study of size-growth dependences, trying to identify possible scaling relationships between average size and average growth, on the one hand, and average size and the variance of growth, on the other. Finally, we turn to firms' growth, characterizing the stochastic properties of growth rates distributions and discussing the autoregressive structure of the growth process. All the exercises are conducted at both aggregate and disaggregate level, distinguishing manufacturing from services firms.
    Keywords: Firm size, Firm growth, Financial constraints
    Date: 2006–03–02
  20. By: Christian Mugele (Munich Graduate School of Economics, Kaulbachstraße 45, D-80539 Munich, Germany, Tel.: +49 89 2180 3903.; Monika Schnitzer (Department of Economics, University of Munich, Akademiestraße 1/III, 80799 Munich, Germany, Tel.: +49 89 2180 2217.
    Abstract: We develop a model in which multinational investors decide about the modes of organization, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous effect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads to more integration.
    Keywords: Multinational firms, Joint ventures, Distance, Technology spillovers, Ownership structure
    JEL: F23 L24 L22 L23 D23
    Date: 2006–02
  21. By: Nicolas van Zeebroeck (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Bruno van Pottelsberghe de la Potterie (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Wook Han
    Abstract: This paper analyses several issues that arise when measuring technological specialisation with patent data. Three starting choices are required regarding the data source, the statistical measure and the sectoral aggregation level. We show that the measure is highly sensitive to the data source and to the level of sectoral aggregation. The statistical analysis further suggests that the most stable and reliable measures of technological specialization are obtained with patents applied at the EPO, with Gini or C20 as statistical measure and the 4-digits aggregation level of the IPC classification system.
    Keywords: Technological specialisation, patent data, patents statistics
    JEL: L16 O3 O57
    Date: 2005–05

This nep-bec issue is ©2006 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.