nep-bec New Economics Papers
on Business Economics
Issue of 2006‒12‒01
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Uncertainty Determinants of Corporate Liquidity By Christopher F. Baum; Mustafa Caglayan; Andreas Stephan; Oleksandr Talavera
  2. Entrepreneurs, HRM Orientations and Environmental Fit: A UK-Japan Comparison in High Tech Manufacturing By Hugh Whittaker; Philippe Byosiere; Junpe Higuchi; Thelma Quince
  3. Profitability of Horizontal Mergers in Trigger Strategy Game By CESI BERARDINO
  4. Balancing the Roles of Business Unit Controllers. an An empiricial investigation in the Netherlands. By Hans ten Rouwelaar
  5. Current State of Cross-Border Banking By Christiaan van Laecke; Dirk Schoenmaker
  6. The Impact on Productivity and Efficiency of US Listed Companies By BECCHETTI LEONARDO; DI GIACOMO STEFANIA; PINNACCHIO DAMIANO
  7. How Does Opportunistic Behavior Influence Firm Size? By Christian Cordes; Peter J. Richerson; Richard McElreath; Pontus Strimling
  8. The Economics of the “Trust Game Corporation" By BECCHETTI LEONARDO; PACE NOEMI
  9. The long-term operating performance of European mergers and acquisitions By Martynova,Marina; Oosting,Sjoerd; Renneboog,Luc
  10. Vintage Capital and Expectations Driven Business Cycles By Floden, Martin
  11. Nouvelles Technologies et Nouvelles Formes d'Organisation du Travail : Quelles conséquences pour l'emploi des salariés âgés ? By Aubert Patrick; Caroli Eve; Roger Muriel
  12. Modelling the Longitudinal Properties of Financial Ratios of European Firms By Stuart McLeay; Maxwell Stevenson
  13. Banks' procyclicality behavior : does provisioning matter ? By Vincent Bouvatier; Laetitia Lepetit
  14. How to manage people who think. A structural approach. By Beckerman, Carina
  15. De la construction à l'usage des règles de gestion des compétences : quelle innovation ? By Laurence Baraldi; William Cavestro; Christine Durieux
  16. Private Observation, Tacit Collusion and Collusion with Communication By Mouraviev, Igor
  17. Corporate social responsibility and profit maximising behaviour under consumer tastes uncertainty By BECCHETTI LEONARDO; GIALLONARDO LUISA; TESSITORE MARIA ELISABETTA
  18. Ex Post and Ex Ante Coordination: Principles of Coherence in Organizations and Markets By David Cayla
  19. Entrepreneurship and Economic Growth: An Empirical Analysis By Héctor Salgado-Banda
  20. Does Credit Risk Vary with Economic Cycles? The Case of Finland By Petr Jakubík
  21. Returns to equity, investment and Q: evidence from the United Kingdom By Simon Price; Christoph Schleicher
  22. Investment-Cash Flow Sensitivities, credit rationing and financing constraints By BECCHETTI LEONARDO; CASTELLI ANNALISA; HASAN IFTEKHAR

  1. By: Christopher F. Baum; Mustafa Caglayan; Andreas Stephan; Oleksandr Talavera
    Abstract: This paper investigates the link between the optimal level of non-financial firms' liquid assets and uncertainty. We develop a partial equilibrium model of precautionary demand for liquid assets showing that firms alter their liquidity ratio in response to changes in either macroeconomic or idiosyncratic uncertainty. We test this hypothesis using a panel of non-financial US firms drawn from the COMPUSTAT quarterly database covering the period 1993-2002. The results indicate that firms increase their liquidity ratios when macroeconomic uncertainty or idiosyncratic uncertainty increases.
    Keywords: liquidity, uncertainty, non-financial firms, dynamic panel data
    JEL: C23 D8 D92 G32
    Date: 2006
  2. By: Hugh Whittaker; Philippe Byosiere; Junpe Higuchi; Thelma Quince
    Abstract: Entrepreneurs cannot develop a business single handedly. One of the most important tasks the entrepreneur faces is to recruit, allocate work to, motivate and retain employees who will help the business to grow. Based on survey data, this paper examines the HRM orientations of UK and Japanese high tech manufacturing entrepreneurs, and identifies fundamentally different approaches to these tasks, at least as expressed by the entrepreneurs. The UK entrepreneurs espouse an employment relationship based on 'give and take' flexibility, while the Japanese entrepreneurs are more focused on raising or nurturing their employees. Reasons for the differences are explored, and relate to the entrepreneurs' backgrounds, as well as the business and social environment. Implications for the 'new employment relationship' are explored.
