nep-bec New Economics Papers
on Business Economics
Issue of 2006‒06‒17
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Innovativity: A Comparison Across Seven European Countries By Pierre Mohnen; Jacques Mairesse; Marcel Dagenais
  2. Measuring International Trade in Services By Robert E. Lipsey
  3. Globalization and Endogenous Firm Scope By Volker Nocke; Stephen Yeaple
  4. The Topology of Conflict and Co-operation By Sam Perlo-Freeman
  6. Simulations de la couverture delta et de la couverture delta-gamma d’un portefeuille dans le cadre du modèle de Black et Scholes By Francois-Éric Racicot; Raymond Théoret
  7. Buying and Selling Research and Development Services, 1997 to 2002 By Mohnen, Pierre; Rose, Antoine; Rosa, Julio
  8. Imperfect Competition and Corporate Governance By Frank Milne; David Kelsey
  9. The Optimal Length of Contracts with Application to Outsourcing By Matthew Ellman
  10. The acceptability of layoffs and pay cuts : comparing North America with Germany By Gerlach, Knut; Levine, David; Stephan, Gesine; Struck, Olaf
  11. Direction-of-Change Forecasts Based on Conditional Variance, Skewness and Kurtosis Dynamics: International Evidence By Peter F. Christoffersen; Francis X. Diebold; Roberto S. Mariano; Anthony S. Tay; Yiu Kuen Tse
  12. Collective bargaining structure and its determinants : an empirical analysis with British and German establishment data By Schnabel, Claus; Zagelmeyer, Stefan; Kohaut, Susanne
  13. Equity Premia with Benchmark Levels of Consumption: Closed-Form Results By Andrew B. Abel
  14. The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter? By Vojislav Maksimovic; Gordon Phillips
  15. Resolving Macroeconomic Uncertainty in Stock and Bond Markets By Alessandro Beber; Michael W. Brandt
  16. Path Dependence or Convergence? The Evolution of Corporate Ownership Around the World By Andrew J.Y. Yeh; Steven Lim; Ed Vos
  17. Aggregate investment dynamics when firms face fixed investment cost and capital market imperfections By Christian Bayer
  18. When Do Employees Leave Their Job for Entrepreneurship: Evidence from Linked Employer-Employee Data By Ari Hyytinen; Mika Maliranta
  19. Banks'procyclicality behavior : does provisioning matter ?. By Vincent Bouvatier; Laetitia Lepetit
  20. Restart-Performance and the Returns of Previous Self-Employment By Georg Metzger; Michaela Niefert
  21. Multi-Product Firms and Product Switching By Andrew B. Bernard; Stephen J. Redding; Peter K. Schott
  22. Determinants influencing the choice of a cooperation partner By Uwe Cantner; Andreas Meder

  1. By: Pierre Mohnen; Jacques Mairesse; Marcel Dagenais
    Abstract: This paper proposes a framework to account for innovation similar to the usual accounting framework in production analysis and a measure of innovativity comparable to that of total factor productivity. This innovation accounting framework is illustrated using micro-aggregated firm data from the first Community Innovation Surveys (CIS1) for seven European countries: Belgium, Denmark, Ireland, Germany, the Netherlands, Norway and Italy for the year 1992. Based on the estimation of a generalized Tobit model and measuring innovation as the share of total sales due to improved or new products, it compares the propensity to innovate, and the innovation intensity conditional and unconditional on being innovative, across the seven countries and low- and high-tech manufacturing sectors. Even with relatively few explanatory variables our innovation framework already accounts for sizeable differences in country innovation intensity. It also shows that differences in innovativity across countries can be nonetheless very large.
    JEL: C35 L60 O31 O33
    Date: 2006–06
  2. By: Robert E. Lipsey
    Abstract: World trade in services has recently been a little under $US2 trillion, about a quarter of world trade in goods. That ratio does not appear to have changed much in the last 50 years. For the US, exports of services have recently been over 40% and imports about 20% of exports and imports of goods, a return, for exports to the ratios of the early 1800s. Imports of services are now increasing more rapidly than exports, but not faster than goods imports. Because measures of service trade are not anchored in any observation of physical movement, they are dependent on definitions of residence. An example of that dependence and the ambiguities it creates is exports of educational services, a domestic activity that becomes an export because students are defined as foreign residents. Since many students later become US residents, the supposedly exported service never leaves the US, or returns to the US unobserved and uncounted. A particularly serious problem of measurement is the growing transfer of intangible US corporate assets to foreign affiliates of US firms, some of which use virtually no foreign factors of production. These transfers, mainly for tax saving purposes, give rise to phantom flows of services from the foreign affiliates to the US and to other countries and remove the exports from the U.S. balance of payments. They make the meaning of measures of the current balances and GDP ambiguous. One possible solution to the measurement problems would be to use measures assigning at least intangible assets to countries of ownership, rather than nominal residence.
