nep-bec New Economics Papers
on Business Economics
Issue of 2006‒05‒27
24 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The U.S. current account deficit and the expected share of world output By Charles Engel; John H. Rogers
  2. Innovation Capabilities: Science and Engineering Employment in Canada and the United States By Beckstead, Desmond; Gellatly, Guy
  3. Asset prices and liquidity in an exchange economy By Ricardo Lagos
  4. Skill dispersion and firm productivity; an analysis with employer-employee matched data By Susanna Iranzo; Fabiano Schivardi; Elisa Tosetti
  5. The bond yield "conundrum" from a macro-finance perspective By Glenn D. Rudebusch; Eric T. Swanson; Tao Wu
  6. A research agenda for international corporate social responsibility By Frans Paul van der Putten
  7. Bank relationships and small firms’ financial performance By Annalisa Castelli; Gerald P. Dwyer, Jr.; Iftekhar Hasan
  8. Beyond Penrose : a cognitive theory of the firm By Nooteboom,Bart
  9. Stock market volatility and macroeconomic uncertainty. Evidence from survey data By Ivo J.M. Arnold; Evert B. Vrugt
  10. Transactions costs, innovation and learning By Nooteboom,Bart
  11. Offshoring in the Service Sector. A European Perspective. By Désirée van Gorp; Pieter Klaas Jagersma; Motoko Ike’e
  12. Human nature in the adaptation of trust By Nooteboom,Bart
  13. Currency hedging and corporate governance: a cross-country analysis By Ugur Lel
  14. Embodied cognition, organization and innovation By Nooteboom,Bart
  15. Executive financial incentives and payout policy: firm responses to the 2003 dividend tax cut By Jeffrey R. Brown; Nellie Liang; Scott Weisbenner
  16. Learning and innovation in inter-organizational relationships and networks By Nooteboom,Bart
  17. The Dark Side of Good Corporate Governance: By Miguel Segoviano; Thomas Kirchmaier
  18. La valorisation salariale et professionnelle de la formation en entreprise diffère-t-elle selon le sexe ? : l’exemple canadien By Nathalie Havet
  19. Works Councils and Heterogeneous Firms By Simon Renaud
  20. Checkmate! Winning the Game of Communication: A Study of Conversational Principles By Kaul Asha; Pandit Anuradha
  21. Networks Performance and Contractual Design: Empirical Evidence from Franchising By Magali Chaudey; Muriel Fadairo
  22. On the equivalence of selected supply chain contract mechanisms By Vijayender Reddy Nalla; Jack A.A. van der Veen; Venu Venugopal
  23. The sequence-dependent assembly line balancing problem By Armin Scholl; Nils Boysen; Malte Fliedner
  24. Endogenous Knowledge Spillovers and Labor Mobility in Industrial Clusters By Antonio Guarino; Piero Tedeschi

  1. By: Charles Engel; John H. Rogers
    Abstract: We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP relative to its current share of world GDP. The model suggests that under some reasonable assumptions about future U.S. GDP growth relative to the rest of the advanced countries -- more modest than the growth over the past 20 years -- the current account deficit is near optimal levels. We then explore the implications for the real exchange rate. Under some plausible assumptions, the model implies little change in the real exchange rate over the adjustment path, though the conclusion is sensitive to assumptions about tastes and technology. Then we turn to empirical evidence. A test of current account sustainability suggests that the U.S. is not keeping on a long-run sustainable path. A direct test of our model finds that the dynamics of the U.S. current account -- the increasing deficits over the past decade -- are difficult to explain under a particular statistical model (Markov-switching) of expectations of future U.S. growth. But, if we use survey data on forecasted GDP growth in the G7, our very simple model appears to explain the evolution of the U.S. current account remarkably well. We conclude that expectations of robust performance of the U.S. economy relative to the rest of the advanced countries is a contender -- though not the only legitimate contender -- for explaining the U.S. current account deficit.
    Keywords: Budget deficits ; Equilibrium (Economics) ; Econometric models
    Date: 2006
  2. By: Beckstead, Desmond; Gellatly, Guy
    Abstract: This paper compares the size and composition of science and engineering employment in Canada and the United States. It examines the share of paid employment and paid earnings accounted for by the science and engineering workforce in both countries. Our tabulations distinguish between a core group and a related group of science and engineering workers. The core group includes computer and information scientists, life and related scientists, physical and related scientists, social and related scientists, and engineers. The related group includes workers in health-related occupations, science and engineering managers, science and engineering technologists and technicians, a residual class of other science and engineering workers, and post-secondary educators in science and engineering fields. We examine the employment and earnings shares of science and engineering workers over the 1980/1981 to 2000/2001 period. Detailed industry comparisons are reported for 2000/2001.
