nep-bec New Economics Papers
on Business Economics
Issue of 2006‒08‒19
fourteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The Influence of Product Markets on Industrial Relations By William Brown
  2. Measuring and Explaining Management Practices Across Firms and Countries By Nick Bloom; John Van Reenen
  3. What Do Unions Do to CEO Compensation? By Rafael Gomez; Konstantinos Tzioumis
  4. Technology, Informationand the Decentralization of the Firm By Daron Acemoglu; Philippe Aghion; Claire Lelarge; John Van Reenen; Fabrizio Zilibotti
  5. On asymptotic failure rates in bivariate frailty competing risks models By Maxim S. Finkelstein; Veronica Esaulova
  6. Firm Reputation and Horizontanl Integration By Hongbin Cai; Ichiro Obara
  7. Unequal Pay or Unequal employment? A Cross-Country Analysis of Gender Gaps By Claudia Olivetti; B Petrongolo
  8. Estimation of the Default Risk of Publicly Traded Canadian Companies By Georges Dionne; Sadok Laajimi; Sofiane Mejri; Madalina Petrescu
  9. Off-Shoring of Business Services and De-Industrialization: Threat or Opportunity - and for Whom? By Frédéric Robert-Nicoud
  10. What Voice Do British Workers Want? By Alex Bryson; Richard Freeman
  11. Unions, Within-Workplace Job Cuts and Job Security Guarantees By Alex Bryson; Michael White
  12. Does diversification improve the performance of German banks? : Evidence from individual bank loan portfolios By Hayden, Evelyn; Porath, Daniel; von Westernhagen, Natalja
  13. Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization By Kirsten Foss; Nicolai J. Foss; Peter G. Klein
  14. Global Match: Helping Small Wineries Gain Access to Markets Worldwide By Susan Cholette

  1. By: William Brown
    Abstract: Product markets are the foundation on which industrial relations institutions are built. Trade union strength is partly dependent upon the state of the labour market, but it is imperfections in the product market that are the precondition of their winning benefits for their members. Sectoral agreements consequently formed the basis for collective bargaining in most industrialised countries. But international competition has destroyed this for much of the private sector. Quasi-markets have undermined it for much of the public sector. The paper assesses the empirical economic literature on the impact of product markets. It considers enthnographic insights into how competitive pressures feed through to managerial behaviour. It concludes with alternative strategies - co-operative bargaining, legislative intervention, and consumer campaigns - that seek to defend labour standards from competitive erosion.
    Keywords: product markets; John Commons; trade union power; collective bargaining; labour; wages; bargaining structure
    JEL: B52 M54 N34
    Date: 2006–08
  2. By: Nick Bloom; John Van Reenen
    Abstract: We use an innovative survey tool to collect management practice data from 732 medium sized manufacturingfirms in the US, France, Germany and the UK. These measures of managerial practice are strongly associatedwith firm-level productivity, profitability, Tobin's Q, sales growth and survival rates. Management practicesalso display significant cross-country differences with US firms on average better managed than Europeanfirms, and significant within-country differences with a long tail of extremely badly managed firms. We findthat poor management practices are more prevalent when (a) product market competition is weak and/or when(b) family-owned firms pass management control down to the eldest sons (primo geniture). European firmsreport lower levels of competition, while French and British firms also report substantially higher levels ofprimo geniture due to the influence of Norman legal origin and generous estate duty for family firms. Wecalculate that product market competition and family firms account for about half of the long tail of badlymanaged firms and up to two thirds of the American advantage over Europe in management practices.
    Keywords: management practices, productivity, competition, family firms
    JEL: L2 M2 O32 O33
    Date: 2006–03
  3. By: Rafael Gomez; Konstantinos Tzioumis
    Abstract: In this paper we estimate the relation between union presence within a firm and CEOcompensation, using a unique panel of publicly listed companies for the period 1992 to 2001.We find that, on average, union presence: 1) is significantly associated with lower levels oftotal CEO compensation; 2) affects the mix of CEO compensation by providing higher levels ofbase pay but much lower stock option values; 3) lowers dispersion across the majorcomponents of CEO remuneration and 4) does not significantly reduce the performancesensitivity of CEO compensation as compared to non-union firms. These results are consistentwith several models of union influence.
    Keywords: Unions, CEO compensation, implicit regulation
    JEL: J51 J33 M52 M54
    Date: 2006–05
  4. By: Daron Acemoglu; Philippe Aghion; Claire Lelarge; John Van Reenen; Fabrizio Zilibotti
    Abstract: This paper develops a framework to analyze the relationship between the diffusion of newtechnologies and the decentralization decisions of firms. Centralized control relies on theinformation of the principal, which we equate with publicly available information.Decentralized control, on the other hand, delegates authority to a manager with superiorinformation. However, the manager can use her informational advantage to make choices thatare not in the best interest of the principal. As the available public information about thespecific technology increases, the trade-off shifts in favour of centralization. We show thatfirms closer to the technological frontier, firms in more heterogeneous environments andyounger firms are more likely to choose decentralization. Using three datasets of French andBritish firms in the 1990s, we report robust correlations consistent with these predictions.
