nep-bec New Economics Papers
on Business Economics
Issue of 2006‒10‒21
thirteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Entrepreneurial Innovations, Competition and Competition Policy By Norbäck, Pehr-Johan; Persson, Lars; Vlachos, Jonas
  2. Why do capital intensive companies pay higher wages? By Virén , Matti
  3. Team Incentives in Relational Employment Contracts By Kvaløy, Ola; Olsen, Trond E.
  4. Decomposing the co-movement of the business cycle: a time-frequency analysis of growth cycles in the euro area By Crowley , Patrick; Lee , Jim
  5. Macroeconomic fluctuations and firm entry : theory and evidence By Vivien Lewis
  6. What is a project: Early perceptions By Piñeiro, Erik
  7. What is a project: Functions of an estimate By Piñeiro, Erik
  8. Financial Distress and Idiosyncratic Volatility: An Empirical Investigation By Chen, Jing; Chollete, Lorán
  9. Technological Progress in Races for Product Supremacy By Nguyen, Thang
  10. Management of Knowledge Workers By Hvide, Hans K.; Kristiansen, Eirik G.
  11. Industry wage differentials, unobserved ability, and rent-sharing : Evidence from matched worker-firm data, 1995-2002 By Robert Plasman; François Rycx; Ilan Tojerow
  12. The cyclical behaviour of European bank capital buffers By Jokipii, Terhi; Milne , Alistair
  13. 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: Norbäck, Pehr-Johan (Research Institute of Industrial Economics); Persson, Lars (Research Institute of Industrial Economics); Vlachos, Jonas (Research Institute of Industrial Economics)
    Abstract: We show that, in the case when innovations are for sale, increased product market competition, captured by reduced product market profits, can increase the incentives for innovations. The reason is that the incentive to innovate depends on the acquisition price which, in turn, might increase despite firms in the market making lower profits. We also show that stricter, but not too strict, merger and cartel policies tend to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation and by increasing the relative profitability of being the most efficient firm in the industry. Moreover, it is shown that increased intensity of competition can increase the relative profitability of innovation for sale, relative to innovation for entry.
    Keywords: Acquisitions; Entrepreneurship; Innovation; Competition
    JEL: G34 L13 L22 M13 O31
    Date: 2006–09–22
  2. By: Virén , Matti (University of Turku and Bank of Finland)
    Abstract: An obvious answer to this question is the capital-skill complementarity hypothesis originally proposed by Zwi Griliches (1969). But the relatively poor performance of this hypothesis suggests that other explanations are needed. Here we consider the labour union behaviour in the wage bargaining process as such an alternative. The explanation is based on the observation that capital intensive companies are more vulnerable to strike threats and may thus more easily give in for union wage demand. Thus, the bargaining power of unions is related to the capital-labour ratio. This paper provides some tests for these hypotheses with panel data for Finnish companies. The results give support to the wage bargaining hypothesis.
    Keywords: wages; bargaining; wage distribution; panel data
    JEL: J31 J51
    Date: 2005–02–13
  3. By: Kvaløy, Ola (Norsk hotellhøgskole, Institutt for økonomi og ledelse, University of Stavanger); Olsen, Trond E. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: The paper analyzes conditions for implementing incentive schemes based on, respectively joint, relative and independent performance, in a relational contract between a principal and a team of two agents. A main result is that the optimal incentive regime depends on the productivity of the agents, or more precisely on the returns from high effort. This occurs because agents’ productivities affect the principal’s temptation to renege on the relational contract. The analysis suggests that we will see a higher frequency of relative performance evaluation (RPE) - and schemes that lie close to independent performance evaluation - as we move from low-productive to high-productive environments. In particular, it is shown that if effort-productivity is sufficiently high, the optimal scheme for the principal is (for a range of discount factors) a collusion-proof RPE scheme, even if there is no common shock that affects the agents’ output.
