nep-bec New Economics Papers
on Business Economics
Issue of 2006‒06‒10
24 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Technological Progress, Obsolescence and Depreciation By Raouf, BOUCEKKINE; Fernando, DEL RIO; David, DE LA CROIX
  2. Pre-emptive resource-constrained project scheduling with setup times By Debels, D.; Vanhoucke, M.
  3. Internationalization and the evolution of corporate valuation By Schmukler, Sergio L.; Levine, Ross; Gozzi, Juan Carlos
  4. The Division of Ownership in New Ventures By Dominique Demougin; Oliver Fabel
  5. Failure processes and causes of company bankruptcy: a typology By Ooghe, H.; De Prijcker, S.
  6. Individual Versus Aggregate Collateral Constraints and the Overborrowing Syndrome By Martín Uribe
  7. Meta-Heuristic resource constrained project scheduling: solution space restrictions and neighbourhood extensions. By Debels, D.; Vanhoucke, M.
  8. From Temporary Help Jobs to Permanent Employment: What Can We Learn from Matching Estimators and their Sensitivity? By Andrea Ichino; Fabrizia Mealli; Tommaso Nannicini
  9. The impact of various activity assumptions on the lead-time and resource utilization of resource-constrained projects By D. DEBELS; M. VANHOUCKE
  10. New Evidence on Real Wage Cyclicality within Employer-Employee Matches By Donggyun Shin; Gary Solon
  11. Pattern Recognition of Resource-Event-Agent Conceptual Modelling Structures By G. POELS; A. MAES; F. GAILLY; R. PAEMELEIRE
  12. Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds By James J. Choi; David Laibson; Brigitte C. Madrian
  13. Task Difficulty, Performance Measure Characteristics, and the Trade-Off between Insurance and Well-Allocated Effort By Wendelin Schnedler
  14. A Century of Work and Leisure By Valerie A. Ramey; Neville Francis
  15. Who Pays for Performance? By Erling Barth; Bernt Bratsberg; Torbjørn Hægeland; Oddbjørn Raaum
  16. The Spline GARCH Model for Unconditional Volatility and its Global Macroeconomic Causes By Robert F. Engle; Jose Gonzalo Rangel
  18. Organizational versus Individual Responsibility for Career Management: Complements or Substitutes? By A. DE VOS; K. DEWETTINCK; D. BUYENS
  19. The role of the psychological contract in retention management: Confronting HR-managers’ and employees’ views on retention factors and the relationship with employees’ intentions to stay By A. DE VOS; A. MEGANCK; D. BUYENS
  20. Linking behavioral control to frontline employee commitment and performance: a test of two alternative explanations using motivation theories By K. DEWETTINCK; D. BUYENS
  21. Effects of Organizational Design Dimensions on Inter-unit Knowledge Sharing By A. WILLEM; M. BUELENS
  22. "Does the Appointment of the Outside Director Increase Firm Value? The Evidence from Taiwan" By Hsu-Huei Huang; Paochung Hsu; Haider A. Khan; Yun-Lin Yu
  23. Exit in globalising industries: the role of international (out)sourcing By Coucke, K.; Sleuwaegen, L.
  24. To move or not to move? The relationship between career management and preferred career moves By De Vos, A.; Dewettinck, K.; Dirk Buyens

  1. By: Raouf, BOUCEKKINE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Fernando, DEL RIO; David, DE LA CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: We construct a vintage capital model à la Whelan (2002) with both exogenous embodied and disembodied technical progress, and variable utilization of each vintage. The lifetime of capital goods is endogenous and it relies on the associated maintenance costs. We study the properties of the balanced growth paths. First, we show that the lifetime of capital is an increasing (resp. decreasing) function of the rate of disembodied (resp.embodied) technical progress. Second, we show that both the use-related depreciation rate and the scrapping rate incease when embodied technical progress accelerates. However, the latter drops when disembodied technical progress accelerates while the former remains unaffected. A key feature of our model is that the age-related depreciation rate does depend on the obsolescence rate in sharp contrast to the neoclassical model.
