nep-bec New Economics Papers
on Business Economics
Issue of 2006‒09‒23
twelve papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Inside the Family Firm By Bennedsen, Morten; Nielsen, Kasper; Pérez-González, Francisco; Wolfenzon, Daniel
  2. Peers at Work By Alexandre Mas; Enrico Moretti
  3. Female Managers and their Wages in Central Europe By Stepán Jurajda; Teodora Paligorova
  4. What Makes a Die-Hard Entrepreneur? Beyond the ‘Employee or Entrepreneur’ Dichotomy By Andrew Burke; Felix FitzRoy; Michael A. Nolan
  5. The within-distribution business cycle dynamics of German firms By Döpke, Jörg; Weber, Sebastian
  6. The Speed of Employer Learning and Job Market Signaling Revisited By Steffen Habermalz
  7. On the Cyclicality of Labor Market Mismatch and Aggregate Employment Flows By Kenneth Beauchemin; Murat Tasci
  8. The Effect of Low-Wage Subsidies on Skills and Employment By Frank Oskamp; Dennis J. Snower
  9. Creative Destruction in Industries By Boyan Jovanovic; Chung-Yi Tse
  10. The Organization of Supply: a Vertical Equilibrium Analysis By Nadav Levy
  11. Governance matters V: aggregate and individual governance indicators for 1996 - 2005 By Kaufmann, Daniel; Kraay, Aart; Mastruzzi, Massimo
  12. Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data By Tomaso Duso; Klaus Gugler; Burcin Yurtoglu

  1. By: Bennedsen, Morten (Department of Economics, Copenhagen Business School); Nielsen, Kasper (Department of Economics, Copenhagen Business School); Pérez-González, Francisco (Department of Economics, Copenhagen Business School); Wolfenzon, Daniel (Department of Economics, Copenhagen Business School)
    Abstract: This paper uses a unique dataset from Denmark to investigate (1) the role of family characteristics in corporate decision making, and (2) the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or an external chief executive officer (CEO). We show that a departing CEO’s family characteristics have a strong predictive power in explaining CEO succession decisions: family CEOs are more frequently selected the larger the size of the family, the higher the ratio of male children and when the departing CEOs had only had one spouse. We then analyze the impact of family successions on performance. We overcome endogeneity and omitted variables problems of previous papers in the literature by using the gender of a departing CEO’s first-born child as an instrumental variable (IV) for family successions. This is a plausible IV as male first-child family firms are more likely to pass on control to a family CEO than female first-child firms, but the gender of the first child is unlikely to affect firms' performance. We find that family successions have a dramatic negative causal impact on firm performance: profitability on assets falls by at least 6 percentage points around CEO transitions. These estimates are significantly larger than those obtained using ordinary least squares. Finally, our findings demonstrate that professional nonfamily CEOs provide extremely valuable services to the organizations they work for.
    Keywords: Family firms; Successions; CEO turnover; governance
    JEL: G32 G34 M13
    Date: 2005–09–14
  2. By: Alexandre Mas (University of California, Berkeley and NBER); Enrico Moretti (University of California, Berkeley, NBER and IZA Bonn)
    Abstract: We investigate how and why the productivity of a worker varies as a function of the productivity of her co-workers in a group production process. In theory, the introduction of a high productivity worker could lower the effort of incumbent workers because of free riding; or it could increase the effort of incumbent workers because of peer effects induced by social norms, social pressure, or learning. Using scanner level data, we measure high frequency, worker-level productivity of checkers for a large grocery chain. Because of the firm‘s scheduling policy, the timing of within-day changes in personnel is unsystematic, a feature for which we find consistent support in the data. We find strong evidence of positive productivity spillovers from the introduction of highly productive personnel into a shift. A 10% increase in average co-worker permanent productivity is associated with 1.7% increase in a worker’s effort. Most of this peer effect arises from low productivity workers benefiting from the presence of high productivity workers. Therefore, the optimal mix of workers in a given shift is the one that maximizes skill diversity. In order to explain the mechanism that generates the peer effect, we examine whether effort depends on workers’ ability to monitor one another due to their spatial arrangement, and whether effort is affected by the time workers have previously spent working together. We find that a given worker’s effort is positively related to the presence and speed of workers who face him, but not the presence and speed of workers whom he faces (and do not face him). In addition, workers respond more to the presence of co-workers with whom they frequently overlap. These patterns indicate that these individuals are motivated by social pressure and mutual monitoring, and suggest that social preferences can play an important role in inducing effort, even when economic incentives are limited.
