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on Business Economics |
| By: | Sean D. Campbell (Federal Reserve Board); Francis X. Diebold (University of Pennsylvania) |
| Abstract: | We explore the macro/finance interface in the context of equity markets. In particular, using half a century of Livingston expected business conditions data we characterize directly the impact of expected business conditions on expected excess stock returns. Expected business conditions consistently affect expected excess returns in a statistically and economically significant counter-cyclical fashion: depressed expected business conditions are associated with high expected excess returns. Moreover, inclusion of expected business conditions in otherwise standard predictive return regressions substantially reduces the explanatory power of the conventional financial predictors, including the dividend yield, default premium, and term premium, while simultaneously increasing R2. Expected business conditions retain predictive power even after controlling for an important and recently introduced non-financial predictor, the generalized consumption/wealth ratio, which accords with the view that expected business conditions play a role in asset pricing different from and complementary to that of the consumption/wealth ratio. We argue that time-varying expected business conditions likely capture time-varying risk, while time-varying consumption/wealth may capture time-varying risk aversion. |
| Keywords: | Business Cycle, Expected Equity Returns, Prediction, Livingston Survey, Risk Aversion, Equity Premium, Risk Premium |
| JEL: | G12 |
| Date: | 2005–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200522&r=bec |
| By: | Claus Schnabel (Chair of Labour and Regional Economics, Friedrich-Alexander-University Erlangen-Nuremberg); Joachim Wagner (Institute of Economics, University of Lüneburg) |
| Abstract: | Using representative data from the German social survey ALLBUS 2002 and the European Social Survey 2002/03, this paper provides the first empirical analysis of trade union never-membership in Germany. We show that between 54 and 59 percent of all employees in Germany have never been members of a trade union. Individuals’ probability of never-membership is significantly affected by their personal characteristics (in particular age, education and status at work), their political orientation and (to a lesser degree) their family background, and by broad location. In addition, occupational and workplace characteristics play a significant role. Most important in this regard is the presence of a union at the workplace. |
| Keywords: | union membership, never-membership, Germany |
| JEL: | J51 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:12&r=bec |
| By: | Sidonia vonLedebur |
| Abstract: | The availability of knowledge is an essential factor for an economy in global competition. Companies realise innovations by creating and implementing new knowledge. Sources of innovative ideas are partners in the production network but also new employees coming from another company or academia. |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:3-06&r=bec |
| By: | Reichlin, Pietro |
| Abstract: | I study the constrained efficient allocations of a simple model of risk sharing and capital flows across countries assuming that each country cannot commit to fully repay its contract obligations. In the model, the degree of risk sharing and the amount of investment are interdependent. It is shown that, when individual rationality constraints are binding, the variance of consumption in any given country across states of nature (iid across countries) may be a non monotonic function of income: low in the early stage of development, high in an intermediate range and converging to zero as income converges to a high income level. A monotonically decreasing consumption variance can only obtain if the social welfare function assigns equal weights to all countries (equal treatment). The model also shows that a structure of competitive financial markets with appropriate borrowing constraints may not be sufficient to decentralize the constrained efficient allocation. A supernational authority forcing a specific redistribution of income within poorly capitalized countries may be necessary for decentralization. |
| Keywords: | financial intermediation; moral hazard |
| JEL: | A10 D80 G10 O17 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5557&r=bec |
| By: | Albuquerque, Rui; de Francisco, Eva; Marques, Luis |
| Abstract: | We present a model of equity trading with informed and uninformed investors where informed investors act upon firm-specific private information and marketwide private information. The model is used to structurally identify the component of order flow that is due to marketwide private information. Trades driven by marketwide private information display very little or no correlation with the first principal component of order flow. This finding implies that a simple statistical factor is a poor measure of marketwide private information. Moreover, the model suggests that the previously documented comovement in order flow captures mostly common variation in liquidity trades. We find that marketwide private information obtained from equity market data forecasts industry stock returns and foreign exchange returns consistent with Evans and Lyons' (2004a) model of exchange rate determination. |
| Keywords: | currency returns; equity returns; firm-specific private information; marketwide private information; order flow; principal components |