    Keywords: Labour, Science and technology, Occupations, Innovation
    Date: 2006–05–04
  3. By: Ricardo Lagos
    Abstract: I develop an asset-pricing model in which financial assets are valued for their liquidity—the extent to which they are useful in facilitating exchange—as well as for being claims to streams of consumption goods. The implications for average asset returns, the equity-premium puzzle and the risk-free rate puzzle, are explored in a version of the model that nests the work of Mehra and Prescott (1985).
    Date: 2006
  4. By: Susanna Iranzo (University of Sidney); Fabiano Schivardi (Bank of Italy, Economic Research Department); Elisa Tosetti (Cambridge University)
    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, Skills, Productivity, Segregation
    JEL: D24 J24 L23
    Date: 2006–02
  5. By: Glenn D. Rudebusch; Eric T. Swanson; Tao Wu
    Abstract: In 2004 and 2005, long-term interest rates remained remarkably low despite improving economic conditions and rising short-term interest rates, a situation that former Fed Chairman Alan Greenspan dubbed a "conundrum." We document the extent and timing of this conundrum using two empirical no-arbitrage macro-finance models of the term structure of interest rates. These models confirm that the recent behavior of long-term yields has been unusual--that is, it cannot be explained within the framework of the models. Therefore, we consider other macroeconomic factors omitted from the models and find that some of these variables, particularly declines in long-term bond volatility, may explain a portion of the conundrum. Foreign official purchases of U.S Treasuries appear to have played little or no role.
    Keywords: Monetary policy - United States ; Federal funds rate ; Treasury bonds
    Date: 2006
  6. By: Frans Paul van der Putten (Nyenrode Business Universiteit)
    Abstract: This paper builds on a recent article by Elisabet Garriga and Domènec Melé, in which they provided an overview of the main approaches in current CSR (Corporate Social Responsibility) research. It applies their general approach to CSR research aimed specifically at the international level, and concludes that the research agenda in this field may usefully divided into four main questions. First, how does the process of establishing absolute (also ‘international’ or ‘universal’) standards for social and environmental issues – supposedly related to the objectives and values of developing societies – affect business behaviour? Second, under which conditions can profit maximisation by Western firms lead to responsible business behaviour in developing countries, and under which conditions does such behaviour contribute to profit maximisation? Third, what is the relevance of societal demands on business behaviour related to developing countries, and what is the legitimacy of these demands? Fourth, under which conditions can Western-based businesses make a positive contribution to local communities in developing countries?
    Keywords: International corporate social responsibility, csr
    Date: 2005
  7. By: Annalisa Castelli; Gerald P. Dwyer, Jr.; Iftekhar Hasan
    Abstract: We examine the relationship between the number of bank relationships and firms’ performance, evaluating possible differential effects related to firms’ size. Our sample of firms from Italy includes many small firms, 99 percent of which are not listed and for which bank debt is a major source of financing. In the sample, 4 percent of the firms have a single bank relationship, and 66 percent of them have five or fewer relationships. We find that return on equity and return on assets decrease as the number of bank relationships increases, with a stronger relationship for small firms than for large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, our results are consistent with analyses indicating that fewer bank relationships reduce information asymmetries and agency problems, which outweigh negative effects connected to holdup problems.
    Date: 2006
  8. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This paper uses a cognitive theory of firms and organizations, with a focus on learning and innovation. Here, cognition is a wide notion, including value judgments and corresponding feelings and emotions. This paper focuses on the relation between that cognitive theory and Penrose's theory of the growth of the firm. As in Penrose's work, the focus is on learning, rather than on efficient utilization of resources or appropriation of returns from them. Also as in Penrose, the underlying view of cognition is a constructivist one, according to which people with different experience view the world differently. So far, the paper is consistent with Penrose. However, it also adopts and further develops some of the criticism of her views, concerning the role of other human resources than managers in organizational learning, problems of conflicts of interest and governance within the firm, dynamic capabilities for developing new capabilities, and, above all, the alternative of collaboration between firms, for learning and innovation, in the combination of capabilities between rather than within the firm. In particular, it argues that, in contrast with Penrose, there are limits to firm size.