    Keywords: spillovers
    Date: 2006–09
  3. By: Stepán Jurajda (CERGE-EI, CEPR and IZA Bonn); Teodora Paligorova (CERGE-EI)
    Abstract: This paper examines the gender gaps in employment and wages among top- and lower-level managerial employees in a recent sample of Czech firms. Unlike the existing analyses of managerial gender pay gaps, we acknowledge the adverse consequences of the low and uneven representation of women for the Oaxaca-Blinder decomposition and offer an alternative set of results based on a matching procedure. Only 7% of top-level Czech managers are women and their wages are about 20 percent lower even when compared only to their comparable male colleagues.
    Keywords: managers, gender pay gap
    JEL: J31 J71 P31
    Date: 2006–09
  4. By: Andrew Burke (Cranfield University and Max Planck Institute of Economics); Felix FitzRoy (University of St Andrews and IZA Bonn); Michael A. Nolan (University of Hull)
    Abstract: The paper makes three contributions to the economics literature on entrepreneurship. We offer a new measure of entrepreneurship which accounts for variations in persistence in selfemployment and as a result avoids the weakness of approaches which categorise an individual as an entrepreneur by observing their occupation at just one point in their career. We outline an econometric methodology to account for this approach and find that it is superior to probit/logit models which have dominated the literature. While our results indicate that this existing literature is good at explaining an individual’s propensity to try selfemployment, we find that entrepreneurial persistence is determined by a different model and unearth some new insights into the roles of early career experience, finance, role models, gender and the unemployment push effect.
    Keywords: self-employment, entrepreneurial persistence, count data
    JEL: J23 C25
    Date: 2006–09
  5. By: Döpke, Jörg; Weber, Sebastian
    Abstract: We analyse stylised facts for Germany’s business cycle at the firm level. Based on longitudinal firm-level data from the Bundesbank’s balance sheet statistics covering, on average, 55,000 firms per year from 1971 to 1998, we estimate transition probabilities of a firm in a certain real sales growth regime switching to another regime in the next period, e.g. whether a firm that has witnessed a high growth rate is likely to stay in a regime of high growth or is bound to switch in a regime of low growth in the subsequent period. We find that these probabilities depend on the business cycle position.
    Keywords: business cycles, firm growth, Markov chains
    JEL: D21 D92 E32
    Date: 2006
  6. By: Steffen Habermalz (Northwestern University and IZA Bonn)
    Abstract: This paper discusses the claim made in Altonji and Pierret (1997) and Lange (2005) that a high speed of employer learning indicates a low value of job market signaling. The claim is first discussed intuitively in light of Spence’s original model and then evaluated in a simple extension of a model developed in Altonji and Pierret (1997). The analysis provided indicates that, if employer learning is incomplete, a high speed of employer learning is not necessarily indicative of a low value of job market signaling.
    Keywords: employer learning, signaling
    JEL: I20 D8 J41
    Date: 2006–09
  7. By: Kenneth Beauchemin; Murat Tasci
    Abstract: This paper combines a discrete-time dynamic general equilibrium articulation of the standard model of labor market search with observed U.S. time series measures on employment, vacancies, and aggregate output to uncover the cyclical properties of three unobserved forcing variables that comprise the exogenous state of the aggregate labor market: labor productivity, the rate of job separation, and the allocational efficiency of the labor market. We posit the latter variable to be inversely related to the degree of mismatch in the pool of searching workers and vacancies, given numbers of each, and identify its movements as scalar shifts in the standard matching function. Given that the model exactly reconciles observed net employment changes, our procedure also implies measured time series of the flows into and out of employment. We find that labor productivity, the job separation rate and allocational efficiency are all procyclical with the latter two highly variable. These cyclical patterns lead to procyclical implied gross employment flows, thereby concentrating labor force reallocation during booms. We discuss the implications for conventional views of business cycle fluctuations and for the standard search theories of labor market behavior.