    JEL: F10 F23 F30 F40
    Date: 2006–06
  3. By: Volker Nocke (Department of Economics, University of Pennsylvania); Stephen Yeaple (Department of Economics, University of Pennsylvania)
    Abstract: We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. Our model explains two puzzles. First, it explains the well-known size-discount puzzle: large firms have lower values of Tobin’s Q than small firms. Second, it explains the globalization-skewness puzzle documented in the empirical part of our paper: a multilateral reduction in trade costs leads to a flattening of the size distribution of firms. In our model, globalization not only affects the distribution of observed productivities but also productivity at the firm level.
    Keywords: multiproduct firms, firm size distribution, trade liberalization, size discount, firm heterogeneity, productivity
    JEL: F12 F15 L11 L25
    Date: 2006–06–03
  4. By: Sam Perlo-Freeman (School of Economics, University of the West of England)
    Abstract: The class of simultaneous 2x2 pure-strategy ordinal games (which include well-known games such as Prisoner’s Dilemma, Chicken and Stag Hunt) have received considerable attention, including complete classification schemes by amongst others Rapoport & Guyer (1978) and Robinson & Goforth (2005). This paper focuses on a particularly pertinent subset of these games, described as the ‘Co-operate-Defect’ (C-D) games, which are characterised by each player having a dominant preference for a particular strategy by the other player. These games are therefore relevant in a number of contexts, including arms race games and collective action problems. The C-D games may be efficiently classified by assigning each player one of six distinct types, a classification that cannot be naturally extended to the full class of 2x2 games. The six types and the resulting game forms are analysed, and the subclass of CD games are identified within a topological structure for the 2x2 games devised by Robinson & Goforth (2005).
    Keywords: Conflict; co-operation; game theory; co-operate-defect games
    JEL: C25 D12
    Date: 2006–06
  5. By: Frank Milne (Queen's University); David Kelsey (Exeter University)
    Abstract: This paper provides a theory of general equilibrium with externalities and/or monopoly. We assume that the …rm’s decisions are based on the preferences of shareholders and/or other stakeholders. Under these assumptions a …rm will produce fewer negative externalities than the comparable pro…t maximising …rm. In the absence of externalities, equilibrium with a monopoly will be Pareto efficient if the …rm can price discriminate. The equilibrium can be implemented by a 2-part tariff.
    Keywords: Externality, general equilibrium, 2-part tariff, objective function of the firm
    JEL: D52 D70 L20
    Date: 2005–05
  6. By: Francois-Éric Racicot (Département des sciences administratives, Université du Québec (Outaouais) et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal))
    Abstract: Plusieurs gestionnaires de portefeuille pensent encore à tort qu’une couverture delta suffit pour protéger leur portefeuille contre les fluctuations des marchés financiers. Mais une augmentation marquée de la volatilité des cours boursiers les décevra dans leurs attentes. Après avoir exposé les rudiments mathématiques de l’équation de Black et Scholes, cet article présente des simulations inédites dans Excel de la couverture delta et de la couverture delta-gamma basées sur la formule de Black et Scholes. On y constate que la couverture delta-gamma est de loin préférable à une simple couverture delta.
    Keywords: Ingénierie financière, produits dérivés, couverture.
