nep-bec New Economics Papers
on Business Economics
Issue of 2006‒11‒18
thirteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics By Andy Snell; Jonathan Thomas
  2. A Simple Model of Performance-enhancing Goals By Daniel Léonard; Ngo Van Long; Antoine Soubeyran
  3. Academic entrepreneurship, patents, and spin-offs: critical issues and lessons for Europe By Chiara Franzoni; Francesco Lissoni
  4. The Effects of Short-Term Liabilities on Profitability : The Case of Germany By Christopher F. Baum; Dorothea Schäfer; Oleksandr Talavera
  5. Small-Scale Business Survival and Inheritance : Evidence from Germany By Dorothea Schäfer; Oleksandr Talavera
  6. The Effects of Industry-Level Uncertainty on Cash Holdings : The Case of Germany By Christopher F. Baum; Dorothea Schäfer; Oleksandr Talavera
  7. Firm Investment and Financial Frictions By Christopher F. Baum; Mustafa Caglayan; Oleksandr Talavera
  8. Two Flaws In Business Cycle Accounting By Lawrence J. Christiano; Joshua M. Davis
  9. Complex Ownership Structures and Corporate Valuations By Luc Laeven; Ross Levine
  10. Upstream Horizontal Mergers, Bargaining and Vertical Contracts By Chrysovalantou Miliou; Emmanuel Petrakis
  11. Downstream Research Joint Venture with Upstream Market Power By Constantine Manasakis; Emmanuel Petrakis
  12. Royalties vs. fees: How do firms pay for foreign technology? By Sharmila Vishwasrao
  13. The Efect of Relationship Lending on Firm Performance By Judit Montoriol

  1. By: Andy Snell; Jonathan Thomas
    Abstract: This paper analyses a model in which firms cannot pay discriminate based on year of entry to a firm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages do not necessarily clear the labour market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.
    Keywords: labour contracts, business cycle, unemployment, equal treatment, cohort effects
    JEL: E32 J41
    Date: 2006
  2. By: Daniel Léonard; Ngo Van Long; Antoine Soubeyran
    Abstract: We show that goal setting influences effort level, and that an appropriately set goal can enhance performance. We derive an inverted U-shaped relationship between the goal and the effort level. We then extend the model to a two-period framework, and demonstrate that the goal level set for period 1, together with success or failure, can affect the self-confidence level in period two, which in turn influences period-two optimal goal, effort, and performance. The optimal choice of period-one goal to maximize period-two payoff is derived, under alternative assumptions about the relationship between the goal setter and the (potential) goal achiever. <P>Nous montrons que les objectifs choisis influencent le niveau d’effort et qu’un objectif bien choisi peut améliorer les performances. Nous déduisons une relation ‘en forme de cloche’ entre l’objectif et l’effort. Nous généralisons le modèle en introduisant une seconde période et démontrons que l’objectif choisi pour la première période influence le moral dans la deuxième période, et de là l’effort, l’objectif choisi et la performance en deuxième période. Les choix optimaux des objectifs sont caractérisés sous différentes hypothèses à propos des relations entre celui qui choisit l’objectif (l’entraîneur) et celui qui tente de l’atteindre (l’athlète).
    Keywords: confidence, effort, performance, success, effort, moral, performance, succès
    Date: 2006–11–01
  3. By: Chiara Franzoni (A. Young School of Policy Studies, Georgia State University, USA); Francesco Lissoni (Università di Brescia and CESPRI-Università Commerciale Bocconi, Milano, Italy)
    Abstract: The paper proposes a definition of “academic entrepreneur” which draws from draws from the economics, history, and sociology of science. Academic entrepreneurs are scientists with a brilliant scientific record, who build their careers through discipline-building, the creation and of new labs and teams, and an appetite for the economic resources necessary to pursue those goals. Long-standing institutional features of national university systems explain to what extent commercial activities may or may not help academic entrepreneurs to progress in their careers. European policies for technology transfer should address these features, rather than aiming straight at university patenting and firm creation.
    Keywords: Academic entrepreneurship, Technology transfer
    JEL: I23 M13 O31
    Date: 2006–09
  4. By: Christopher F. Baum; Dorothea Schäfer; Oleksandr Talavera
    Abstract: Using data from Germany this paper examines the direct effect of non-financial firms' use of short-term versus long-term liabilities. We develop a structural model of a firm's value maximization problem that predicts that profitability of the firm will change if firms alter their use of short-term versus long-term liabilities. We find that firms that rely more heavily on short-term liabilities are likely to be more profitable.
    Keywords: profitability, short-term liabilities, maturity structure, capital structure
    JEL: G32 G30
    Date: 2006
  5. By: Dorothea Schäfer; Oleksandr Talavera
    Abstract: In this paper we investigate whether small-scale businesses face financial constraints that affect their survival. We develop a model of moral hazard in which financial constraints arise endogenously. The model predicts that higher private assets relax financial constraints and have a positive effect on the firm's probability of survival. We test this proposition using German Socio-Economic Panel (GSOEP) data, which cover the period 1984-2004. The release from financial constraints is measured by inheritance. The empirical analysis confirms that the entrepreneur has a higher propensity to stay in business when she inherits capital. This effect is particularly strong for entrepreneurs that switch from self-employment into wage employment. These results are consistent with hypothesis that financial frictions have a perceptible impact on bankruptcy among small business firms.