| JEL: | F31 G11 G14 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5604&r=bec |
| By: | Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Jongsay Yong (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Andreas Stierwald (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) |
| Abstract: | We investigate the relationship between productivity, size and age of large Australian firms employing more than 100 employees or holding assets in excess of $100 million. In addition, we also investigate the extent of productivity persistence among these firms by looking at transition matrices of productivity distribution and productivity-rank mobility. The empirical study is based on the IBISWorld database used to estimate translog cost function to measure (a residual based) productivity. We find evidence, though somewhat weak, that larger and older firms are on average less productive. Furthermore, we find stronger evidence for a high degree of inertia in terms of productivity ranking within an industry. |
| JEL: | L25 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2006n07&r=bec |
| By: | Lettau, Martin; Ludvigson, Sydney; Wachter, Jessica |
| Abstract: | Aggregate stock prices, relative to virtually any indicator of fundamental value, soared to unprecedented levels in the 1990s. Even today, after the market declines since 2000, they remain well above historical norms. Why? We consider one particular explanation: a fall in macroeconomic risk, or the volatility of the aggregate economy. Empirically, we find a strong correlation between low frequency movements in macroeconomic volatility and low frequency movements in the stock market. To model this phenomenon, we estimate a two-state regime switching model for the volatility and mean of consumption growth, and find evidence of a shift to substantially lower consumption volatility at the beginning of the 1990s. We then use these estimates from post-war data to calibrate a rational asset pricing model with regime switches in both the mean and standard deviation of consumption growth. Plausible parameterizations of the model are found to account for a significant portion of the run-up in asset valuation ratios observed in the late 1990s. |
| Keywords: | equity premium; macroeconomic volatility; regime shifts; stock market boom |
| JEL: | G12 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5519&r=bec |
| By: | Helpman, Elhanan |
| Abstract: | New developments in the world economy have triggered research designed to better understand the changes in trade and investment patterns, and the reorganization of production across national borders. Although traditional trade theory has much to offer in explaining parts of this puzzle, other parts required new approaches. Particularly acute has been the need to model alternative forms of involvement of business firms in foreign activities, because organizational change has been central in the transformation of the world economy. This paper reviews the literature that has emerged from these efforts. The theoretical refinements have focused on the individual firm, studying its choices in response to its own characteristics, the nature of the industry in which it operates, and the opportunities afforded by foreign trade and investment. Important among these choices are organizational features, such as sourcing strategies. But the theory has gone beyond the individual firm, studying the implications of firm behavior for the structure of industries. It provides new explanations for trade structure and patterns of FDI, both within and across industries, and has identified new sources of comparative advantage. |
| Keywords: | comparative advantage; foreign direct investment; heterogeneity; incomplete contracts; international trade; organization of production |
| JEL: | D23 F1 F2 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5589&r=bec |
| By: | Philippe Aghion; Philippe Bacchetta; Romain Ranciere; Kenneth Rogoff |
| Abstract: | This paper offers empirical evidence that real exchange rate volatility can have a significant impact on long-term rate of productivity growth, but the effect depends critically on a country’s level of financial development. For countries with relatively low levels of financial development, exchange rate volatility generally reduces growth, whereas for financially advanced countries, there is no significant effect. Our empirical analysis is based on an 83country data set spanning the years 1960-2000; our results appear robust to time window, alternative measures of financial development and exchange rate volatility, and outliers. We also offer a simple monetary growth model in which real exchange rate uncertainty exacerbates the negative investment effects of domestic credit market constraints. Our approach delivers results that are in striking contrast to the vast existing empirical exchange rate literature, which largely finds the effects of exchange rate volatility on real activity to be relatively small and insignificant. |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12117&r=bec |
| By: | Joachim Wagner (Institute of Economics, University of Lüneburg) |