    Keywords: Vintage capital; operation costs; embodied technical progress; age-related depreciation; obsolescence
    JEL: E22 E32 O40
    Date: 2006–03–16
  2. By: Debels, D.; Vanhoucke, M.
    Abstract: Resource-constrained project scheduling with activity pre-emption assumes that activities are allowed to be interrupted and restarted later in the schedule at no extra cost. In the current paper, we extend this pre-emptive scheduling problem with setup times between activity interruptions and the possibility to fast track pre-emptive subparts of activities. The contribution of the paper is twofold. First, we present an optimal branch-and-bound procedure for the pre-emptive resource-constrained project scheduling problem with setup times and fast tracking options. Second, we test the impact of these pre-emptive extensions to the quality of the schedule from a lead-time point-of-view.
    Date: 2006–06–05
  3. By: Schmukler, Sergio L.; Levine, Ross; Gozzi, Juan Carlos
    Abstract: By documenting the evolution of Tobin ' s q before, during, and after firms internationalize, the authors provide evidence on the bonding, segmentation, and market timing theories of internationalization. Using new data on 9,096 firms across 74 countries over the period 1989-2000, they find that Tobin ' s q does not rise after internationalization, even relative to firms that do not internationalize. Instead, q rises significantly before internationalization and during the internationalization year. But then q falls sharply in the year after internationalization, quickly relinquishing the increases of the previous years. To account for these dynamics, the authors show that market capitalization rises before internationalization and remains high, while corporate assets increase during internationalization. The evidence supports models stressing that financial internationalization facilitates corporate expansion, but challenges models stressing that internationalization produces an enduring effect on q by bonding firms to a better corporate governance system.
    Keywords: Small Scale Enterprise,Microfinance,Investment and Investment Climate,Economic Theory & Research,Markets and Market Access
    Date: 2006–06–01
  4. By: Dominique Demougin; Oliver Fabel
    Abstract: The current study investigates a tripartite incentive contract between an innovator supplying an intellectual asset, a professional assigned to productive tasks, and a consulting firm specializing in matching ideas and professional skills. A rather simple pure tripartite partnership implements the consultant´s expected profit maximum and maximizes the project`s expected surplus. The liquidity-constrained professional is compensated by receiving a share of one half in the new venture. The consultant´s and the innovator´s shares reflect the relative value of search. However, the consultant´s optimal search effort to find an appropriate production partner is inefficiently low.
    Keywords: New ventures, tripartite incentive contract, consulting contract, partnerships
    JEL: M13 M21
    Date: 2006–06
  5. By: Ooghe, H.; De Prijcker, S.
    Abstract: This paper describes a typology of failure processes within companies. Based on case studies and considering companies’ ages and management characteristics, we discovered four types of failure processes. The first failure process describes the deterioration of unsuccessful start-up companies leaded by a management with a serious deficiency in managerial and industry- related experience. The second process reveals the collapse after a failing growth of ambitious early- stage companies. Those companies have, after a failed investment, insufficient financial means to adjust their way of doing business to the changes in the environment in order to prevent bankruptcy. Third, we describe the failure process of dazzled established companies, leaded by an overconfident management without a realistic view on the company’s financial situation. Lastly, the bankruptcy of apathetic companies, describes the gradual deterioration of apathetic established companies where management had lost touch with the changing environment. We also found that there is a great difference in the presence and importance of specific causes of bankruptcy between the distinctive failure processes . Errors made by management, errors in corporate policy and changes in the general and immediate environments differ considerably between each of the four failure processes.
    Date: 2006–06–05
  6. By: Martín Uribe
    Abstract: This paper compares the equilibrium dynamics of an economy facing an aggregate collateral constraint on external debt to the dynamics of an economy facing a collateral constraint imposed at the level of each individual agent. The aggregate collateral constraint is intended to capture an environment in which foreign investors base their lending decisions predominantly upon macro indicators as opposed to individual abilities to pay. Individual agents do not internalize the aggregate borrowing constraint. Instead, in this economy a country interest-rate premium emerges to clear the financial market. The central finding of the paper is that the economy with the aggregate borrowing limit does not generate higher levels of debt than the economy with the individual borrowing limit. That is, there is no overborrowing in equilibrium.