    Keywords: Decentralization, heterogeneity, learning, the theory of the firm
    JEL: O31 O32 O33 F23
    Date: 2006–05
  5. By: Maxim S. Finkelstein (Max Planck Institute for Demographic Research, Rostock, Germany); Veronica Esaulova
    Abstract: A bivariate competing risks problem is considered for a rather general class of survival models. The lifetime distribution of each component is indexed by a frailty parameter. Under the assumption of conditional independence of components the correlated frailty model is considered. The explicit asymptotic formula for the mixture failure rate of a system is derived. It is proved that asymptotically the remaining lifetimes of components tend to be independent in the defined sense. Some simple examples are discussed.
    JEL: J1 Z0
    Date: 2006–08
  6. By: Hongbin Cai; Ichiro Obara
    Date: 2006–08–11
  7. By: Claudia Olivetti; B Petrongolo
    Abstract: There is evidence of a negative cross-country correlation between gender wage and employment gaps. We arguethat non-random selection of women into work explains an important part of such correlation and thus of theobserved variation in wage gaps. The idea is that, if women who are employed tend to have relatively high-wagecharacteristics, low female employment rates may become consistent with low gender wage gaps simplybecause low-wage women would not feature in the observed wage distribution. We explore this idea across theUS and EU countries estimating gender gaps in potential wages. We recover information on wages for those notin work in a given year using alternative imputation techniques. Imputation is based on (i) wage observationsfrom nearest available waves in the sample, (ii) observable characteristics of the nonemployed and (iii) astatistical repeated-sampling model. We then estimate median wage gaps on the resulting imputed wagedistributions, thus simply requiring assumptions on the position of the imputed wage observations with respectto the median, but not on their level. We obtain higher median wage gaps on imputed rather than actual wagedistributions for most countries in the sample. However, this difference is small in the US, the UK and mostcentral and northern EU countries, and becomes sizeable in Ireland, France and southern EU, all countries inwhich gender employment gaps are high. In particular, correction for employment selection explains more thana half of the observed correlation between wage and employment gaps.
    Keywords: median gender gaps, sample selection, wage imputation
    JEL: E24 J16 J31
    Date: 2005–12
  8. By: Georges Dionne; Sadok Laajimi; Sofiane Mejri; Madalina Petrescu
    Abstract: Two models of default risk are prominent in the financial literature: Merton's structural model and Altman's non-structural model. Merton's structural model has the benefit of being responsive, since the probabilities of default can continually be updated with the evolution of firms' asset values. Its main flaw lies in the fact that it may over- or underestimate the probabilities of default, since asset values are unobservable and must be extrapolated from the share prices. Altman's nonstructural model, on the other hand, is more precise, since it uses firms' accounting data-but it is less flexible. In this paper, the authors investigate the hybrid contingent claims approach with publicly traded Canadian companies listed on the Toronto Stock Exchange. The authors' goal is to assess how their ability to predict companies' probability of default is improved by combining the companies' continuous market valuation (structural model) with the value given in their financial statements (non-structural model). The authors' results indicate that the predicted structural probabilities of default (PDs from the structural model) contribute significantly to explaining default probabilities when PDs are included alongside the retained accounting variables in the hybrid model. The authors also show that quarterly updates to the PDs add a large amount of dynamic information to explain the probabilities of default over the course of a year. This flexibility would not be possible with a non-structural model. The authors conduct a preliminary analysis of correlations between structural probabilities of default for the firms in their database. Their results indicate that there are substantial correlations in the studied data.
    Keywords: Debt management; Credit and credit aggregates; Financial markets; Recent economic and financial developments; Econometric and statistical methods
    JEL: G21 G24 G28 G33
    Date: 2006
  9. By: Frédéric Robert-Nicoud
    Abstract: This paper takes a new look at the issue of overseas sourcing of services. In framework in whichcomparative advantage is endogenous to agglomeration economies and factor mobility, thefragmentation of production made possible by the new communication technologies and lowtransportation costs allow global firms (multinational corporations or individual firms active in globalnetworks) to simultaneously reap the benefit of agglomeration economies in OECD countries and oflow wages prevailing in countries with an ever better educated labour force like India. Thus, thereduction of employment in some routine tasks in rich countries in a general equilibrium helps sustainand reinforces employment in the core competencies in such countries. That is, the loss of some jobspermits to retain the 'core competencies' in the 'core countries'. The welfare implications of thisanalysis are shown to be not as straightforward as in a neoclassical world.
    Keywords: Outsourcing, wage inequality, communication costs
    JEL: F02 F12 L22 R11
    Date: 2006–07
  10. By: Alex Bryson; Richard Freeman
    Abstract: The problems/need for representation and participation reported by workers vary acrossworkplaces and by types of jobs. Workers with greater workplace needs are more desirous ofunions but their preferences are fine-grained. Workers want unions to negotiate wages andwork conditions and for protection but do not see unions as helping them progress in theircareers. Many workers see no major workplace problems that would impel them to form orjoin unions. Unionism raises reported problems while firm-based non-union channels ofvoice reduce reported problems, but unions that work effectively with management and thosethat have sufficient strength to be taken seriously by management reduce the number ofproblems at union workplaces.