| Abstract: | Based on data from a recent representative survey of the adult population in Germany this paper documents that the patterns of variables influencing nascent and infant entrepreneurship are quite similar and broadly in line with our theoretical priors – both types of entrepreneurship are fostered by the width of experience and a role model in the family, and hindered by risk aversion, while being male is a supporting factor. Results of this study using cross section data are in line with conclusions from longitudinal studies for other countries finding that between one in two and one in three nascent entrepreneurs become infant entrepreneurs, and that observed individual characteristics – with the important exception of former experience as an employee in the industry of the new venture - tend to play a minor role only in differentiating who starts and who gives up. |
| Keywords: | Nascent entrepreneurs, infant entrepreneurs, Germany |
| JEL: | J23 |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:1&r=bec |
| By: | Luigi Guiso (University of Sassari, University of Chicago & CEPR); Paola Sapienza (Northwestern University, NBER, & CEPR); Luigi Zingales (University of Chicago Graduate School of Business) |
| Abstract: | We provide a new explanation to the limited stock market participation puzzle. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stock, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. The calibration of the model shows that this problem is sufficiently severe to account for the lack of participation of some of the richest investors in the United States as well as for differences in the rate of participation across countries. We also find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data. |
| Keywords: | Stock Market Participation, Trust, Portfolio Choice |
| JEL: | D1 D8 |
| Date: | 2005–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200527&r=bec |
| By: | Samuel Muehlemann; Stefan C. Wolter |
| Abstract: | This paper uses regional variation in labor markets, the industry structure and the educational system to explain the training decisions of firms. Using a representative firm-level data set, the results show that firms are less likely to offer training if the number of competing firms situated in the same geographical area is high. Furthermore, the supply of potential apprentices affects the training decision positively through an improved matching process. In addition, the expected ability of apprentices also has a positive impact, whereas a more developed system of full-time schooling options for school leavers reduces the likelihood of a firm to offer training. |
| Keywords: | apprenticeship training, regional labor markets |
| JEL: | I28 J24 J42 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1665&r=bec |
| By: | Dairo Estrada; Daniel Osorio |
| Abstract: | According to traditional literature, liquidity risk in individual banks can turn into a system-wide ¯nancial crisis when either interbank credit exposures or bank runs are present. This paper shows that this phenomenon can also arise when individual liquidity risk trans- forms into system-wide market risk (even in the absence of bank runs and interbank credit networks). This happens when banks try to sell some portion of its assets in order to overcome a liquidity shortage (individual liquidity risk). These sales depress the market price of assets if demand is not perfectly elastic. Given the fact that banks mark to market the asset book, the fall of market price reduces the value of assets of every bank in the system (system-wide market risk), leaving them less suited for future liquidity shortages and therefore more prone to bankruptcies. The paper rationalizes this idea through the simulation of a model that tries to capture the behavior of a liq- uidity manager that faces shocks on bank deposits and loans. The main results suggest that the extent of ¯nancial contagion depends crucially on the size of the market for assets. |
| Keywords: | liquidity manager, liquidity risk, market risk, systemic risk, financial contagion, mark-to-market |
| JEL: | G21 G33 L14 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:384&r=bec |
| By: | Sebastian Buhai; Coenraad N. Teulings |
| Abstract: | This paper provides a new way of analyzing tenure profiles in wages, by modelling simultaneously the evolution of wages and the distribution of tenures. We develop a theoretical model based on efficient bargaining, where both log outside wage and log wage in the current job follow a random walk, as found empirically. This setting allows the application of real option theory. We derive the efficient separation rule. The model fits the observed distribution of job tenures well. Since we observe outside wages only at job start and job separation, our empirical analysis of within job wage growth is based on expected wage growth conditional on the outside wages at both dates. Our modelling allows testing of the efficient bargaining hypothesis. The model is estimated on the PSID. |
| Keywords: | random productivity growth, efficient bargaining, job tenure, inverse gaussian, wage-tenure profiles, option theory |
| JEL: | C52 J63 O51 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1688&r=bec |
| By: | Bloom, Nicholas; Van Reenen, John |
| Abstract: | We use an innovative survey tool to collect management practice data from 732 medium sized manufacturing firms in the US, France, Germany and the UK. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, sales growth and survival rates. Management practices also display significant cross-country differences with US firms on average better managed than European firms, and significant within-country differences with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when (a) product market competition is weak and/or when (b) family-owned firms pass management control down to the eldest sons (primo geniture). European firms report lower levels of competition, while French and British firms also report substantially higher levels of primo geniture due to the influence of Norman legal origin and generous estate duty for family firms. We calculate that product market competition and family firms account for about half of the long tail of badly managed firms and up to two thirds of the American advantage over Europe in management practices. |
