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on Business Economics |
| By: | Georges Dionne; Sadok Laajimi; Sofiane Mejri; Madalina Petrescu |
| Abstract: | In this paper, we investigate the hybrid contingent claim approach with publicly traded Canadian companies listed on the Toronto Stock Exchange. Our goal is to assess how combining their continuous valuation by the market with the value given in their financial statements improves our ability to predict their probability of default. Our results indicate that the predicted structural probabilities of default (PDs from the structural model) contribute significantly to explaining default probabilities when PDs are included alongside the retained accounting variables. We also show that quarterly updates to the PDs add a large amount of dynamic information to explain the probabilities of default over the course of a year. This flexibility would not be possible with a reduced-form model. We also conducted a preliminary analysis of correlations between sructural probabilities of default for the firms in our database. Our results indicate that there are substantial correlations in the studied data. |
| Keywords: | Default risk, public firm, structural model, reduced form model, hybrid model, probit model, Toronto Stock Exchange, correlations between default probabilities |
| JEL: | G21 G24 G28 G33 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0613&r=bec |
| By: | Daron Acemoglu; Philippe Aghion; Claire Lelarge; John Van Reenen; Fabrizio Zilibotti |
| Abstract: | This paper develops a framework to analyze the relationship between the diffusion of new technologies and the decentralization decisions of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. However, the manager can use her informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the trade-off shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments and younger firms are more likely to choose decentralization. Using three datasets of French and British firms in the 1990s we report robust correlations consistent with these predictions. |
| JEL: | O31 O32 O33 F23 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12206&r=bec |
| By: | Benoit Dostie; Rajshri Jayaraman; Mathieu Trépanier |
| Abstract: | Using North American data, we revisit the question first broached by Krueger (1993) and re-examined by DiNardo and Pischke (1997) of whether there exists a real wage differential associated with computer use. Employing a mixed effects model to correct for both worker and workplace unobserved heterogeneity using matched employer-employee panel data, we find that computer users enjoy an almost 4 per cent wage premium over non-users. Failure to correct for the worker selection effect leads to a more than twofold overestimate of this premium, as does failure to correct for workplace unobserved heterogeneity. |
| Keywords: | Wage determination, Computers, Mixed models, Linked employer-employee data |
| JEL: | J30 J31 O30 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0614&r=bec |
| By: | John Y. Campbell; Yves Nosbusch |
| Abstract: | In the presence of overlapping generations, markets are incomplete because it is impossible to engage in risksharing trades with the unborn. In such an environment the government can use a social security system, with contingent taxes and benefits, to improve risksharing across generations. An interesting question is how the form of the social security system affects asset prices in equilibrium. In this paper we set up a simple model with two risky factors of production: human capital, owned by the young, and physical capital, owned by all older generations. We show that a social security system that optimally shares risks across generations exposes future generations to a share of the risk in physical capital returns. Such a system reduces precautionary saving and increases the risk-bearing capacity of the economy. Under plausible conditions it increases the riskless interest rate, lowers the price of physical capital, and reduces the risk premium on physical capital. |
| JEL: | G1 H3 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12204&r=bec |
| By: | Sophie Bade (Department of Economics, Penn State University); Guillaume Haeringer (Department of Economics, Universitat Autonoma de Barcelona); Ludovic Renou (School of Economics, University of Adelaide) |
| Abstract: | We consider non-cooperative environments in which two players have the power to commit but cannot sign binding agreements. We show that by committing to a set of actions rather than to a single action, players can implement a wide range of action profiles. We give a complete characterization of implementable profiles and provide a simple method to find them. Profiles implementable by bilateral commitments are shown to be generically inefficient. Surprisingly, allowing for gradualism (i.e., step by step commitment) does not change the set of implementable profiles. |
| Keywords: | Commitment, self-enforcing, treaties, inefficiency, agreements, Pareto-improvement. |
| JEL: | C70 C72 H87 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2006-07&r=bec |
| By: | Anabela Carneiro (Universidade do Porto and CETE); Pedro Portugal (Banco de Portugal, Universidade Nova de Lisboa and IZA Bonn) |