    JEL: G12 G13 G33
    Date: 2006–06–12
  7. By: Mohnen, Pierre (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology); Rose, Antoine (Statistics Canada, Science, Innovation and Electronic Information Division); Rosa, Julio (Statistics Canada, Science, Innovation and Electronic Information Division)
    Abstract: Research and development is a crucial activity in the innovation process. Not every firm is in a position to overcome constraints to R&D, such as costs. Those that perform R&D must choose between forming a partnership with other firms, governmental organisations, universities or doing it themselves internally. Others may sell R&D services or buy them. This study provides a statistical portrait of the strategies Canadian companies used in conducting research and development between 1997 and 2002. It is based on data from the Survey of Research and Development in Canadian Industry. During this time period, the majority of R&D spending, around 62%, was of internal origin, that is, it was conducted by the performer. The remaining 38% portion was comprised of two groups: one group representing 24% performed R&D on behalf of another organization, that is, they contracted in. The remaining 14% was conducted by another R&D performer, that is, they contracted out. An estimated 42% of research and development was conducted with no external partnerships. Foreign-controlled firms were much more heavily involved in selling R&D services than their Canadian counterparts. About 22% of all foreign-controlled firms conducted R&D for outside organizations, more than twice the proportion of only 9% of domestic performers. However, Canadian-controlled firms on average spent more on research and development. As a result, the 9% of Canadian-controlled performers allocated 23% of their total R&D spending to selling R&D services, virtually the same proportion as the 25% allocated by foreign-controlled firms.
    Keywords: Research and Development, Public-Private Partnerships
    JEL: O32
    Date: 2006
  8. By: Frank Milne (Queen's University); David Kelsey (University of Exeter)
    Abstract: This paper studies corporate governance when a firm operates in imperfect markets. We derive firms’ decisions from utility maximisation by individuals. If those involved in decisions are also consumers, the usual monopoly distortion is reduced. Corporate governance can effect the equilibrium in the product (or input) markets. This enables us to endogenise the objective function of the firm. If the firm cannot commit not to change its constitution, we find a Coase-like result where all market power is lost in the limit. We present a more abstract model of governance in the presence of market distortions.
    Keywords: corporate governance, stakeholder, oligopoly, strategic delegation
    JEL: D70 L13 L20
    Date: 2006–04
  9. By: Matthew Ellman
    Abstract: This paper resolves three empirical puzzles in outsourcing by formalizing the adaptation cost of long-term performance contracts. Side-trading with a new partner alongside a long- term contract (to exploit an adaptation-requiring investment) is usually less effective than switching to the new partner when the contract expires. So long-term contracts that prevent holdup of specific investments may induce holdup of adaptation investments. Contract length therefore trades of specific and adaptation investments. Length should increase with the importance and specificity of self-investments, and decrease with the importance of adaptation investments for which side-trading is ineffective. My general model also shows how optimal length falls with cross-investments and wasteful investments.
    Keywords: Contract length, market forces, incomplete contracts, holdup
    JEL: D23
  10. By: Gerlach, Knut; Levine, David; Stephan, Gesine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Struck, Olaf
    Abstract: "Substantial evidence shows that North Americans are generally more accepting of the market than Europeans and attribute market outcomes to a larger degree to effort or skill. This article discusses the perceived fairness of layoffs and pay cuts in North America and Germany. We expect North Americans to be more accepting of layoffs and pay cuts than Germans and that procedures and conditions under which pay cuts or layoffs occur have a stronger impact on fairness perceptions for Germans than for North Americans. This hypothesis is tested using a quasi-experimental design. The empirical results are in line with our considerations." (author's abstract, IAB-Doku) ((en))
    Keywords: Entlassungen - Akzeptanz, Lohnsenkung - Akzeptanz, institutionelle Faktoren, gesellschaftliche Einstellungen, Gerechtigkeit, soziale Wahrnehmung - internationaler Vergleich, Einkommensunterschied, psychische Faktoren, Arbeitsbeziehungen, soziale Normen, soziale Einstellungen, USA, Bundesrepublik Deutschland, Kanada, Nordamerika, Silicon Valley, Toronto
    JEL: M51 M52 J63 J31 J33 P52
    Date: 2006–01–16
  11. By: Peter F. Christoffersen (McGill University and CIRANO); Francis X. Diebold (Department of Economics, University of Pennsylvania); Roberto S. Mariano (Singapore Management University); Anthony S. Tay (Singapore Management University); Yiu Kuen Tse (Singapore Management University)
    Abstract: Recent theoretical work has revealed a direct connection between asset return volatility forecastability and asset return sign forecastability. This suggests that the pervasive volatility forecastability in equity returns could, via induced sign forecastability, be used to produce direction-of change forecasts useful for market timing. We attempt to do so in an international sample of developed equity markets, with some success, as assessed by formal probability forecast scoring rules such as the Brier score. An important ingredient is our conditioning not only on conditional mean and variance information, but also conditional skewness and kurtosis information, when forming direction-of-change forecasts.