    JEL: F41
    Date: 2006–05
  7. By: Debels, D.; Vanhoucke, M.
    Abstract: The resource-constrained project scheduling problem (RCPSP) has been extensively investigated during the past decades. Due to its strongly NP-hard status and the need for solving large realistic project instances, the recent focus has shifted from exact optimisation procedures to (meta-) heuristic approaches. In this paper, we extend some existing state-of-the-art RCPSP procedures in two ways. First, we extensively test a decomposition approach that splits problem instances into smaller sub-problems to be solved with an (exact or heuristic) procedure, and re-incorporates the obtained solutions for the sub-problems into the solution of the main problem, possibly leading to an overall better solution. Second, we study the influence of an extended neighbourhood search on the performance of a meta-heuristic procedure. Computational results reveal that both techniques are valuable extensions and lead to improved results.
    Date: 2006–06–05
  8. By: Andrea Ichino (University of Bologna, EUI, CEPR, CESifo and IZA Bonn); Fabrizia Mealli (University of Florence); Tommaso Nannicini (Universidad Carlos III de Madrid)
    Abstract: The diffusion of Temporary Work Agency (TWA) jobs originated a harsh policy debate and ambiguous empirical evidence. Results for the US, based on quasi-experimental evidence, suggest that a TWA assignment decreases the probability of finding a stable job, while results for Europe, based on the Conditional Independence Assumption (CIA), typically reach opposite conclusions. Using data for two Italian regions, we use a matching estimator to show that TWA assignments can be an effective springboard to permanent employment. We also propose a simulation-based sensitivity analysis, which highlights that only for one of these two regions our results are robust to specific failures of the CIA. We conclude that European studies based on the CIA should not be automatically discarded, but should be put under the scrutiny of a sensitivity analysis like the one we propose.
    Keywords: matching estimation, temporary employment
    JEL: C2 C8 J6
    Date: 2006–05
    Abstract: The well-known resource-constrained project scheduling problem (RCPSP) schedules project activities within the precedence and renewable resource constraints while minimizing the total lead-time of the project. The basic problem description assumes non-pre-emptive activities with fixed durations, and has been extended to various other assumptions in literature. In this paper, we investigate the effect of three activity assumptions on the total lead-time and the total resource utilization of a project. More precisely, we investigate the influence of variable activity durations under a fixed work content, the possibility of allowing activity pre-emption and the use of fast tracking to decrease a project’s duration. We give an overview of the procedures developed in literature and present some modifications to existing solution approaches to cope with our activity assumptions under study. We present computational results on a generated dataset and evaluate the impact of all assumptions on the quality of the schedule.
    Date: 2006–05
  10. By: Donggyun Shin; Gary Solon
    Abstract: In the most thorough study to date on wage cyclicality among job stayers, Devereux’s (2001) analysis of men in the Panel Study of Income Dynamics produced two puzzling findings: (1) the real wages of salaried workers are noncyclical, and (2) wage cyclicality among hourly workers differs between two alternative wage measures. We examine these puzzles with additional evidence from other sources. Devereux’s finding of noncyclical real wages among salaried job stayers is not replicated in the National Longitudinal Survey of Youth data. The NLSY data, however, do corroborate his finding of a discrepancy for hourly workers between the cyclicality of the two alternative wage measures. Evidence from the PSID Validation Study contradicts Devereux’s conjecture that the discrepancy might be due to a procyclical bias from measurement error in average hourly earnings. Evidence from the Bureau of Labor Statistics establishment survey supports his hypothesis that overtime work accounts for part (but not all) of the discrepancy. We conclude that job stayers’ real average hourly earnings are substantially procyclical and that an important portion of that procyclicality probably is due to compensation beyond base wages.
