nep-bec New Economics Papers
on Business Economics
Issue of 2006‒07‒21
eleven papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Liquidity Constraints, Household Wealth, and Entrepreneurship Revisited By Robert W. Fairlie; Harry A. Krashinsky
  2. Choice of Corporate Risk Management Tools under Moral Hazard By Jan Bena
  3. Les modèles Q-investissement et les modèles d'Euler : relations de banque principale, asymétries informationnelles et modifications des structures financières des firmes de keiretsu financier By Laurent Soulat
  4. Cross-Border Acquisitons and Target Firms' Performance: Evidence from Japanese Firm-Level Data By Kyoji Fukao; Keikok Ito; Hyeg Ug Kwon; Miho Takizawa
  5. A History of Canadian Recruitment of Highly Skilled Immigrants: Circa 1980-2001 By Don J. DeVoretz
  6. Insurance Sector Risk By Jan Frederik Slijkerman
  7. Early Retirement and Company Characteristics By Hernæs, Erik; Iskhakov, Fedor; Strøm, Steinar
  8. Innovation and the Determinants of Firm Survival By Hielke Buddelmeyer, Paul H. Jensen and Elizabeth Webster; Paul H. Jensen; Elizabeth Webster
  9. Does the Quality of Training Programs Matter? Evidence from Bidding Processes Data By Alberto Chong; Jose Galdo
  10. Centralization or Decentralization of Decision Rights? Impact on IT Performance of Firms By Takahito Kanamori; Kazuyuki Motohashi
  11. Organization of Multinational Activities and Ownership Structure By Mugele, Christian; Schnitzer, Monika

  1. By: Robert W. Fairlie (University of California, Santa Cruz and IZA Bonn); Harry A. Krashinsky (University of Toronto)
    Abstract: Hurst and Lusardi (2004) recently challenged the long-standing belief that liquidity constraints are important causal determinants of entry into self-employment. They demonstrate that the oft-cited positive relationship between entry rates and assets is actually unchanging as assets increase from the 1st to the 95th percentile of the asset distribution, but rise drastically after this point. They also apply a new instrument, changes in house prices, for wealth in the entry equation, and show that instrumented wealth is not a significant determinant of entry. We reinterpret these findings: first, we demonstrate that bifurcating the sample into workers who enter self-employment after job loss and those who do not reveals steadily increasing entry rates as assets increase in both subsamples. We argue that these two groups merit a separate analysis, because a careful examination of the entrepreneurial choice model of Evans and Jovanovic (1989) reveals that the two groups face different incentives, and thus have different solutions to the entrepreneurial decision. Second, we use microdata from matched Current Population Surveys (1993-2004) to demonstrate that housing appreciation measured at the MSA-level is a significantly positive determinant of entry into selfemployment. Our estimates indicate that a 10 percent annual increase in housing equity increases the mean probability of entrepreneurship by roughly 20 percent and that the effect is not concentrated at the upper tail of the distribution.
    Keywords: entrepreneurship, liquidity constraints, self-employment
    JEL: J23
    Date: 2006–07
  2. By: Jan Bena
    Abstract: This paper examines the choice of tools for managing a firm’s operational risks: cash reserves, insurance contracts, and financial assets under an optimal financing contract that solves moral hazard between insiders and outside investors. Risk management is valuable as it reduces the costs of raising external financing, increases debt capacity, lessens underinvestment, and improves welfare. I show that insurance is superior as it facilitates the outside financing relationship but leads to inefficient excessive continuation if used without coverage limits. When insurance against an operational risk is not available, the firm uses financial assets instead or resorts to holding cash reserves.
    Date: 2006–06
  3. By: Laurent Soulat (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], ESCEM - ESCEM Tours-Poitiers - [Groupe Ecole Supérieure de Commerce et de Management])
    Abstract: Cet article s'intéresse à l'évolution des structures financières des grandes firmes japonaises cotées à la première section du TSE sur la période 1990-1999. Il s'inscrit dans la continuité de la littérature sur les modèles Q-investissement : il étudie l'évolution de l'impact d'une affiliation à un keiretsu financier sur la sensibilité relative de l'investissement aux cash-flows. Les liens de banque principale étant traditionnellement supposés plus étroits pour les firmes affiliées, ils réduisent la contrainte de liquidité de ces firmes par rapport aux firmes indépendantes. Les résultats obtenus avec les modèles Q-investissements sont comparés à ceux provenant de l'utilisation de modèles Euler-investissement. En opposition avec les résultats la littérature économique établis sur des périodes antérieures, les firmes affiliées (quels que soient les modes de regroupement utilisés) présentent une sensibilité de l'investissement à leur richesse nette interne supérieure à celles des firmes indépendantes. La plus grande dépendance des investissements des firmes affiliées à leur capacité de financement n'est pas due à des évolutions contrastées entre les keiretsu financiers, mais résulte au contraire du degré de proximité de la firme avec le cœur du groupe (mesurée par l'appartenance à un Club des présidents) : les firmes membres des Clubs des présidents sont significativement plus dépendantes de leur richesse nette interne que les firmes affiliées non membres de Club. Ces résultats peuvent signaler que la dépendance bancaire des grandes firmes affiliées a diminué ou que les firmes les plus proches du noyau ont davantage contribuées à palier aux difficultés de leur banque principale.