| Keywords: | competition; family firms; management practices; productivity |
| JEL: | L2 M2 O32 O33 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5581&r=bec |
| By: | Mugele, Christian; Schnitzer, Monika |
| 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: | distance; joint ventures; multinational firms; ownership structure; technology spillovers |
| JEL: | D23 F23 L22 L23 L24 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5592&r=bec |
| By: | Iranzo, Susana; Schivardi, Fabiano; Tosetti, Elisa |
| Abstract: | We study the relation between workers' skill dispersion and firm productivity using a unique dataset of Italian manufacturing firms from the early eighties to the late nineties with individual records on all their workers. Our measure of skill is the individual worker's effect obtained as a latent variable from a wage equation. Estimates of a generalized CES production function that depends on the skill composition show that a firm's productivity is positively related to skill dispersion within occupational status groups (production and non-production workers) and negatively related to skill dispersion between these groups. Consistently, the variance decomposition shows that most of the overall skill dispersion is within and not between firms. We find no change over time in the share of each component, in contrast with some evidence from other countries, based on less comprehensive data. |
| Keywords: | matched data; productivity; segregation; skills |
| JEL: | D24 J24 L23 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5539&r=bec |
| By: | Ettore Damiano; Hao Li; Wing Suen |
| Abstract: | Though individuals prefer to join groups with high quality peers, there are advantages to being high up in the pecking order within a group if higher ranked members of a group have greater access to the group's resources. When two organizations try to attract members from a fixed population of heterogeneous agents, how resources are distributed among the members according to their rank affects how agents choose between the organizations. Competition between the two organizations has implications for both the equilibrium sorting of agents and the way resources are distributed within each organization. To compete more intensely for the more talented agents, both organizations are selective and give no resources to their low ranks. In both organizations, higher ranks are rewarded with more resources, with a greater rate of increase in the organization that has a lower average quality in equilibrium. |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-220&r=bec |
| By: | Crespi, John M.; Marette, Stéphan |
| Abstract: | This paper empirically explores the link between quality and concentration in a cross-section of manufactured goods. Using concentration data and product quality indicators, an ordered probit estimation explores the impact of concentration on quality that is defined as an index of quality characteristics. The results demonstrate that market concentration and quality are positively correlated across different industries. When industry concentration increases, the likelihood of the product being higher quality increases and the likelihood of observing a lower quality decreases. |
| Keywords: | concentration, market structure, ordered probit, product differentiation, product quality. |
| Date: | 2006–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12555&r=bec |
| By: | Catherine Weinberger; Peter Kuhn |
| Abstract: | Using Census and Current Population Survey data spanning 1959 through 1999, we assess the relative contributions of two factors to the decline in the gender wage gap: changes across cohorts in the relative slopes of men’s and women’s age-earnings profiles, versus changes in relative earnings levels at labor market entry. We find that changes in relative slopes account for about one-third of the narrowing of the gender wage gap over the past 40 years. Under quite general conditions, we argue that this provides an upper bound estimate of the contribution of changes in work experience and other post-school investments (PSIs) to the decline of the gender wage gap. |
| JEL: | J7 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12115&r=bec |
| By: | Garcia Pires, Armando José |
| Abstract: | In a spatial economy where oligopolist firms compete in R&D, it is found that geography affects the innovative behaviour of firms. Notably, international differences in market size conduce to endogenous asymmetries between firms given that firms located in the country with more demand have stronger incentives to invest in R&D. This 'R&D linkage' between demand and competitiveness promotes firms to strategically delocalize to the larger country. As a result, a spatial equilibrium arises with only total or partial agglomeration, but never with symmetric dispersion. |
| Keywords: | agglomeration effects; asymmetric firms; industrial location; oligopoly; R&D investment |
| JEL: | F12 L13 O31 R3 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5582&r=bec |