nep-bec New Economics Papers
on Business Economics
Issue of 2007‒03‒17
eighteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training By Görg, Holger; Strobl, Eric; Walsh, Frank
  2. How to Govern Business Services Exchanges: Contractual and Relational Issues By D. VANDAELE; D. RANGARAJAN; P. GEMMEL; A. LIEVENS
  3. Firm Performance, Worker Commitment and Loyalty By Sarah Brown; Robert McNabb; Karl Taylor
  4. Managing with Style: What Does It Mean in Practice Having a Knowing, Planning, or Creating style? By E. COOLS; H. VAN DEN BROECK; M. PIATTINI
  5. Corporate governance and Board Effectiveness : beyond formalism By A. LEVRAU; L.A.A. VAN DEN BERGHE
  6. Research Methods in Negotiation: 1965-2004 By M. BUELENS; M. VAN DE WOESTYNE; S. MESTDAGH; D. BOUCKENOOGHE
  7. Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange By Javed, Attiya Y.; Iqbal, Robina
  8. Entrepreneurship, Liquidity Constraints and Start-up Costs By Raquel Fonseca; Pierre-Carl Michaud; Thepthida Sopraseuth
  9. Optimal Capital Structure: Reflections on Economic and Other Values By Schauten, M.; Spronk, J.
  10. Allocation and Productivity of Time in New Ventures of Female and Male Entrepreneurs By Verheul, I.; Carree, M.A.; Thurik, A.R.
  11. Credit Cycles and Macro Fundamentals By Siem Jan Koopman; Roman Kräussl; André Lucas; André Monteiro
  13. Beyond the Three-Component Model of Organizational Commitment By Solinger O.N.; Olffen W. van; Roe R.A.
  14. Learning-by-Doing, Organizational Forgetting, and Industry Dynamics By David Besanko; Ulrich Doraszelski; Yaroslav Kryukov; Mark Satterthwaite
  15. Older Workers and On-the-Job Training in Canada: Evidence from the WES Data By I.U. Zeytinoglu; G.B. Cooke; K. Harry
  16. Wages, Productivity and Aging By Benoit Dostie
  17. Firms Dynamics, Bankruptcy Laws and Total Factor Productivity By Hajime Tomura
  18. Ontology-driven Business Modelling: Improving the Conceptual Representation of the REA Ontology By F. GAILLY; G. POELS

  1. By: Görg, Holger; Strobl, Eric; Walsh, Frank
    Abstract: While foreign-owned firms have consistently been found to pay higher wages than domestic firms to what appear to be equally productive workers, the causes of this remain unresolved. In a two-period bargaining framework we show that if training is more productive and specific in foreign firms, foreign firm workers will have a steeper wage profile and thus acquire a premium over time. Using a rich employer-employee matched data set we verify that the foreign wage premium is only acquired by workers over time spent in the firm and only by those that receive on the job training, thus providing empirical support for a firm specific human capital acquisition explanation.
    Keywords: foreign firms; on-the-job training; wages
    JEL: F23 J24
    Date: 2007–03
    Abstract: With firms concentrating on core competencies, more emphasis has been placed on outsourcing and the dealing with external sourcing agents. This has lead to a stronger academic focus on buyer-seller exchanges and the corresponding mechanisms for governing these exchanges. This paper gives an overview of previous research investigating the exchange governance phenomenon based on transaction cost theory or cooperative interorganizational relationships. The results reveal that few research studies have investigated the overall picture of exchange governance, including both contractual and relational governance and taking into account antecedents as well as performance outcomes of the governance mechanisms involved. Moreover, despite the service-dominant logic shift, limited attention is given to specific service characteristics and their impact on exchange governance. In this paper, we attempt to meld economic and social related antecedents into a model with regard to exchange governance in business services settings. Contractual and relational governance issues and their impact on performance outcomes are also considered. The resulting model indicates that to efficiently govern business services exchanges, more emphasis should be placed on behavioral uncertainty, human and process asset specificity and contractual governance. We conclude the paper by discussing several directions for future research.
    Date: 2007–01
  3. By: Sarah Brown; Robert McNabb; Karl Taylor (Department of Economics, The University of Sheffield)
    Abstract: Using matched employer-employee level data drawn from the UK Workplace and Employee Relations Survey, we explore the influence of worker commitment and loyalty on firm level labour productivity and financial performance. Our empirical findings suggest that worker commitment and loyalty enhance both labour productivity and financial performance at the firm level thereby highlighting a hitherto neglected conduit for improved firm performance. Using employee level data, we also explore the determinants of worker commitment and loyalty in order to ascertain how such attachments to the firm may be engendered. In general, our employee level analysis suggests that it is firm level characteristics (such as appraisal schemes, supervision, suspensions and redundancies) that influence attachments to the firm. Such findings suggest that firms may be able to exert some influence over the loyalty and commitment of its workforce, which, in turn, may affect firm performance.
    Keywords: Commitment, Financial Performance, Labour Productivity, Loyalty.