    Keywords: Finance d'entreprise ; structure financière.
    Date: 2006–07–13
  4. By: Kyoji Fukao; Keikok Ito; Hyeg Ug Kwon; Miho Takizawa
    Abstract: Using Japanese firm-level data for the period from 1994-2002, this paper examines whether a firm is chosen as an acquisition target based on its productivity level, profitability and other characteristics and whether the performance of Japanese firms that were acquired by foreign firms improves after the acquisition. In our previous study for the Japanese manufacturing sector, we found that M&As by foreigners brought a larger and quicker improvement in total factor productivity (TFP) and profit rates than M&As by domestic firms. However, it may argued that firms acquired by foreign firms showed better performance simply because foreign investors acquired more promising Japanese firms than Japanese investors did. In order to address this potential problem of selection bias problem, in this study we combine a difference-in-differences approach with propensity score matching. The basic idea of matching is that we look for firms that were not acquired by foreign firms but had similar characteristics to firms that were acquired by foreigners. Using these firms as control subjects and comparing the acquired firms and the control subjects, we examine whether firms acquired by foreigners show a greater improvement in performance than firms not acquired by foreigners. Both results from unmatched samples and matched samples show that foreign acquisitions improved target firms' productivity and profitability significantly more and quicker than acquisitions by domestic firms. Moreover, we find that there is no positive impact on target firms' profitability in the case of both within-group in-in acquisitions and in-in acquisitions by domestic outsiders. In fact, in the manufacturing sector, the return on assets even deteriorated one year and two years after within-group in-in acquisition, while the TFP growth rate was higher after within-group in-in acquisitions than after in-in acquisitions by outsiders. Our results imply that in the case of within-group in-in acquisitions, parent firms may be trying to quickly restructure acquired firms even at the cost of deteriorating profitability.
    Keywords: FDI, TFP, Acquisition, Selection bias, Propensity score matching, Average treatment effect
    JEL: C14 D24 F21 F23
    Date: 2006–07
  5. By: Don J. DeVoretz (RIIM, Simon Fraser University and IZA Bonn)
    Abstract: This paper identifies the types of immigrants that Canada has recruited to foster modern Canadian economic development and assesses how effective Canada has been in recruiting and retaining these required immigrants in the 21st century. Evidence from both "balance of trade" and "balance of payments" exercises indicates that it is difficult to determine if there actually exist positive net inflows of managers and professionals during the 1982-2001 period. The entry of these highly skilled immigrants resulted from a series of distinct labour market policies adopted by Citizenship and Immigration Canada and its predecessor agencies. The paper presents evidence to support that between 1976-1990 a "tap on-tap off" policy admitted skilled immigrants to Canada only if a labour vacancy was anticipated. However, after 1990 tests reveal that the previous year’s economic immigrant admissions determined the contemporary immigrant flows with a 10 month lag. Offsetting this robust admission of economic immigrants in the 1990’s was the substantial outflows of previous Canadian immigrants as part of the rising phenomenon of "brain circulation". Of particular note is the large number of highly skilled Chinese who have returned to Hong-Kong after 1997. Given this "brain circulation" and the chronic underutilization of its highly trained immigrants I conclude that Canada’s traditional use of immigrants as an "engine of growth" is very limited in the 21st century and suggest recruitment of foreign graduate students to revitalize the role of immigrants in Canadian development.
    Keywords: immigration policy
    JEL: J61 J68
    Date: 2006–07
  6. By: Jan Frederik Slijkerman (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: We model and measure simultaneous large losses of the market value of insurers to understand the impact of shocks on the insurance sector. The downside risk of insurers is explicitly modelled by common and idiosyncratic risk factors. Since reinsurance is important for the capacity of insurers, we measure risk dependence among European insurers and reinsurers. The results point to a relatively low insurance sector wide risk. Dependence among insurers is higher than among reinsurers.