    Keywords: Volatility, variance, skewness, kurtosis, market timing, asset management, asset allocation, portfolio management
    JEL: G10 G12
    Date: 2006–02–01
  12. By: Schnabel, Claus; Zagelmeyer, Stefan; Kohaut, Susanne (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Using two nationally representative establishment data sets, this paper investigates collective bargaining coverage and firms' choice of governance structures for the employment relationship in Britain and in (western and eastern) Germany. Both countries have experienced a substantial decline in collective bargaining coverage in the last decades. While bargaining coverage is generally lower in Britain, single-employer bargaining is relatively more important in Britain, whereas multi-employer collective bargaining clearly dominates in Germany. Econometric analyses show that more or less the same set of variables play a statistically significant role in explaining the structure of collective bargaining in both countries. These include establishment size, establishment age, foreign ownership, public sector affiliation and being a branch plant." (author's abstract, IAB-Doku) ((en))
    Keywords: Tarifverhandlungen - internationaler Vergleich, Tarifautonomie, Tarifpartner, Tarifvertrag, Tarifverhandlungen - Determinanten, Betriebsvereinbarung, Flächentarifvertrag, Dezentralisation, IAB-Betriebspanel, Unternehmensgröße, Betriebsgröße, Wirtschaftszweige, Arbeitsbeziehungen, Unternehmenspolitik, Unternehmensführung, Unternehmensalter, öffentlicher Dienst, ausländische Arbeitgeber, regionaler Vergleich, Firmentarifvertrag, Bundesrepublik Deutschland, Großbritannien, Ostdeutschland, Westdeutschland
    JEL: J50
    Date: 2005–08–09
  13. By: Andrew B. Abel
    Abstract: I calculate exact expressions for risk premia, term premia, and the premium on levered equity in a framework that includes habit formation, keeping/catching up with the Joneses, and possible departures from rational expectations. Closed-form expressions for the first and second moments of returns and for the R2 of a regression of stock returns on the dividend-price ratio are derived under lognormality for the case that includes keeping/catching up with the Joneses. Linear approximations illustrate how these moments of returns are affected by parameter values and illustrate quantitatively how well the model can account for values of the equity premium, the term premium, and the standard deviations of the riskless return and the rate of return on levered equity. For empirically relevant parameter values, the linear approximations yield values of the various moments that are close to those obtained from the exact solutions.
    JEL: G12
    Date: 2006–06
  14. By: Vojislav Maksimovic; Gordon Phillips
    Abstract: We examine the effect of financial dependence on acquisition and investment within existing industries by single-segment and conglomerate firms for industries undergoing different long run changes in industry conditions. Conglomerates and single-segment firms differ more in rates of within-industry acquisitions than in capital expenditure rates, which are similar across organizational type. In particular, 36 percent of within-industry growth by conglomerate firms in growth industries is from intra-industry acquisitions, compared to nine percent for single segment firms. Financial dependence, a deficit in a segment’s internal financing, decreases the likelihood of within-industry acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries. The findings persist after controlling for firm size and segment productivity. Acquisitions lead to increased efficiency as plants acquired by conglomerate firms in growth industries increase in productivity post acquisition. The results are consistent with the comparative advantages of different firm organizations differing across long-run industry conditions.
    JEL: G0 G2 G3
    Date: 2006–06
  15. By: Alessandro Beber; Michael W. Brandt
    Abstract: We establish an empirical link between the ex-ante uncertainty about macroeconomic fundamentals and the ex-post resolution of this uncertainty in financial markets. We measure macroeconomic uncertainty using prices of economic derivatives and relate this measure to changes in implied volatilities of stock and bond options when the economic data is released. We also examine the relationship between our measure of macroeconomic uncertainty and trading activity in stock and bond option markets before and after the announcements. Higher macroeconomic uncertainty is associated with greater reduction in implied volatilities. Higher macroeconomic uncertainty is also associated with increased volume in option markets after the release, consistent with market participants waiting to trade until economic uncertainty is resolved, and with decreased open interest in option markets after the release, consistent with market participants using financial options to hedge macroeconomic uncertainty. The empirical relationships are strongest for long-term bonds and weakest for non-cyclical stocks.