| Abstract: | One of the predictions of the insider-outsider theory is that wages will be higher in sectors (firms) with high labor adjustment costs/high turnover costs. This prediction is tested empirically in this study, using an insider-outsider model and a longitudinal panel of large firms in Portugal. The results revealed that firms where insider workers appear to have more market power tend to pay higher wages. In particular, we found that the threat of dismissal acts to weaken insiders’ bargaining power and, consequently, to restrain their wage claims. Moreover, the results also showed that real wages in Portugal are downward rigid. |
| Keywords: | wages, market power, dismissal threat, rent sharing, system GMM estimator |
| JEL: | J30 J31 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2102&r=bec |
| By: | Richard H. Clarida; Manuela Goretti; Mark P. Taylor |
| Abstract: | We find evidence of threshold behavior in current account adjustment for the G7 countries, such that the dynamics of adjustment towards equilibrium depend upon whether the current-account/ net-output ratio breaches estimated, country specific current account surplus or deficit thresholds. Both the speeds of adjustment and the size of the thresholds are found to differ significantly across countries. In addition, we also find evidence of shifts in means and variances of exchange rate changes, stock returns, and interest differentials that coincide with the current account adjustment regimes identified by the model. |
| JEL: | F3 F4 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12193&r=bec |
| By: | Francesco Drago (University of Naples, Parthenope, University of Siena and IZA Bonn) |
| Abstract: | In this paper I address theoretically and assess empirically the effect of impatience on workers’ on-the-job behavior. Theoretically, short-run impatience explains several empirical regularities concerning job mobility and account for different on-the-job behaviors. On-the-job search on one hand and "collaborative behaviors" such as low absence rate and high effort on the other, strongly affect mobility and individual wage growth. On-the-job search results in higher wages with the new employer while collaboration leads to permanent wage increases with the same employer, mainly through promotion or position change. I provide a model that shows that, for identically productive individuals, heterogeneity in hyperbolic time preferences accounts for different mobility and career patterns. Patient workers undertake behaviors that lead to promotions. Impatient workers are more likely to be movers and to experience wage increases by switching jobs. The model rests on the empirical findings that the long term wage increases of stayers are in general larger than those of the movers, and the benefits resulting from collaboration are not as immediate as the rewards from search conditional on the arrival of a better job offer. I use a large longitudinal data set (NLSY 79) to test the predictions of the model. Various measures of impatience are positively correlated to the job arrival rate and negatively correlated to collaboration. Finally, using some theoretical predictions I am able to show empirically that the results are driven by variation in short-run impatience within the hyperbolic model rather than by variation in long-run impatience within the exponential model. |
| Keywords: | job mobility, hyperbolic discounting, wage growth |
| JEL: | C23 C70 J63 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2113&r=bec |
| By: | David B. Audretsch; Max Keilbach |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2006-13&r=bec |
| By: | Buhai, Sebastian (Department of Economics, Aarhus School of Business); Teulings, Coen (SEO Economic Research) |
| Abstract: | This paper provides a new way of analyzing tenure profiles in wages, <p> by modelling simultaneously the evolution of wages and the distribution <p> of tenures. Starting point is the observation that within-job log wages for <p> an individual can be described by random walk. We develop a theoretical <p> model based on efficient bargaining, where both log outside wage and log <p> wage in the current job follow a random walk. This setting allows the <p> application of real option theory. We derive the efficient separation rule, <p> which stipulates that workers switch jobs when the difference between the <p> outside wage and the wage in the current job reaches a threshold. The <p> model fits well the observed distribution of job tenures. Since we observe <p> outside wages only at job start and job separation, our empirical analysis <p> of within job wage growth is based on expected wage growth conditional <p> on the outside wages at both dates. Our modelling allows testing of the <p> efficient bargaining hypothesis. The model is estimated on the PSID. |
| Keywords: | Random productivity growth; efficient bargaining; job tenure; wage growth; wage-tenure profiles; option theory |
| JEL: | C51 C52 J63 |
| Date: | 2005–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:aareco:2005_009&r=bec |
| By: | Grund, Christian (Department of Business and Economics); Westergård-Nielsen, Niels (Department of Economics, Aarhus School of Business) |
| Abstract: | In this contribution, we examine the interrelation between corporate age structures and firm performance. In particular, we address the issues, whether firms with young rather than older employees are successful and whether firms with homogeneous or heterogeneous workforces are doing well. Several theoretical approaches are discussed with respect to these questions and divergent hypotheses are derived. Using Danish linked employer-employee data, we find that both mean age and dispersion of age in firms are inversely u-shaped related to firm performance. |