    Keywords: Systemic risk; asymptotic dependence
    JEL: G15 G22 G38
    Date: 2006–06–12
  7. By: Hernæs, Erik (The Ragnar Frisch Centre for Economic Research); Iskhakov, Fedor (The Ragnar Frisch Centre for Economic Research); Strøm, Steinar (Dept. of Economics, University of Oslo)
    Abstract: Early retirement decisions derived from a structural model with economic incentives and firm workforce changes, are estimated on Norwegian linked household and firm data. For households in which the wife is the first to become eligible for early retirement, the impact on early retirement of a reduction in the firm workforce is stronger relative to economic incentives than is the case for men, in particular in the private sector. Both for men and women, also an expansion of the firm workforce implies a higher retirement probability.The eligibility age in the early retirement programme has gradually been reduced from 66 in 1989 to 62 in 1998. We find that the economic incentives relative to the push factor have become more important, both for men and women, the lower the eligibility age is.
    Keywords: Early retirement; demand side and supply side factors; microeconometric models; heterogeneity
    JEL: C35 J26
    Date: 2006–06–14
  8. By: Hielke Buddelmeyer, Paul H. Jensen and Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research and Centre for Microeconometrics, The University of Melbourne and IZA Bonn); Paul H. Jensen (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Intellectual Property Research Institute of Australia, The University of Melbourne); Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Intellectual Property Research Institute of Australia, The University of Melbourne)
    Abstract: While many firms compete through the development of new technologies and products, it is well known that new-to-the-world innovation is inherently risky and therefore may increase the probability of firm death. However, many existing studies consistently find a negative association between innovative activity and firm death. We argue that this may occur because authors fail to distinguish between innovation investments and innovation capital. Using an unbalanced panel of over 290,000 Australian companies, we estimate a piecewise-constant exponential hazard rate model to examine the relationship between innovation and survival and find that current innovation investments increase the probability of death while innovation capital lowers it.
    Date: 2006–07
  9. By: Alberto Chong (Inter-American Development Bank); Jose Galdo (Syracuse University and IZA Bonn)
    Abstract: We estimate the effect of training quality on earnings using a Peruvian program, which targets disadvantaged youths. The identification of causal effects is possible because of two attractive features in the data. First, selection of training courses is based on public bidding processes that assign standardized scores to multiple proxies for quality. Second, the evaluation framework allows for the identification and comparison of individuals in treatment and comparison groups six, 12, and 18 months after the program. Using difference-indifferences kernel matching methods, we find that individuals attending high-quality training courses have higher average and marginal treatment impacts. External validity was assessed by using five different calls over a nine-year period.
    Keywords: training, quality, earnings, bidding, matching methods
    JEL: I38 H43 C13 C14
    Date: 2006–07
  10. By: Takahito Kanamori; Kazuyuki Motohashi
    Abstract: The effects of IT on the decision making structure of firms has been a topic of debate for decades. On the one hand, IT increases the information available to top management, and the coordination advantages that it provides may lead firms to centralize decision making. On the other hand, IT makes it possible to disseminate global information of the firm to line workers enabling them to make better decisions as well as enhances management's monitoring capability, favoring decentralization. In order to understand the economy wide effects of centralization and decentralization of decision rights on the productivity effect of IT, we conduct an empirical analysis to examine the change in the effects of IT performance in firms that changed its decision making structure, using a panel data set for 2,300 Japanese firms over 4 years. Our results indicate that both centralization and decentralization have a substantial productivity effect on IT for firms that changed its decision making structure and the productivity effects are more marked for firms that conducted radical change of decision rights. Moreover, we find evidence that changes in decision rights have a more pronounced productivity effect on large firms. Finally, our results show that productivity effects due to changes in decision rights are realized only in the non-manufacturing sectors. This paper sheds some light on the effects of decision rights on firms' IT performance and underscores the importance of organizational redesign accompanying IT investment.
    Date: 2006–07
  11. By: Mugele, Christian; Schnitzer, Monika
    Abstract: We develop a model in which multinational investors decide about the modes of organization, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous effect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads to more integration.
    Keywords: Multinationals; Joint ventures; Technology spillovers; Distance; Horizontal and vertical investments; Ownership structure
    JEL: F23 L24 L22 L23 D23
    Date: 2006–02

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