    JEL: E3 J3
    Date: 2006–05
    Abstract: Resource-Event-Agent (REA) ontology-based conceptual modelling is a pattern-based approach to structural business process modelling. This paper hypothesizes that diagrammatic Entity- Relationship (ER) representations of REA ontology-based business process models (REA diagrams) are better understood and perceived to be of higher quality by business professionals than informationally equivalent ER diagrams that do not show REA pattern occurrences (Non-REA diagrams). The theoretical background for these hypotheses are (i) cognitive and perceptual psychology theories that explain why pattern recognition with REA diagrams is likely to occur, and (ii) Cognitive Fit theory that predicts performance effects when there is a good match between the mental and conceptual representations of the information required to solve a problem. An experiment with 124 business students showed that REA diagram users were more accurate than Non-REA diagram users when performing model comprehension tasks. Further, participants perceived a REA diagram as easier to interpret than a Non-REA diagram. Given that participants received minimal REA ontology education (though some of them were trained more intensively), the experiment results provide evidence of pattern recognition taking place. The experiment could not show that pattern recognition is stronger or more frequent when users are more familiar with the patterns (because of additional training).
    Keywords: conceptual model, business domain ontology, modelling pattern, pattern recognition, task performance, model comprehension, Cognitive Fit theory, Semantic Distance, Human-Computer Interaction research, experiment
    Date: 2006–02
  12. By: James J. Choi; David Laibson; Brigitte C. Madrian
    Abstract: We report experimental results that shed light on the demand for high-fee mutual funds. Wharton MBA and Harvard College students allocate $10,000 across four S&P 500 index funds. Subjects are randomized among three information conditions: prospectuses only (control), summary statement of fees and prospectuses, or summary statement of returns since inception and prospectuses. Subjects are randomly selected to be paid for their subsequent portfolio performance. Because payments are made by the experimenters, services like financial advice are unbundled from portfolio returns. Despite this unbundling, subjects overwhelmingly fail to minimize index fund fees. In the control group, over 95% of subjects do not minimize fees. When fees are made salient, fees fall, but 85% of subjects still do not minimize fees. When returns since inception (an irrelevant statistic) are made salient, subjects chase these returns. Interestingly, subjects who choose high-cost funds recognize that they may be making a mistake.
    JEL: D14 D18 D43 D83
    Date: 2006–05
  13. By: Wendelin Schnedler
    Abstract: When designing incentives for a manager, the trade-off between insurance and a "good" allocation of effort across various tasks is often identified with a trade-off between the responsiveness (sensitivity, precision, signal-noise ratio) of the performance measure and its similarity (congruity, congruence) to the benefit of the manager's employer. A necessary condition for the trade-off between responsiveness and similarity to be meaningful is that a perfectly congruent measure creates a higher benefit than an equally responsive non-congruent measure. We show that this condition is met if and only if all tasks are exactly equally difficult and there are no spill-overs or synergies across tasks. This means that for most practical purposes, notions of responsiveness and similarity are not informative about the tradeoff between insurance and allocation. In order to understand this trade-off, task difficulty has also to be taken into account.
    Keywords: hidden action, multitasking, incentives
    JEL: M41 M52 J33 D82
    Date: 2006–05
  14. By: Valerie A. Ramey; Neville Francis
    Abstract: Has leisure increased over the last century? Standard measures of hours worked suggest that it has. In this paper, we develop a comprehensive measure of non-leisure hours that includes market work, home production, commuting and schooling for the last 105 years. We also present empirical and theoretical arguments for a definition of “per capita” that encompasses the entire population. The new measures reveal a number of interesting 20th Century trends. First, 70 percent of the decline in hours worked has been offset by an increase in hours spent in school. Second, contrary to conventional wisdom, average hours spent in home production are actually slightly higher now than they were in the early part of the 20th Century. Finally, leisure per capita is approximately the same now as it was in 1900.
    JEL: E2 N1 N3
    Date: 2006–05
  15. By: Erling Barth (Institute for Social Research, University of Oslo and IZA Bonn); Bernt Bratsberg (Frisch Centre for Economic Research and Kansas State University); Torbjørn Hægeland (Statistics Norway and Frisch Centre for Economic Research); Oddbjørn Raaum (Frisch Centre for Economic Research)
    Abstract: Using Norwegian establishment surveys from 1997 and 2003, we show that performancerelated pay is more prevalent in firms where workers of the main occupation have a high degree of autonomy in how to organize their work. This observation supports an interpretation of incentive pay as motivated by agency problems. Performance-related pay is also more widespread in large firms. Traditionally, wage setting in the Norwegian labor market has been dominated by negotiations between trade unions and employer associations at the central and local levels, with a fixed hourly wage as a predominant element of the wage scheme. Our results show that performance-related pay is less common in highly unionized firms and in firms where wages are determined through centralized bargaining. Nevertheless, the evidence presented in this paper reveals that performance pay is on the rise in Norway, even after accounting for changes in industry structure, bargaining regime, and union density. Finally, we find that the incidence of performance-related pay relates positively to product-market competition and foreign ownership.