    Keywords: trades unions, worker voice, employment relations
    JEL: J51 J52 J53 J58
    Date: 2006–07
  11. By: Alex Bryson; Michael White
    Abstract: Using data from the Workplace Employment Relations Survey 1998, this paper shows thatunionisation increased the probability of within-workplace job cuts and the incidence of jobsecurity guarantees. As theory predicts, both are more prevalent among market-sectorworkplaces with higher union density and multi-unionism. Expectations that these effectswould be more muted in the public sector were also confirmed.
    Keywords: Job cuts, trade unions, job guarantees
    JEL: J23 J45 J51 J63
    Date: 2006–07
  12. By: Hayden, Evelyn; Porath, Daniel; von Westernhagen, Natalja
    Abstract: Should banks be diversified or focused? Does diversification indeed lead to enhanced performance and, therefore, greater safety for banks, as traditional portfolio and banking theory would suggest? This paper investigates the link between banks’ profitability (ROA) and their portfolio diversification across different industries, broader economic sectors and geographical regions measured by the Herfindahl Index. To explore this issue, we use a unique data set of the individual bank loan portfolios of 983 German banks for the period from 1996 to 2002. The overall evidence we provide shows that there are no large performance benefits associated with diversification since each type of diversification tends to reduce the banks’ returns. Moreover, we find that the impact of diversification depends strongly on the risk level. However, it is only for moderate risk levels and in the case of industrial diversification that diversification significantly improves the banks’ returns.
    Keywords: focus, diversification, monitoring, bank returns, bank risk
    JEL: G21 G28 G32
    Date: 2006
  13. By: Kirsten Foss; Nicolai J. Foss; Peter G. Klein
    Abstract: Recent work links entrepreneurship to the economic theory of firm using the Knightian concept of entrepreneurship as judgment. When judgment is complementary to other assets, and these assets or their services are traded in well-functioning markets, it makes sense for entrepreneurs to hire labor and own assets. The entrepreneur’s role, then, is to arrange or organize the human and capital assets under his control. We extend this Knightian concept of the firm by developing a theory of delegation under Knightian uncertainty. What we call original judgment belongs exclusively to owners, but owners may delegate a wide range of decision rights to subordinates, who exercise derived judgment. We call these employees “proxy-entrepreneurs,” and ask how the firm’s organizational structure — its formal and informal systems of rewards and punishments, rules for settling disputes and renegotiating agreements, means of evaluating performance, and so on — can be designed to encourage forms of proxy-entrepreneurship that increase firm value while discouraging actions that destroy value. Building on key ideas from the entrepreneurship literature, Austrian economics, and the economic theory of the firm we develop a framework for analyzing the tradeoff between productive and destructive proxy-entrepreneurship. We link this analysis to the employment relation and ownership structure, providing new insights into these and related issues in the economic theory of the firm.
    Keywords: Judgment; entrepreneur; delegation; employment relation; ownership
    JEL: B53 D23 L2
    Date: 2006
  14. By: Susan Cholette (San Francisco State University)
    Abstract: As the United States is predicted to become the world’s largest wine consuming nation by 2008 with consumers purchasing across all price segments, one might assume that Californian wineries should thrive in this market. However, regulations and consolidation effects often prevent small wineries from being able to reach the U.S. consumer and they face similar problems with exporting. These wineries must seek specialty distributors that represent lesser-known brands, usually by attending trade shows at great expense. In turn, specialty distributors face the daunting challenge of finding wineries that best satisfy their portfolios’ needs. Given this problematic situation, can one provide assistance to these parties in their quest for finding appropriate partners? While this question no doubt has many positive answers, the approach we have chosen to explore is to develop a web-based matching program. We ask wineries and distributors to submit their respective attributes and their needs via a web questionnaire. Operations research methodology is then used to algorithmically determine the most promising partnerships, subject to mutual fit and based on constraints of supply, demand and avoidance of conflicting matches. We summarize the results obtained from the initial iteration of the program, a pre-qualification service created for the World Wine Market, a San Francisco trade show in 2004. We provide some of the participant feedback, including testimonials from parties that were successfully matched through the program. We also analyze the results to determine why the program did not recommend a greater number of matches and used this information and other feedback to assist in the development of the next program iteration While the conceptual contribution of our research is in providing the first documented application of “assignment problems” to model the optimal placement of wines into the distribution tier, this paper focuses instead on the potential practitioner contributions to the wine industry. A functional web based matching program could provide many small wineries with a means to expand their representation into additional markets domestically and internationally. Even if only a small fraction of the recommended matches take place, the business return from participation has enormous potential. We discuss the current improvements, which being funded through a Business and International Education Grant from the U.S. Department of Education. We conclude with ideas for future research, including extending this program to a broader range of participants.
    Keywords: Wineries, Distributors, Exports, Matching, Optimization
    JEL: L14 C61
    Date: 2006–05

This nep-bec issue is ©2006 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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