    JEL: G1
    Date: 2006–06
  16. By: Andrew J.Y. Yeh (Reserve Bank of New Zealand); Steven Lim (University of Waikato); Ed Vos (University of Waikato)
    Abstract: We offer a theory that sheds light on the current debate over whether the form of corporate ownership converges to the Berle-Means image. Our analytical results are threefold. First, legal rules and firm-specific protective arrangements are complementary. Secondly, corporate ownership patterns can be convergent or path dependent depending on the relative importance of these protective arrangements. We predict, for example, diffuse stock ownership in countries that impose legal limits on blockholders’ power to expropriate minority investor rights. Thirdly, we find that convergence toward diffuse share ownership is a movement towards the social optimum. Our empirical results suggest a case for the co-existence of path dependence and functional convergence (convergence to the diffuse form of share ownership through cross-listings on U.S. stock exchanges that impose more stringent disclosure and listing requirements). These results have implications for the design of executive compensation, the case for institutional investor activism and the proposal to increase shareholder power.
    Keywords: corporate governance; ownership concentration; institutions; quality of governance; path dependence; functional convergence
    JEL: G32 G34 O17
    Date: 2006–04–01
  17. By: Christian Bayer
    Abstract: In this paper a model of aggregate investment is derived, which incorporates fixed investment costs and capital market imperfections on the micro-level. Aggregate investment reacts nonlinearly with respect to aggregate shocks to productivity and liquidity of firms. Employing nonparamatric kernel estimation methods to analyse a sample of annual account data of UK companies, these nonlinearities also show up empirically. Furthermore a difference in strength between the long- and the short-run effect of liquidity on investment is found, which is inconsistent with models that solely explain the empirical correlation of investment and liquidity as the result of some long-run relationship like liquidity-dependent costs-of-capital or principal-agent problems.
  18. By: Ari Hyytinen; Mika Maliranta
    Keywords: entrepreneurship, occupation choice, mobility
    JEL: G14 G31 G32
    Date: 2006–06–05
  19. By: Vincent Bouvatier (Centre d'Economie de la Sorbonne); Laetitia Lepetit (LAPE, Université de Limoges)
    Abstract: A panel of 186 European banks is used for the period 1992-2004 to determine if banking behaviors induced by the capital adequacy constraint and the provisioning system, amplify credit fluctuations. Our finding is consistent with the bank capital channel hypothesis, which means that poorly capitalized banks are constrained to expand credit. We also find that loan loss provisions (LLP) made in order to cover identified credit losses (non discretionary LLP) amplify credit fluctuations. Indeed, non discretionary LLP evolve cyclically. This leads to a misevaluation of expected credit risk which affect banks' incentives to grant new loans since lending costs are misstated. By contrast, LLP use for management objectives (discretionary LLP) do not affect credit fluctuations. The findings of our research are consistent with the call for the implementation of dynamic provisioning in Europe.
    Keywords: Bank lending, loan loss provisions, capital requirement.
    JEL: G21
    Date: 2006–05
  20. By: Georg Metzger; Michaela Niefert
    Date: 2006–06
  21. By: Andrew B. Bernard; Stephen J. Redding; Peter K. Schott
    Abstract: This paper examines the frequency, pervasiveness and determinants of product switching among U.S. manufacturing firms. We find that two-thirds of firms alter their mix of five-digit SIC products every five years, that one-third of the increase in real U.S. manufacturing shipments between 1972 and 1997 is due to the net adding and dropping of products by survivors, and that firms are more likely to drop products which are younger and have smaller production volumes relative to other firms producing the same product. The product-switching behavior we observe is consistent with an extended model of industry dynamics emphasizing firm heterogeneity and self-selection into individual product markets. Our findings suggest that product switching contributes towards a reallocation of economic activity within firms towards more productive uses.
    JEL: D21 E23 L11 L60
    Date: 2006–06
  22. By: Uwe Cantner (University of Jena, Faculty of Economics); Andreas Meder (University of Jena, Faculty of Economics)
    Abstract: This paper provides empirical tests of hypotheses of cooperative behavior provided by evolutionary approaches in the resource-based view of the firm. The influences of "technological proximity", individual incentives to cooperate and managerial tools to the choice of research partner are analyzed. Using German patent data we can show the positive influence of those three determinants. The results of this paper confirm theories dealing with the path-dependency of research activities.
    Keywords: innovation, resource-based view of the firm, cooperation, technological proximity, organizational know-how
    JEL: C30 L14 O32
    Date: 2006–06–10

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