    Keywords: performance related pay, agency problems, compensation methods
    JEL: J33 M52
    Date: 2006–05
  16. By: Robert F. Engle; Jose Gonzalo Rangel
    Abstract: 25 years of volatility research has left the macroeconomic environment playing a minor role. This paper proposes modeling equity volatilities as a combination of macroeconomic effects and time series dynamics. High frequency return volatility is specified to be the product of a slow moving deterministic component, represented by an exponential spline, and a unit GARCH. This deterministic component is the unconditional volatility, which is then estimated for nearly 50 countries over various sample periods of daily data. Unconditional volatility is then modeled as an unbalanced panel with a variety of dependence structures. It is found to vary over time and across countries with high unconditional volatility resulting from high volatility in the macroeconomic factors GDP, inflation and short term interest rate, and with high inflation and slow growth of output. Volatility is higher for emerging markets and for markets with small numbers of listed companies and market capitalization, but also for large economies. The model allows long horizon forecasts of volatility to depend on macroeconomic developments, and delivers estimates of the volatility to be anticipated in a newly opened market.
    Keywords: . Arch, garch, global volatility, spline and volatility.
    JEL: C14 C19
    Date: 2005–12
    Abstract: While one stream of research in partner selection has emphasized stability in a firm’s social network, another stream has emphasized the need to expand a firm’s network. In order to reconcile these two perspectives, we explore transaction, partner and macro conditions that lead firms to work with unfamiliar partners. Using a unique hand-collected dataset, results from the formation of private equity investment syndicates demonstrate that firms are more likely to select unfamiliar partners for lower levels of primary and behavioral uncertainty and higher levels of competition. Our findings provide insights in conditions that lead firms to expand their social network.
    Date: 2006–03
    Abstract: This paper explores the relationship between organizational career management and career self-management and addresses their impact on employee outcomes. The results of a study among employees and linemanagers are presented, which partly support our hypotheses. The interaction between organizational and individual career management in explaining employee outcomes is discussed.
    Date: 2006–03
    Abstract: This article examines HR managers’ and employees’ views on the factors affecting employee retention. This is done by integrating findings from the literature on retention management with the theoretical framework of the psychological contract. In a first study a sample of HR managers from a diverse group of public and private firms described the factors they believed to affect employee retention and the retention practices set up in their organization. In a second study, a large and diverse sample of employees reported on the importance attached to five types of employer inducements commonly regarded as retention factors. They also evaluated their employers’ delivery of these inducements and provided information on their loyalty, intentions to stay and job search behaviors. The results of both studies are discussed and implications for HR managers are highlighted.
    Date: 2006–03
    Abstract: We propose and empirically test a model in which behavioral control is linked to frontline employee commitment and performance. We test two alternative explanations by examining the intermediate role of job autonomy and situational learning orientation. The hypotheses are tested using multiple-source survey data from a sample of 1184 frontline employees and their supervisors. Results indicate that situational learning orientation is an important construct in linking behavioral control to performance. Job autonomy shows to be important in explaining employee outcomes but is only marginally related to behavioral control. Theoretical and managerial implications are discussed.