    Keywords: Entrepreneurship; HR management; High-tech small firms
    JEL: L60 M12 M13 M14 M50
    Date: 2006–09
    Abstract: It is shown that, in a dynamic competition, an exogenous horizontal merger is profitable even if a small share of active firms merge. However, each firm has incentive to remain outside the merger because it would benefit more (Insiders' dilemma). We show that in an infinite repeated game in which the firms use trigger strategies an exogenous bilateral merger can be profitable and the Insiders' dilemma is mitigated.
    Date: 2006–03
  4. By: Hans ten Rouwelaar (Nyenrode Business Universiteit)
    Abstract: Business unit-controllers can fulfill two roles in business life: the support role and the control role. The support role is associated with supporting managerial decision-making in the business unit; the control role focuses on providing reliable and timely financial accounting information for the corporate level and ensuring that the financial function complies with relevant regulations. The purpose of this paper is to explain these two roles of business unit-controllers. Survey data from 119 business unit-controllers in Dutch multidivisional organizations indicate that business unit-controllers spend more time on the control role when their organization has a hierarchical or adhocracy culture and fewer employees. On the other hand, controllers spend more time on support activities when their organization is decentralized and when their organization is operating in the service or not-for-profit sector. Finally, controllers who are ‘open to new experiences’ spend less time on their control role, while controllers with a more agreeable personality spend more time on their control role.
    Keywords: Contingency theory, controllers, culture, performance, support role and control role
    Date: 2006
  5. By: Christiaan van Laecke; Dirk Schoenmaker
    Date: 2006–11
    Abstract: We investigate whether inclusion and permanence in the Domini social index affects corporate performance on a sample of around 1000 firms in a 13-year interval by controlling for size, industry, business cycle and time invariant firm idiosyncratic characteristics. Our results find partial support to the hypothesis that corporate social responsibility (CSR) generates a transfer of wealth from shareholders to stakeholders. On the one side, the combination of entry and permanence into the Domini is shown to increase (reduce) significantly total sales per employee (returns on equity). On the other side, lower returns on equity seem nonetheless to be accompanied by relatively lower conditional volatility and lower reaction to extreme shocks of Domini stocks with respect to the control sample. The first two econometric findings match intrinsic characteristics since they are paralleled by significant differences in fixed effects between the control sample and firms which will become Domini affiliated in the sample period. Our conclusion is that Domini affiliation significantly reinforces traits of corporate identity which were already in place before entry.We also show that exit from Domini has strong negative effects on total sales per employee, returns on equity, investment and capital employed. An explanation for the “transfer of wealth” effect, suggested by the inspection of Domini criteria, is that social responsibility implies, on the one side, decisions leading to higher cost of labour and of intermediate output, but may, on the other side, enhance involvement, motivation and identification of the workforce with company goals with positive effects on productivity.
    Date: 2005–01
  7. By: Christian Cordes; Peter J. Richerson; Richard McElreath; Pontus Strimling
    Abstract: This paper relates firm size and opportunism by showing that, given certain behavioral dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. We argue that what firms do better than markets – besides economizing on transaction costs – is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. We show that high opportunism-related costs are a reason for keeping firms’ size small.
    Keywords: Theory of the Firm, Transaction Cost Economics, Cultural Evolution, Opportunism, Cooperation Length 21 pages
    JEL: D21 D23 D01 M14 C61
    Date: 2006–11
    Abstract: We conceive firm productive activity as being crucially determined by the performance of complex tasks which possess the characteristics of trust games. We show that in trust games with superadditivity the non cooperative solution yielding a suboptimal firm output is the Subgame Perfect Nash Equilibrium (SPNE) of the uniperiodal full information game when i) the trustor has superior stand alone contribution to output and ii) the superadditive component is inferior to the sum of trustee and trustor stand alone contributions to output. We show that, if relational preferences of the two players are sufficiently high, the result is reversed. We also document that the Folk Theorem applies to the infinitely repeated game, even in absence of relational preferences, but the enforceable cooperative equilibrium is not renegotiation proof. We finally show that the cooperative equilibrium is not attainable under single winner tournament schemes and that steeper pay for performance schemes may crowd out information sharing in presence of players preferences for relational goods. Our findings help to explain why firms are reluctant to use pay for performance and tournament incentive schemes and why they invest money to increase the quality of relational goods among employees.