    Keywords: theory of the firm;Penrose;knowledge;learning;innovation;dynamic capabilities;firm size;growth of the firm
    JEL: D21 L22 M13 M14 O31
    Date: 2006
  9. By: Ivo J.M. Arnold; Evert B. Vrugt (Nyenrode Business Universiteit)
    Abstract: This paper provides empirical evidence on the link between stock market volatility and macroeconomic uncertainty. We show that US stock market volatility is significantly related to the dispersion in economic forecasts from SPF survey participants over the period from 1969 to 1996. This link is much stronger than that between stock market volatility and the more traditional time-series measures of macroeconomic volatility, but disappears after 1996.
    Keywords: Stock market volatility, macro-economic factors, survey data
    Date: 2006
  10. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Keywords: transaction costs;innovation;learning;inter-organizational relations;networks
    JEL: L14 L22 L24 O31 O32 Z13
    Date: 2006
  11. By: Désirée van Gorp; Pieter Klaas Jagersma; Motoko Ike’e (Nyenrode Business Universiteit)
    Abstract: This paper provides insights about the implications of offshoring for the service sector. It is found that a majority of service firms successfully relocate their core activities under direct control to foreign locations and are predominantly driven by strategic motives to do so. Offshoring, although demanding for the organization, is important for the competitiveness of service firms in the future.
    Keywords: Offshoring, Outsourcing, Global sourcing, Service sector
    Date: 2006
  12. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This chapter pleads for more inspiration from human nature, in agent-based modeling. As an illustration of an effort in that direction, it summarizes and discusses an agentbased model of the build-up and adaptation of trust between multiple producers and suppliers. The central question is whether, and under what conditions, trust and loyalty are viable in markets. While the model incorporates some well known behavioural phenomena from the trust literature, more extended modeling of human nature is called for. The chapter explores a line of further research on the basis of notions of mental framing and frame switching on the basis of relational signaling, derived from social psychology.
    Keywords: trust;transaction costs;buyer-supplier relationships;social psychology
    JEL: A14 D64 L14 L24 Z13
    Date: 2006
  13. By: Ugur Lel
    Abstract: Corporate governance can provide mechanisms to effectively monitor the use of derivatives. Using a sample of firms from 34 countries over the period 1990 to 1999, I find that firms with strong governance use currency derivatives for value-maximizing reasons as established by theory. On the other hand, firms with weak governance use such derivatives mostly for managerial self-interests and selective hedging. These results are robust to using a sample of US firms, the use of foreign denominated debt as an alternative strategy to hedge currency risk, selection bias, and a possible endogeneity between hedging policies, corporate governance, and other financial policies. Overall, the results serve as the first comprehensive evidence on the impact of corporate governance on why firms use derivatives and consequently why they hedge.
    Date: 2006
  14. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This chapter explains and employs a constructivist, interactionist theory of knowledge that has come to be known as the perspective of 'embodied cognition'. That view has roots in earlier developmental psychology, and in sociology, and more recently has received further substance from neural science. It yields a basis for a cognitive theory of the firm, with the notion of cognitive distance between people, the resulting view of organization as a cognitive focusing device, the need for external relations with other organizations to compensate for organizational myopia, and the notion of optimal cognitive distance between firms for innovation by interaction.
    Keywords: theory of the firm;organizational cognition;learning;innovation
    JEL: D21 L22 M14 O31 O32
    Date: 2006
  15. By: Jeffrey R. Brown; Nellie Liang; Scott Weisbenner
    Abstract: Using the 2003 reduction in dividend tax rates to identify an exogenous change in the after-tax value of dividends to shareholders, we test whether stock holdings among company executives is an important determinant of payout policy. We have three primary findings. First, we find that when top executives have greater stock ownership, and thus an incentive to increase dividends for personal liquidity reasons, there is a significantly greater likelihood of a dividend increase following the 2003 dividend tax cut, whereas no such relation existed in the prior decade when the dividend tax rate was much higher. This finding is strongest for dividend initiations, and is robust to a rich set of firm and shareholder characteristics. Second, we provide evidence that approximately one-third of the firms that initiated dividends in 2003, a higher share than in previous years, scaled back share repurchases by an amount sufficient to reduce their total payouts. This offset potentially raised the total tax burden on shareholders at these firms because share repurchases are still tax-advantaged relative to dividends. Third, we find that while dividend-paying firms with a larger fraction of individual shareholders had greater stock price gains in response to the tax cut, the market appears to have at least partially anticipated that executives with high stock ownership might raise dividends at the expense of share repurchases and increase the average tax burden for individuals, which is consistent with the presence of agency conflicts within the firm.