    Keywords: Incentive schemes; joint performance; relative and independent performance; relational contracts
    JEL: J41
    Date: 2005–10–12
  4. By: Crowley , Patrick (Bank of Finland Research and College of Business, Texas A&M University); Lee , Jim (College of Business, Texas A&M University)
    Abstract: This article analyses the frequency components of European business cycles using real GDP by employ-ing multiresolution decomposition (MRD) with the use of maximal overlap discrete wavelet transforms (MODWT). Static wavelet variance and correlation analysis is performed, and phasing is studied using co-correlation with the euro area by scale. Lastly dynamic conditional correlation GARCH models are used to obtain dynamic correlation estimates by scale against the EU to evaluate synchronicity of cycles through time. The general findings are that euro area members fall into one of three categories: i) high and dynamic correlations at all frequency cycles (eg France, Belgium, Germany), ii) low static and dy-namic correlations, with little sign of convergence occurring (eg Greece), and iii) low static correlation but convergent dynamic correlations (eg Finland and Ireland).
    Keywords: business cycles; growth cycles; European Union; multiresolution analysis; wavelets; co-correlation; dynamic correlation
    JEL: C65 E32 O52
    Date: 2005–05–11
  5. By: Vivien Lewis (Center for Economic Studies, Catholic University Leuven)
    Abstract: This paper studies the behaviour of firm entry and exit in response to macroeconomic shocks. We formulate a dynamic stochastic general equilibrium model with an endogenous number of producers. From the calibrated model, we derive a minimum set of robust sign restrictions to identify four kinds of macroeconomic shocks in a vector autoregression, namely supply, demand, monetary and entry cost shocks. The variables entering the VAR are output, inflation, the nominal interest rate, profits and firm entry. The response of firm entry to the various shocks is freely estimated. Our main finding is that entry responds significantly to all types of shocks. The results also show a crowding-in of firm entry following an exogenous rise in demand, consistent with the effect of a consumption preference shock predicted by the model
    Keywords: firm entry, VAR, business cycles
    JEL: E30 E32
    Date: 2006–10
  6. By: Piñeiro, Erik
    Date: 2006–01–01
  7. By: Piñeiro, Erik
    Date: 2006–01–01
  8. By: Chen, Jing (Columbia University, Graduate School of Business); Chollete, Lorán (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: We address the twin puzzles of anomalously low returns for high idiosyncratic volatility and high distress risk stocks, documented by Ang, Hodrick, Xing and Zhang (2006) and Campbell, Hilscher and Szilagyi (2005), respectively. We accomplish two objectives in this study. First, we investigate the link between idiosyncratic volatility and distress risk and find that the idiosyncratic volatility effect exists only conditionally on high distress risk. Second, using a corrected single-beta CAPM model, we provide a rational explanation for the twin puzzles. Joint statistical tests cannot reject the null hypothesis of zero abnormal returns across the idiosyncratic volatility and distress risk portfolios, for the corrected model.
    Keywords: Distress risk; idiosyncratic volatility; single-beta CAPM
    JEL: C12
    Date: 2006–08–04
  9. By: Nguyen, Thang
    Abstract: How does market organization affect quality innovation efforts and social welfare? Three stochastic dynamic market structures considered are monopoly, duopoly, and social planning. Products can be either linearly or nonlinearly substitutable. The introduction of a step function allows richer innovation strategies. First, given nonlinear substitution, a duopoly may follow an unbalanced evolution path and have a technology frontier not dominated by that in social planning. This result does not hold for the linear substitution case. Second, ex ante and long-run welfare values are always the highest in social planning and the lowest in monopoly. Thus, policies should encourage static and dynamic competition.
    Keywords: R&D; quality innovation; product supremacy
    JEL: L13 D43 L15 D92 O31 D21
    Date: 2004–05–01
  10. By: Hvide, Hans K. (University of Aberdeen Business School); Kristiansen, Eirik G. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We study how complementarities and intellectual property rights affect the management of knowledge workers. The main results relay when a firm will wish to sue workers that leave with innovative ideas, and the effects of complementary assets on wages and on worker initiative. We argue that firms strongly protected by property rights may not sue leaving workers in order to motivate effort, while firms weakly protected by complementary assets must sue in order to obtain positive profits. Firms with more complementary assets pay higher wages (and have lower turnover), but such higher pay has a detrimental effect on worker initiative. Our analysis suggests that strengthened property rights protection reduces turnover costs but weakens worker initiative.