    Date: 2006–05
  9. By: Martynova,Marina; Oosting,Sjoerd; Renneboog,Luc (Tilburg University, Center for Economic Research)
    Abstract: We investigate the long-term profitability of corporate takeovers of which both the acquiring and target companies are from Continental Europe or the UK. We employ four different measures of operating performance that allow us to overcome a number of measurement limitations of the previous literature, which yielded inconsistent conclusions. Both acquiring and target companies significantly outperform the median peers in their industry prior to the takeovers, but the raw profitability of the combined firm decreases significantly following the takeover. However, this decrease becomes insignificant after we control for the performance of the peer companies which are chosen in order to control for industry, size and pre-event performance. None of the takeover characteristics (such as means of payment, geographical scope, and industry-relatedness) explain the post-acquisition operating performance. Still, we find an economically significant difference in the long-term performance of hostile versus friendly takeovers, and of tender offers versus negotiated deals: the performance deteriorates following hostile bids and tender offers. The acquirer's leverage prior takeover seems to have no impact on the post-merger performance of the combined firm, whereas the acquirer's cash holdings are negatively related to performance. This suggests that companies with excessive cash holdings suffer from free cash flow problems and are more likely to make poor acquisitions. Acquisitions of relatively large targets result in better profitability of the combined firm subsequent to the takeover, whereas acquisitions of a small target lead to a profitability decline.
    Keywords: takeovers;mergers and acquisitions;long-term operating performance; diversification;hostile takeovers;means of payment;cross-border acquisitions; private target
    JEL: G34
    Date: 2006
  10. By: Floden, Martin (Dept. of Economics, Stockholm School of Economics)
    Abstract: This paper demonstrates that increased optimism about future productivity can generate an immediate economic expansion in a neoclassical model with vintage capital and variable capacity utilization. Previous research has documented that standard neoclassical models cannot generate a simultaneous increase in consumption, investment, and hours in response to news shocks, and that optimism in these models tends to reduce investment and hours. When technology is vintage specific, however, expectations of higher future productivity raise the demand for new vintages of capital relative to old capital. Capital depreciates faster when utilization is high, but this depreciation only affects installed capital. The cost of high depreciation therefore falls when the value of installed capital falls. It is demonstrated here that with standard parameter values, more optimism raises utilization, consumption, investment, hours, and output.
    Keywords: Expectations; News; Business cycles; Vintage capital; Capital-embodied technological change
    JEL: E13 E32
    Date: 2006–11–10
  11. By: Aubert Patrick; Caroli Eve; Roger Muriel
    Keywords: New Technologies, Innovative workplace practices, old workers, labor demand
    JEL: J23 L23 O33
    Date: 2006–09
  12. By: Stuart McLeay; Maxwell Stevenson
    Abstract: The use of financial ratios by analysts to compare the performance of firms from one accounting period to the next is of growing importance with continued European economic integration. Recent studies suggest that the individual component series of financial ratios exhibit nonstationarity which is not eliminated by the ratio transformation. In this paper, w e derive a generalised model that incorporates stochastic and deterministic trends and allows for restricted and unrestricted proportionate growth in the ratio numerator and denominator. When the individual firm series are included in a panel structure with large N and small T, we are unable to reject convincingly a joint hypothesis of nonstationarity, whilst in about one third of the individual firm panels there is no evidence of a unit root. Although the components of financial ratios are correlated variables, our estimates show that any cointegrating effects decay rapidly.
    Keywords: financial ratios, nonstationarity, proportionate growth, cointegration, panel methods
    Date: 2006–11–16
  13. By: Vincent Bouvatier (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Laetitia Lepetit (LAPE - Laboratoire d'Analyse et de Prospective Economique - [Université de Limoges])
    Abstract: A panel of 186 European banks is used for the period 1992-2004 to determine if banking behaviors induced by the capital adequacy constraint and the provisioning system, amplify credit fluctuations. Our finding is consistent with the bank capital channel hypothesis, which means that poorly capitalized banks are constrained to expand credit. We also find that loan loss provisions (LLP) made in order to cover identified credit losses (non discretionary LLP) amplify credit fluctuations. Indeed, non discretionary LLP evolve cyclically. This leads to a misevaluation of expected credit risk which affect banks' incentives to grant new loans since lending costs are misstated. By contrast, LLP use for management objectives (discretionary LLP) do not affect credit fluctuations. The findings of our research are consistent with the call for the implementation of dynamic provisioning in Europe.