| Keywords: | Firm performance; Corporate age structures; Demographic change |
| JEL: | J21 L25 M54 |
| Date: | 2005–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:aareco:2005_010&r=bec |
| By: | Fritz Rahmeyer (University of Augsburg, Department of Economics) |
| Abstract: | Evolutionary economics in the initial version of Nelson and Winter is concentrated on the analysis of the evolution of industries and markets and in that entrepreneurial innovation activities. But a theory of the firm beneath the level of the industry is not taken into account to a large extent. In order to widen its fundamental principles a resource-based, and as its extension, a knowledge-based view of the firm, both originated in the field of Business Strategy, are seen as promising candidates to close this gap within evolutionary economics. Industry dynamics as the evolution of a population of firms in this way is supplemented by a more detailed characterization of the internal structure of individual firms. It is the fundamental question with regard to the adequacy of an evolutionary interpretation of firm behaviour and development as to what extend a firm and its individual activities are considered to be capable of purposefully and actively influencing its environment, on the one hand, and are blindly selected by environmental pressure, on the other hand. In this way firms become intendedly heterogenous concerning market performance and organizational structure. Regarding the general topic of a theory of the firm, a unified approach will not be constructed, but more likely a hybrid one being composed of technological, institutional and efficiency-based elements. |
| Keywords: | economic evolution; resource-based view; knowledge-based view of the firm; theory of the firm management |
| JEL: | B52 D21 D83 L23 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:aug:augsbe:0283&r=bec |
| By: | Michael Fritsch; Dirk Schilder |
| Abstract: | We examine the role of spatial proximity for Venture Capital (VC) investments in Germany. The main database is a survey of 85 personal interviews with representatives of different types of financial institutions. The analysis shows that spatial proximity is far less important for VC investments than is often believed. For example, the results indicate that syndication is partly used as an alternative to spatial proximity. Telecommunication does not work as a substitute for face-to-face contact. On the whole, regional proximity is not a dominant factor in VC partnerships. Therefore, the absence of VC firms in a region does not appear to cause a severe regional equity gap. |
| Keywords: | Venture Capital, spatial proximity, start-up financing |
| JEL: | G24 O16 D21 M13 R12 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2006-14&r=bec |
| By: | Jeffrey Carpenter (Middlebury College and IZA Bonn); Samuel Bowles (Santa Fe Institute and University of Siena); Herbert Gintis (Central European University and Santa Fe Institute) |
| Abstract: | Monitoring by peers is often an effective means of attenuating incentive problems. Most explanations of the efficacy of mutual monitoring rely either on small group size or on a version of the Folk theorem with repeated interactions which requires reasonably accurate public information concerning the behavior of each player. We provide a model of team production in which the effectiveness of mutual monitoring depends not on these factors, but rather on strong reciprocity: the willingness of some team members to engage in the costly punishment of shirkers. This alternative does not require small group size or public signals. An experimental public goods game provides evidence for the behavioral relevance of strong reciprocity in teams. |
| Keywords: | team production, public good, monitoring, punishment, experiment |
| JEL: | C92 H41 J41 J54 Z13 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2106&r=bec |
| By: | Andersson , Tommy (Department of Economics, Lund University); Svensson, Lars-Gunnar (Department of Economics, Lund University) |
| Abstract: | This paper studies the general problem of fairly allocating a number of indivisible objects and some amount of money among to a set of individuals. An allocation rule that fairly assigns at most one object and money compensation to each individual, under the restriction that the money compensations do not exceed an exogenously given upper bound, is investigated. A few properties of this allocation rule are stated and the main result demonstrates that the allocation rule is coalition strategy-proof. |
| Keywords: | Indivisibles; fairness; coalition strategy-proofness |
| JEL: | C71 C78 D63 D71 D78 |
| Date: | 2006–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2006_011&r=bec |
| By: | Pol Antràs; Luis Garicano; Esteban Rossi-Hansberg |
| Abstract: | Why do firms decide to offshore certain parts of their production process? What qualifies certain countries as particularly attractive locations to offshore? In this paper we address these questions with a theory of international production hierarchies in which organizations arise endogenously to make efficient use of agents' knowledge. Our theory highlights the role of host-country management skills (middle management) in bringing about the emergence of international offshoring. By shielding top management in the source country from routine problems faced by host country workers, the presence of middle managers improves the efficiency of the transmission of knowledge across countries. The model further delivers the prediction that the positive effect of middle skills on offshoring is weaker, the more advanced are communication technologies in the host country. We provide evidence consistent with this prediction. |