    Keywords: Entrepreneurship; Innovation; IPP; Litigation; Personnel economics; R&D; Start-ups
    JEL: K41 M13 M50 O32
    Date: 2006–08–04
  11. By: Robert Plasman (Université Libre de Bruxelles, Department of Applied Economics (DULBEA)); François Rycx (Université Libre de Bruxelles, Department of Applied Economics (DULBEA); IZA-Bonn); Ilan Tojerow (Université Libre de Bruxelles, Department of Applied Economics (DULBEA); IZA-Bonn)
    Abstract: This paper investigates inter-industry wage differentials in Belgium, taking advantage of access to a unique matched employer-employee data set covering the period 1995-2002. Findings show the existence of large and persistent wage differentials among workers with the same observed characteristics and working conditions, employed in different sectors. The hypothesis that workers with better unmeasured abilities are over-represented in high-wage sectors may not be rejected on the basis of Martins’ (2004) methodology. However, the contribution of this explanation to the observed industry wage differentials appears to be limited. Further results show that ceteris paribus, workers earn significantly higher wages when employed in more profitable firms. Our instrumented wage-profit elasticity stands at 0.063 and Lester’s range of pay is about 41 per cent of the mean wage. This rent-sharing phenomenon accounts for a large fraction of the industry wage differentials. We find indeed that the magnitude, dispersion and significance of industry wage differentials decreases sharply when controlling for profits.
    Keywords: Industry wage differentials; Unobserved heterogeneity; Rent-sharing; Matched employer-employee data; Quantile regressions
    JEL: D31 J31 J41
    Date: 2006–10
  12. By: Jokipii, Terhi (Bank of Finland Research); Milne , Alistair (Bank of Finland and Cass Business School London)
    Abstract: Using an unbalanced panel of commercial, savings and co-operative banks for the years 1997 to 2004 we examine the cyclical behaviour of European bank capital buffers. After controlling for other potential de-terminants of bank capital, we find that capital buffers of the banks in the accession countries (RAM) have a significant positive relationship with the cycle, while for those in the EU15 and the EA and the combined EU25 the relationship is significantly negative. We additionally find fairly slow speeds of ad-justment, with around two-thirds of the correction towards desired capital buffers taking place each year. We further distinguish by type and size of bank, and find that capital buffers of commercial and savings banks, and also of a sub-sample of large banks, exhibit negative co-movement. Co-operative banks and smaller banks on the other hand, tend to exhibit positive cyclical co-movement.
    Keywords: bank capital; bank regulation; business cycle fluctuations
    JEL: G21 G28
    Date: 2006–09–27
  13. By: Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
    Abstract: We use 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. <br> <br> <i>ZUSAMMENFASSUNG - (Ist die "event study" Methodologie nützlich für die Analyse von Fusionen? Ein Vergleich von Aktienmärkte und Bilanzdaten) <br> Wir analysieren eine Stichprobe von 167 Fusionen, die zwischen 1990 und 2002 stattgefunden haben und welche 544 Unternehmen -entweder als fusionierende Parteien oder als Wettbewerber- involviert haben. Wir vergleichen eine auf "event studies" basierende Rentabilitätsmaß der Fusion zu einer alternativen Maß, die durch Bilanzdaten konstruiert wurde. Wir finden, dass diese zwei maße positiv und signifikant korrelieren besonders wenn wir ein langes Fenster um die Fusionsankündigung in dem "event study" benutzen.</i>
    Keywords: Mergers, Merger Control, Event Studies, Ex-post Evaluation
    JEL: L4 K21 G34
    Date: 2006–09

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