    Keywords: Entrepreneurship, survival, financial constraints
    JEL: G30 J20 L10
    Date: 2006
  6. By: Christopher F. Baum; Dorothea Schäfer; Oleksandr Talavera
    Abstract: This paper investigates the link between the optimal level of non-financial firms' liquid assets and industry-level uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as industry-level uncertainty increases the firm will increase its optimal level of liquidity. We test this hypothesis using a panel of German firms drawn from the Bundesbank's balance sheet database and show that greater uncertainty at the industry level causes firms to increase their cash holdings. The strength of these effects differ among subsamples of the firms with different characteristics.
    Keywords: Uncertainty, cash holdings, liquidity, non-financial firms
    JEL: G31 G32 L14
    Date: 2006
  7. By: Christopher F. Baum; Mustafa Caglayan; Oleksandr Talavera
    Abstract: In this paper we investigate the analytical and empirical linkages between firms' capital investment behavior and financial frictions arising from asymmetric information, proxied by firms' liquidity and degree of uncertainty. Measures of intrinsic and extrinsic uncertainty are derived from firms' daily stock returns and S&P 500 index returns along with a CAPM-based risk measure. We employ a panel of U.S. manufacturing firm data obtained from COMPUSTAT over the 1984-2003 period. Financial frictions captured by interactions between firms' cash flow and both intrinsic and CAPM-based measures of uncertainty have a significant negative impact on firms' investment spending, while extrinsic uncertainty has a positive impact.
    Keywords: capital investment, asymmetric information, financial frictions, uncertainty, CAPM
    JEL: E22 D81 C23
    Date: 2006
  8. By: Lawrence J. Christiano; Joshua M. Davis
    Abstract: Using 'business cycle accounting' (BCA), Chari, Kehoe and McGrattan (2006) (CKM) conclude that models of financial frictions which create a wedge in the intertemporal Euler equation are not promising avenues for modeling business cycle dynamics. There are two reasons that this conclusion is not warranted. First, small changes in the implementation of BCA overturn CKM's conclusions. Second, one way that shocks to the intertemporal wedge impact on the economy is by their spillover effects onto other wedges. This potentially important mechanism for the transmission of intertemporal wedge shocks is not identified under BCA. CKM potentially understate the importance of these shocks by adopting the extreme position that spillover effects are zero.
    JEL: C32 C52
    Date: 2006–10
  9. By: Luc Laeven; Ross Levine
    Abstract: The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: 100 percent small shareholders or one large, controlling owner combined with small shareholders. In this paper, we question the empirical validity of this dichotomy. In fact, one-third of publicly listed firms in Europe have multiple large owners, and the market value of firms with multiple blockholders differs from firms with a single large owner and from widely-held firms. Moreover, the relationship between corporate valuations and the distribution of cash-flow rights across multiple large owners is consistent with the predictions of recent theoretical models.
    JEL: G3 G32 G34
    Date: 2006–11
  10. By: Chrysovalantou Miliou (Department of Economics, Universidad Carlos III de Madrid, Calle Madrid 126, Getafe (Madrid)); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not always have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains.
    Keywords: horizontal mergers; bargaining; vertical relations; two-part tariffs; wholesale
    JEL: L41 L42 L22
    Date: 2005–03
  11. By: Constantine Manasakis (Department of Economics, University of Crete, Greece); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: In this paper, we examine how the structure of an imperfectly competitive input market affects final-good producers’ incentives to form a Research Joint Venture (RJV), in a differentiated duopoly where R&D investments exhibit spillovers. Although a RJV is always profitable, downstream firms’ incentives for R&D cooperation are non-monotone in the structure of the input market, with incentives being stronger under a monopolistic input supplier, whenever spillovers are low. In contrast to the hold-up argument, we also find that under non-cooperative R&D investments and weak free-riding, final-good producers invest more when facing a monopolistic input supplier, compared with investments under competing vertical chains. Integrated innovation and competition policies are also discussed.
    Keywords: Oligopoly; Process Innovations, Research Joint Ventures
    JEL: L13 O31
    Date: 2005–09
  12. By: Sharmila Vishwasrao (Department of Economics, College of Business, Florida Atlantic University)
    Abstract: The theoretical determinants of technology licensing contracts have been extensively studied but empirical evidence is scarce. We assemble a data set of all the foreign technology licensing agreements entered into by manufacturing firms in India between 1989 and 1993. Industry, firm, and contract characteristics are used to explain differences between the forms of payment in licensing contracts. Our findings support theoretical arguments; licensing contracts are more likely to use royalties when sales are relatively high, while increased volatility of sales and greater profitability favor fixed fee contracts. We also find that firms are more likely to use output based payments to control the sale and diffusion of R&D or brand intensive know-how to unaffiliated firms.
    Keywords: Technology transfer; licensing contracts
    JEL: F23 L14 L24 O32
    Date: 2004–10
  13. By: Judit Montoriol (Department of Business Economics, Universitat Autonoma de Barcelona)
    Abstract: We examine how relationship lending affects firm performance using a panel dataset of about 70,000 small and medium Spanish firms in the period 1993-2004. We model firm performance jointly with the firm's choice of the number of bank relationships. Controlling for firm fixed effects and using instrumental variables for the decision on the number of bank relationships, we found that firms maintaining exclusive bank relationships have lower profitability. The result is consistent with the view that banks appropriate most of the value generated through close relationships with its borrowers as long as they do not face competition from other lenders
    Date: 2006–06

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.