| JEL: | D2 F1 F2 J3 L2 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12196&r=bec |
| By: | Giovanni Dosi; Marco Faillo; Luigi Marengo |
| Abstract: | This paper presents a critical overview of some recent attempts at building formal models of organizations as information-processing and problem-solving entities. We distinguish between two classes of models according to the different objects of analysis. The first class includes models mainly addressing information processing and learning and analyzes the relations between the structure of information flows, learning patterns, and organizational performances. The second class focuses on the relationship between the division of cognitive labor and search processes in some problem-solving space, addressing more directly the notion of organizations as repositories of problem-solving knowledge. Here the objects of analysis are the problem-solving procedures which the organization embodies. The results begin to highlight important comparative properties regarding the impact on problem-solving efficiency and learning of different forms of hierarchical governance, the dangers of lock-in associated with specific forms of adaptive learning, the relative role of “online” vs. “offline” learning, the impact of the “cognitive maps” which organizations embody, the possible trade-offs between accuracy and speed of convergence associated with different “decomposition schemes”. We argue that these are important formal tools towards the development of a comparative institutional analysis addressing the distinct properties of different forms of organization and accumulation of knowledge. |
| Keywords: | Division of labor, Mental models, Problem-solving, Problem decomposition. |
| Date: | 2006–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2006/10&r=bec |
| By: | Marco CUCCULELLI (Universita' Politecnica delle Marche, Dipartimento di Management ed Organizzazione Aziendale); Giacinto MICUCCI (Banca d'Italia - Ancona) |
| Abstract: | Despite the pervasive presence of family business worldwide, especially among small and medium sized companies, nearly all past studies on family founder succession have focused on large, public companies. We evaluate the issue of the inherited firm control on performance in an economic setting with a large presence of small- and medium-sized private firms run as family businesses. Our paper contributes to the existing literature in three ways.;The first concerns the sample characteristics. By focusing on the transfer of business in private SMEs, our study helps to fill a gap in the existing literature that is largely concerned with public companies listed in official market. We set up a unique dataset by matching two different data sources: firstly, a cross-sectional survey dataset collected directly from more than 3,500 companies by means of a questionnaire and, secondly, a company account dataset drawn from Cerved. We merge survey data with balance sheet data in order to perform the econometric analysis. The article's second contribution is related to the effect on performance caused by the transfer of business within the family. Our major results show i) a founder effect in the Italian manufacturing industry and ii) a large drop in the post-succession performance in family-run businesses. Finally, we provide new evidence on the relationship between pre-succession firm (and industry) characteristics and past succession performance.;By using a performance-based control group matching method to control for the effect of a pure mean reverting process in firm performance, we show that the observed large drop in the post-succession company performance is attributable to good performing companies, especially when operating in highly competitive industries. |
| Keywords: | SMEs governance, entrepreneurship, inherited control, matching control group, mean revision |
| JEL: | G32 G34 M13 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:258&r=bec |
| By: | Florian Zettelmeyer; Fiona Scott Morton; Jorge Silva-Risso |
| Abstract: | Price variation for identical cars at the same dealership is commonly assumed to arise because dealers with market power are able to price discriminate among their customers. In this paper we show that while price discrimination may be one element of price variation, price variation also arises from inventory fluctuations. Inventory fluctuations create scarcity rents for cars that are in short supply. The price variation due to inventory fluctuations thus functions to efficiently allocate particular cars that are in restricted supply to those customers who value them most highly. Our empirical results show that a dealership moving from a situation of inventory shortage to an average inventory level lowers transaction prices by about 1% ceteris paribus, corresponding to 15% of dealers' average per vehicle profit margin or $250 on the average car. Shorter resupply times also decrease transaction prices for cars in high demand. For traditional dealerships, inventory explains 49% of the combined inventory and demographic components of the predicted price. For so-called 'no-haggle' dealerships, the percentage explained by inventory increases to 74%. |
| JEL: | L0 L1 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12177&r=bec |