    Keywords: Dividends ; Taxation
    Date: 2006
  16. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This paper gives a survey of insights into inter-firm alliances and networks for innovation, from a constructivist, interactionist perspective on knowledge, which leads to the notion of 'cognitive distance'. It looks at both the competence and the governance side of relationships. Given cognitive distance, organizations need to align cognition sufficiently to enable the fast and efficient utilization of opportunities from complementary capabilities. This, I propose, is done by means of a culturally mediated 'organizational cognitive focus'. The problem with that is that it yields a greater or lesser organizational myopia that, for the sake of innovation, needs to be complemented by means of outside relations with other firms, at larger cognitive distance. Hence the importance of networks for innovation. On the governance side, the paper gives a review of relational risks and instruments to manage them. Next to the effects of cognitive distance, the paper analyses the effects of density and strength of ties in innovation networks, concerning both competence and governance.
    Keywords: inter-organizational relationships;networks;competence;governance;innovation; cognitive distance
    JEL: D23 L14 L22 O31 O32 Z13
    Date: 2006
  17. By: Miguel Segoviano; Thomas Kirchmaier
    Abstract: We argue on theoretical grounds that obligatory compliance with stricter financial reporting rules (e.g. the US Sabanes-Oxley Act) may entail important unintended consequences. Paradoxically, the amount of misreporting may increase because corporate boards spend more valuable resources fulfilling statutory mandates rather than involving themselves in forward-looking strategy setting, As these surveillance devices are substitute methods of gauging management quality, when boards focus on the firm's internal control and accounting system they become semi-detached from strategy - their business acumen falters. Top executives are then judged primarily on the basis of financial metrics as opposed to long-term fit. Since the balance sheet review carries more weight in the board's decision-making process, the return to managerial book-cooking (a purely ¶influence¶ activity) and the risk of endorsing flawed business plans swell. This confirms a burgeoning sentiment among business leaders and scholars that boards should perhaps pay less rather than more heed to codified, verifiable 'good ' governance principles.JEL classification: D23, G30, K20, M21, M40.Keywords: Corporate  Governance, Earnings Manipulation, Auditing, Misreporting, Sarbanes-Oxley Act, Combined Code on Corporate Governance
    Date: 2006–05
  18. By: Nathalie Havet (GATE CNRS)
    Abstract: The paper focuses on the effects of formal and informal on-the-job training on wages and promotions for men and women. For that purpose, we use the 1999-2000 Canadian Worplace and Employee Survey (WES). Using a simulated maximum likelihood, we estimate a recursive trivariate probit that simultaneously models the both decisions to follow formal and infomal on-the-job training and their impact on promotion process. We evaluate the returns of promotions and of the two kinds of on-the-job training through a Mincer wage equation using instruments for these variables.
    JEL: J16 J24 J31 C35
    Date: 2006–02
  19. By: Simon Renaud (University of Jena, Faculty of Economics)
    Abstract: Theoretical analyses of the effects of works councils show ambiguous results. Therefore an empirical investigation of the issue is inevitable. The results so far are mixed, frequently a positive effect on productivity, but a negative one on profits is found. The problem of both theoretical and empirical studies is the assumption of firm homogeneity. To close this gap, we take into account firm heterogeneity proxied by the percentage of highly qualified employees in the workforce. The theoretical result that the positive productivity effect is more pronounced in firms with well-defined majorities is confirmed in the empirical part of the paper. The results on profitability are less favourable for works councils: in those firms where the productivity effect is significant, the profitability effect is negative, except for firms with a very high percentage of highly qualified employees. Turning to the effect of collective agreements, they seem to mitigate the problem of reduced profitability in firms with no clear majority in the structure of qualifications.