    Keywords: Bank lending, loan loss provisions, capital requirement.
    Date: 2006–11–22
  14. By: Beckerman, Carina (Dept. of Business Administration, Stockholm School of Economics)
    Abstract: This is a paper about creativity, diversity and other often used buzzwords. It is also a paper about how to manage people who think. Today we live in a world in which computers and mobile phones have become the key artifacts. Nokia´s slogan ”connecting people” expresses in a brilliant way what it is all about. When we connect people information is transfered and new knowledge hopefully created. And innovations, ideas and individuals are central for everything that takes place. We are all supposed to be flexible, exercising our knowledge in a setting characterized by diversity. This setting is also characterized by paradoxes that I will write more about further down. But transformations such as the globalization and implementing of new information technology race crucial questions about how to deal with a changing economic landscape and new mindsets and changing attitudes. The pages that follow is based on extensive reading of the literature and participating in many conferences and work-shops. In addition to this I have interviewed managers and employees at Electrolux, Ericsson, TeliaSonera and The Confederation of Swedish Enterprise. I have asked people in the above mentioned organizations how they react to concepts such as the knowledge society and the practice of managing knowledge, creativity, diversity and flexibility. This paper is written with a Scandinavian perspective. It is also written with a social constructionist perspective. The theoretical framework includes theories about knowledge management, structuration theory and cognitive theories. The findings are based on interpretative research and I have systematically reflected over the material I have collected. I direct myself towards people in business who think and worry about the future. The purpose is to inspire to further discussions about these very important matters.
    Keywords: Knowledge management; structuration theory; knowledge society; globalization; creativity; diversity; flexibility.
    Date: 2006–11–21
  15. By: Laurence Baraldi (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); William Cavestro (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II]); Christine Durieux (LEPII - Laboratoire d'Economie de la Production et de l'Intégration Internationale - [CNRS : FRE2664] - [Université Pierre Mendès-France - Grenoble II])
    Abstract: Cette communication a pour objet d'analyser la gestion des compétences dans une entreprise publique comme un processus innovant de gestion des marchés internes du travail (Doeringer et Piore, 1985). Une première partie aborde la question de la transformation des règles de fonctionnement du marché interne du travail liée à l'introduction d'une gestion des compétences. Il s'agit d'analyser les nouvelles règles qui fondent cette logique. Nous examinerons plus précisément en quoi ces règles sont innovantes dans leur contenu. Une deuxième partie traite de l'effectivité de l'usage de ces règles et de leur transformation à travers les tensions générées par la logique de la compétence. Cette analyse permet d'apprécier la manière dont les acteurs s'approprient les règles et par là même le caractère innovant de la gestion des compétences.
    Keywords: gestion des compétences ; compétence ; marché interne ; marché du travail ; gestion ; innovation
    Date: 2006–10–24
  16. By: Mouraviev, Igor (Research Institute of Industrial Economics)
    Abstract: The paper studies the role of communication in facilitating collusion. The situation of infinitely repeated Cournot competition in the presence of antitrust enforcement is considered. Firms observe only their own production levels and a common market price. The price is assumed to have a stochastic component, so that a low price may signal either deviations from collusive output levels or a 'downward' demand shock. The firms choose between tacit collusion and collusion with communication. Communication implies that the firms meet and exchange information about past outputs and is assumed to be the only legal proof of cartel behavior. The antitrust enforcement takes the form of an exogenous probability to detect the meetings, in which case the firms are sued for cartel behavior and pay a fine. Tacit collusion is assumed to provide no grounds for the legal action but involves inefficiencies due to the lack of complete information about individual output levels. It is shown that there exists a range of discount factors where collusion with communication constitutes the most profitable collusive strategy.