    Date: 2005
  8. By: Frank Oskamp; Dennis J. Snower
    Abstract: We explore the far-reaching implications of low-wage subsidies on aggregate employment. Low-wage subsidies have three important effects. First, they promote employment of unskilled workers (who tend to be the ones who earn low wages). Second, by raising the payoff of unskilled work relative to skilled work, low-wage subsidies reduce the incentive to become skilled, so that there are more unskilled workers associated with a relatively low employment rate. Third, the government budget constraint has to be taken into account, which is supposed to cause an additional tax burden for the skilled workers. This amplifies the negative effect of low-wage subsidies on the incentive to acquire human capital. Thus, the first effect on the one hand and the second and third effect on the other hand pull in opposite directions in terms of employment. This paper presents a theoretical model of the labor market in which these effects can be analyzed. We then calibrate the model with respect to the German labor market to shed light on the relative strengths of these effects and thereby assess the degree to which low-wage subsidies encourage or discourage employment
    Keywords: low-wage subsidies; training incentives; employment; unemployment; skill acquisition
    JEL: I29 J21 J24 J31 J38
    Date: 2006–09
  9. By: Boyan Jovanovic; Chung-Yi Tse
    Abstract: Most industries go through a "shakeout" phase during which the number of producers in the industry declines. Industry output generally continues to rise, however, which implies a reallocation of capacity from exiting firms to incumbents and new entrants. Thus shakeouts seem to be classic creative destruction episodes. Shakeouts of firms tend to occur sooner in industries where technological progress is rapid. Existing models do not explain this. Yet the relation emerges naturally in a vintage-capital model in which shakeouts of firms accompany the replacement of capital, and in which a shakeout is the first replacement echo of the capital created when the industry is born. We fit the model to the Gort-Klepper data and to Agarwal's update of those data.
    JEL: L11
    Date: 2006–09
  10. By: Nadav Levy
    Abstract: In this paper I study how the make-or-buy decision of a firm depends on the organization of its peers. I consider a multi-firm framework in which firms choose whether to integrate into the supply of an intermediate input or to outsource its production, and choose the size of their supplier network if outsourcing. Firms find it optimal to share the same set of suppliers, as there are economies of scope in investment to suppliers taking multiple designs. These economies are due to spillovers of technical or operational know-how between projects and to savings in the setup costs on physical capital. The model admits multiple vertical equilibria that are Pareto-ranked, the one with the highest level of outsourcing being most efficient. Outsourcing is more likely in larger markets and when the economies of scope are stronger. The size of the optimal supplier network however typically decreases when the spillovers are stronger. These findings provide insight into the patterns of reorganization of vertical supply relations observed over the last two decades.
    Keywords: Outsourcing, Vertical Integration, Spillovers, Supply relations creation-date: 2004
    JEL: L22 D23
  11. By: Kaufmann, Daniel; Kraay, Aart; Mastruzzi, Massimo
    Abstract: The authors report on the latest version of the worldwide governance indicators, covering 213 countries and territories and measuring six dimensions of governance from 1996 until end-2005: voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. The latest indicators are based on hundreds of variables and reflect the views of thousands of citizen and firm survey respondents and experts worldwide. Although global averages of governance display no marked trends during 1996-2005, nearly one-third of countries exhibit significant changes [for better or for worse] on at least one dimension of governance. Three new features distinguish this update. (1) The authors have moved to annual reporting of governance estimates. This update includes new governance estimates for 2003 and 2005, as well as minor backward revisions to biannual historical data for 1996-2004. (2) The authors are, for the first time, publishing the individual measures of governance from virtually every data source underlying the aggregate governance indicators. The ready availability of the individual data sources underlying the aggregate governance indicators is aimed at further enhancing the transparency of the methodology and of the resulting aggregate indicators, as well as helping data users and policymakers identify specific governance challenges in individual countries. (3) The authors present new evidence on the reliability of expert assessments of governance which, alongside survey responses, form part of the aggregate measures of governance.
    Keywords: Governance Indicators,National Governance,Economic Policy, Institutions and Governance,Statistical & Mathematical Sciences,Scientific Research & Science Parks
    Date: 2006–09–01
  12. By: Tomaso Duso (Humboldt University Berlin and WZB,; Klaus Gugler (University of Vienna,; Burcin Yurtoglu (University of Vienna,
    Abstract: Using a sample of 167 mergers during the period 1990-2002 involving 544 firms either as merging firms or competitors, we contrast a measure of the merger’s profitability based on event studies with one based on accounting data. We find positive and significant correlations between them when using a long window around the announcement date and, for rivals, in case of anticompetitive mergers.
    Keywords: Mergers, Merger Control, Event Studies, Ex-post Evaluation
    JEL: L4 K21 G34
    Date: 2006–09

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