    Date: 2006–05
    Abstract: The literature on knowledge sharing is extensive but organization design received little attention in this literature. A few useful exceptions are Birkinshaw e.a. (2002), Hansen (2002) and Tsai (2002). However, these attempts are yet too limited to fully understand the relationship between organization design choices and knowledge sharing. To contribute in filling this gap, we look at the fundamental organization design dimensions, specialization centralization, formalization, and coordination, in their relationship to the concepts of knowledge and knowledge sharing. While specialization creates firm-specific boundaries to knowledge sharing, coordination is the firm-specific mechanism to overcome these boundaries (Grant, 1996). A multiple case study approach was followed to collect our data, using a questionnaire in the Belgian divisions of two European companies active in the energy and finance sector. Based on a reassessment of the classic organization design literature, we assumed more inter-unit knowledge sharing when: decentralized and informal coordination is used, interdependency between units is low and specialization, reflected in knowledge complexity and unit differences, is low. Our findings indicated that interdependency and knowledge complexity, apart from having a strong direct effect on knowledge sharing, also had an important interacting effect in the relationship between coordination and knowledge sharing; suggesting a contingency view on organization design and knowledge transferability. Other expected relationships were not found, such as the negative effect of hierarchy or the positive effect of lower formalization. We made a comparison between the two cases and put the findings in their context. Apparently, the organization-specific context in which the 3 coordination is applied affects the potential of this coordination for knowledge sharing. Especially the role of formalization differed. Hence, organization-specificity questions again the contingency view.
    Keywords: case study, interdependency, knowledge sharing, organization design
    Date: 2006–05
  22. By: Hsu-Huei Huang (Department of Finance, National University of Kaohsiung); Paochung Hsu (Department of Finance, Providence University); Haider A. Khan (GSIS, University of Denver); Yun-Lin Yu (Cathay United Bank)
    Abstract: We examine the stock market reaction to the announcement of outside director appointments in Taiwan. We employ a sample of 58 outside director announcements made by Taiwan Stock Exchange listed firms during the period 1 January, 1999 to 30 June, 2003. Using this data, we can test some important hypotheses regarding the role of outside directors in conjunction with other conditions for corporate performance in affecting the stock market reactions. Our empirical findings indicate that there exists a significantly positive reaction to the announcements. The cumulative abnormal returns ---one indicator of stock market reaction measured by using the methodology of market model based event study --- reached 4.776%. We also find that the abnormal returns are positive and higher with respect to each of the following characteristics: poorer prior corporate performance, the CEO as chairman of the board, larger free cash flow and a higher degree of information asymmetry. Further, we find that the announcement effect is decreasing as number of outside directors increases. Our findings are different from existing literature, for instance, those of Lin, Pope and Young (2003) and Rosenstein and Wyatt (1990) mainly because the outside director appointment is not mandatory in Taiwan. This suggests that the announcement effects could be different across countries. The appointment appears to be more beneficial for a country with poor corporate governance mechanisms.
    Date: 2006–05
  23. By: Coucke, K.; Sleuwaegen, L.
    Abstract: This paper studies the impact of globalisation on the exit behaviour of domestic and foreign firms in the manufacturing industries of Belgium, one of the most open economies in the world. The strongest effects are found to come from rising import growth and rising multinational firms penetration of the industry, which systematically increase the probability of exit of (inefficient) domestic firms. Product differentiation and international (out)sourcing moderate this impact and lower the risk of exit. Controlling for productivity differences across firms, exporting on itself does not lower the probability of exit. Subsidiaries of multinational firms are found to be subject to similar disciplinary forces from import competition as domestic firms but do not show exit to respond to the same passive learning process.
    Keywords: Exit, Sourcing, International Competition
    Date: 2006–06–01
  24. By: De Vos, A.; Dewettinck, K.; Dirk Buyens
    Abstract: This paper explores professional employees’ career move preferences and the impact of both individual and organizational career management. Departing from theoretical work on the “new career”, different types of career moves employees can make on the internal labor market are discussed (i.e. vertical moves, lateral moves, job enrichment and temporary moves). Next, these are related to the literature on both organizational and individual career management. Hypotheses are formulated about professional employees’ preferences for making distinct types of internal career moves and about the extent to which these preferences are affected by (a) employees’ individual career management initiatives and (b) four distinct bundles of organizational career management practices (succession management, potential assessment, feedback and development). The results of a study among 472 professional employees from one company are presented, which indicate that the preferences for both vertical career moves and moves relating to job enrichment and temporary moves are significantly affected by individual career management, but not by organizational career management practices. The preference for making lateral moves could not be explained by our antecedent variables, but was affected by managerial ambition and variables relating to respondents’ family situation. The implications of our findings for stimulating internal career mobility are discussed, and suggestions for further research are made.
    Date: 2006–06–05

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