    Keywords: Collusion; Communication; Private Information
    JEL: D82 L41
    Date: 2006–10–25
    Abstract: We extend the traditional horizontal differentiation models to the analysis of firm location into the space of corporate social responsibility (CSR) in presence of consumers with heterogeneous tastes and willingness to pay for it. We find that nonzero corporate social responsibility, even when modelled as a pure cost, may be an optimal choice for profit maximising producers is conditional to CSR costs, consumers’ sensitiveness for CSR and uncertainty about consumer tastes.
    Date: 2006–06
  18. By: David Cayla (ATOM - Analyse Théorique des Organisations et des Marchés - [Université Panthéon-Sorbonne - Paris I])
    Abstract: In the traditional trade-off between internalization and externalization, economists tend to undervalue the role of intentionality (Williamson 1991) and to accord a dominant place to market coordinating devices (ex post coordination) compared to hierarchical coordinating devices (ex ante coordination). The aim of this paper is to show how the introduction of the concept of coherence, which is frequently invoked by economists in order to apprehend the firm specificities (Holmstrom 1999), may help to revaluate the trade-off between markets and firms in the advantage of the later. In particular, it will be shown that the attributes of coherence in ex post coordinating devices are fundamentally different from the ones that can be found in ex ante coordination systems.
    Keywords: coherence; ex post coordination; ex ante coordination; order; rules; abstract rules; concrete rules; Hayek; Bateson
    Date: 2006–11–01
  19. By: Héctor Salgado-Banda
    Abstract: This paper proposes a new variable based on patent data to proxy for productive entrepreneurship. Data on self-employment is used as an alternative proxy. In particular, the paper studies the impact of entrepreneurship on economic growth by using these two measures. The study considers 22 OECD countries and finds a positive relationship between the proposed measure of productive entrepreneurship — degree of innovativeness of different nations — and economic growth, while the alternative measure, based on self-employment, appears to be negatively correlated with economic growth. The findings are backed by a battery of econometric specifications and techniques.
    Keywords: cross-sectional analysis, dynamic panel data, economic growth, entrepreneurship, patents, self-employment, system estimation analysis
    Date: 2005–06
  20. By: Petr Jakubík (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic)
    Abstract: The significance of credit risk models has increased with the introduction of new Basel accord known as Basel II. The aim of this study is default rate modeling. This paper follows the two possible approaches of a macro credit risk modeling. First, empirical models are investigated. Second, a latent factor model based on Merton's idea is introduced. Both of these models are derived from individual default probability models. We employed data over the time period from 1988 to 2003 of the Finnish economy. First, linear vector autoregressive models were used in the case of dynamic empirical model. We examined how significant macroeconomic indicators determined the default rate in the economy. However these models cannot provide microeconomic foundation as latent factor models. A one-factor model was estimated using disaggregated industrial data. This estimation can help understand relation between credit risk and macroeconomic indicators. Models can be used for default rate prediction or stress testing by central authorities.
    Keywords: banking; credit risk; latent factor model; default rate
    JEL: G21 G28 G33
    Date: 2006–04
  21. By: Simon Price; Christoph Schleicher
    Abstract: Conventional wisdom has it that Tobin’s Q cannot help explain aggregate investment. This is puzzling, as recent evidence suggests the closely related user cost approach can do so. We do not attempt to explain this puzzle. Instead, we take an entirely different approach, not using the first-order conditions from the firm’s maximisation problem but instead exploiting the present-value expression for the firm’s value. The standard linearised present-value asset price decomposition suggests that Q should be able to predict other variables, such as stock returns. Using UK data we find that it has strong long-horizon predictive power for debt accumulation, stock returns and UK business investment. The correctly signed results on both returns and investment appear to be robust, and are supported by the commonly used and bootstrapped standard error corrections, as well as recently developed asymptotic corrections.
    Abstract: The controversy on whether the investment-cash flow sensitivity is a good indicator of financing constraints is still unsolved. We tackle it from many different angles cross-validating our analysis with both balance sheet and qualitative data on self declared credit rationing and financing constraints. Our qualitative information shows that (self declared) credit rationing is (weakly) related to both traditional a priori factors - such as firm size, age and location - and lenders’ rational decisions taken on the basis of their credit risk models. We use our qualitative information on firms which were denied (additional) credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self declared credit rationing significantly discriminates between firms which possess or not such sensitivity, while a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity) supporting the more recent empirical evidence in this direction.
    Keywords: financing constraints, credit rationing, investment/cash flow sensitivity JEL classification: D92, G21
    Date: 2005–11

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