    Keywords: firm heterogeneity, works councils, productivity, profitability, IAB Establishment-Panel
    JEL: J42 J50
    Date: 2006–05–21
  20. By: Kaul Asha; Pandit Anuradha
    Abstract: Managerial communication in organizations can well be studied by using drama as a heuristic device to gain an understanding of the complexities governing structure of communication, goals of participants and application of conversational principles. The technique of learning/understanding communication by application of conversational principles and maxims to drama/theatre was applied to dialogue in three absurd plays, namely, The Zoo Story, Endgame, and The Chairs. Analysis indicated that principles and maxims of cooperation and politeness are essential but not necessary prerequisites for communication. Violations of one, namely, politeness principle do not lead to cessation of communication. Communication continues despite violations, for fructification of a higher goal than is evident at the textual level of the dialogue. Extrapolating the findings in the context of the managerial situation, we found the context/situation to be the most significant variable in determining violation of conversational principles
    Date: 2006–05–16
  21. By: Magali Chaudey (CREUSET (EA 3724) - Centre de Recherche Economique de l'Université de Saint Etienne - [Université Jean Monnet - Saint-Etienne]); Muriel Fadairo (CREUSET (EA 3724) - Centre de Recherche Economique de l'Université de Saint Etienne - [Université Jean Monnet - Saint-Etienne])
    Abstract: This article deals with the links between networks performance and the design of vertical contracts. It provides evidence broadly consistent with the hypothesis that within franchising systems, constraining contracts for the retailers favor a better performance at the network level
    Keywords: vertical relationships; contractual constraints; contracts econometrics
    Date: 2006–05–22
  22. By: Vijayender Reddy Nalla; Jack A.A. van der Veen; Venu Venugopal (Nyenrode Business Universiteit)
    Abstract: This paper models a situation where a Supplier sells a fashion product to a Buyer who in turn sells the product to the consumers. Both the Supplier and the Buyer set their own selling price. For the above setting this paper designs different contract mechanisms such as Revenue sharing, Profit sharing, Quantity discounts, License fee and Mail-in-rebate contract mechanisms. The paper shows that the designed contract mechanism can provide both coordination and win-win. The paper also establishes the equivalence between the designed contract mechanisms and argues that industries can use one mechanism over the other in case of implementation problem.
    Keywords: Coordination, Win-Win, Supply Chain Contracts, Mail-in-rebates
    Date: 2005
  23. By: Armin Scholl (University of Jena, Faculty of Economics); Nils Boysen (University of Hamburg, Faculty of Economics and Social Science); Malte Fliedner (University of Hamburg, Faculty of Economics and Social Science)
    Abstract: The sequence-dependent assembly line balancing problem Abstract Assembly line balancing problems (ALBP) arise whenever an assembly line is configured, redesigned or adjusted. An ALBP consists of distributing the total workload for manufacturing any unit of the products to be assembled among the work stations along the line. The sequence-dependent assembly line balancing problem (SDALBP) is an extension of the standard simple assembly line balancing problem (SALBP) which has significant relevance in realworld assembly line settings. SDALBP extends the basic problem by considering sequencedependent task times. In this paper, we define this new problem, formulate several versions of a mixed-integer program, adapt solution approaches for SALBP to SDALBP, generate test data and perform some preliminary computational experiments. As a main result, we find that applying SALBP-based search procedures is very effective, whereas modeling and solving the problem with MIP standard software is not recommendable.
    Keywords: Assembly line balancing, Mass-production, Combinatorial optimization, Sequencing
    Date: 2006–05–23
  24. By: Antonio Guarino; Piero Tedeschi
    Abstract: Knowledge spillovers and labor mobility in industrial clusters are interrelated phenomena. A firm's knowledge is embodied in the entrepreneur and in the specialized workers. Knowledge can spill over from one firm to another through two channels: direct revelation from one entrepreneur to another and labor mobility. We show that, in equilibrium, an entrepreneur can disclose information to another in order to avoid labor poaching. The incentive of firms to disclose information voluntarily is one of the novel contributions of our paper. In the absence of information disclosure, spillovers can still occur through labor poaching. Labor poaching and voluntary disclosure of information can also occur simultaneously in equilibrium. We also provide a rationale for the localized character of the spillovers and for the limited geographical extensions of industrial clusters.
    Keywords: Spillover, Industrial Cluster, Labor Mobility
    JEL: D83 L11
    Date: 2006–05

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