    JEL: J20 J50
    Date: 2006–04
    Abstract: Our study aims to contribute to an enhanced understanding of how cognitive styles, being individual preferences for perceiving and processing information, influence managerial behaviour using a qualitative approach. Based on content analysis of written testimonies of 100 managers, we found interesting differences between managers with a knowing, planning, and creating style with regard to both task-oriented behaviour (decision making) and peopleoriented behaviour (conflict management, interpersonal relationships). Although the tasks of different managers are largely the same, our study demonstrates that not all managers execute their job in the same way. Our results complement previous quantitative research on the link between cognitive styles and managerial behaviour. Although there is a wide theoretical and empirical interest in cognitive styles, qualitative studies that might provide further support to the practical relevance of cognitive styles for organisations is currently lacking. Because of the pivotal role of strong management and executive leadership on employee attitudes and financial performance, it is important to better understand the manager’s characteristics. Our results may contribute to increased managerial self-awareness about the impact of their individual preferences on their management style.
    Keywords: cognitive styles; managerial job; qualitative study
    Date: 2007–01
    Abstract: This study provides insight into the dominant methodological practices that have shaped the field of negotiation over the past four decades, and sheds light on possible gaps and trade-offs. We content analyzed 941 peer reviewed negotiation articles (published between 1965-2004) for methodology. We distinguished key issues in negotiation research and identified methodological trends over time (1965-2004). The results reveal significant changes in reliability, validity and triangulation issues. In addition, the rise of multivariate statistics and multiple data-sources displays a positive evolution towards more sophisticated methodologies. However, more attention is needed to address the enduring lack of longitudinal designs and qualitative techniques in negotiation research.
    Keywords: negotiation; research methodology; review; validity; triangulation
    Date: 2007–01
    Abstract: This study provides insight into the dominant methodological practices that have shaped the field of negotiation over the past four decades, and sheds light on possible gaps and trade-offs. We content analyzed 941 peer reviewed negotiation articles (published between 1965-2004) for methodology. We distinguished key issues in negotiation research and identified methodological trends over time (1965-2004). The results reveal significant changes in reliability, validity and triangulation issues. In addition, the rise of multivariate statistics and multiple data-sources displays a positive evolution towards more sophisticated methodologies. However, more attention is needed to address the enduring lack of longitudinal designs and qualitative techniques in negotiation research. KEYWORDS: negotiation; research methodology; review; validity; triangulation
    Date: 2007–01
  7. By: Javed, Attiya Y.; Iqbal, Robina
    Abstract: We investigated whether differences in quality of firm-level corporate governance can explain the firm-level performance in a cross-section of companies listed at Karachi Stock Exchange. Therefore, we analysed the relationship between firm-level value as measured by Tobin’s Q and total Corporate Governance Index (CGI) and three sub-indices: Board, Shareholdings and Ownership, and Disclosures and Transparency for a sample of 50 firms. The results indicate that corporate governance does matter in Pakistan. However, not all elements of governance are important. The board composition and ownership and shareholdings enhance firm performance, whereas disclosure and transparency has no significant effect on firm performance. We point out that those adequate firm-level governance standards can not replace the solidity of the firm. The low production and bad management practices can not be covered with transparent disclosures and transparency standards.
    Keywords: Corporate Governance; Firm Performance; Tobin’s Q; Agency Problem; Board Size; Shareholdings; Disclosures; Leverage Code of Corporate Governance.
    JEL: G38 G34 G12
    Date: 2007
  8. By: Raquel Fonseca; Pierre-Carl Michaud; Thepthida Sopraseuth
    Abstract: We study the effects of liquidity constraints and start-up costs on the relationship between wealth and the fraction of entrepreneurs in an economy. We develop a dynamic occupational choice model that yields predictions that can be tested on cross-sectional data with exogenous variation in liquidity constraints (e.g. access to credit) and start-up costs. We use three highly comparable micro datasets (SHARE, ELSA and HRS) focusing on the population age 50+ in 9 countries. These countries have very different levels of start-up costs and potential liquidity constraints. Reduced form results support our theoretical predictions. While higher liquidity constraints yield a steeper wealth profile for the fraction of workers in entrepreneurship, startup costs flatten this relationship by depressing the marginal value of being an entrepreneur as a function of wealth. Countries with high start-up costs such as Italy, Spain and France have flatter wealth gradients.
    Keywords: entrepreneurship, liquidity constraints, start-up costs, occupational choice, cross-country comparisons
    JEL: E21 E23 J20
    Date: 2007–02
  9. By: Schauten, M.; Spronk, J. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Despite a vast literature on the capital structure of the firm there still is a big gap between theory and practice. Starting with the seminal work by Modigliani & Miller, much attention has been paid to the optimality of capital structure from the shareholders? point of view. Over the last few decades studies have been produced on the effect of other stakeholders? interests on capital structure. Well-known examples are the interests of customers who receive product or service guarantees from the company. Another area that has received considerable attention is the relation between managerial incentives and capital structure. Furthermore, the issue of corporate control and, related, the issue of corporate governance, receive a lion?s part of the more recent academic attention for capital structure decisions. From all these studies, one thing is clear: The capital structure decision (or rather, the management of the capital structure over time) has to deal with more issues than the maximization of the firm?s market value alone. In this paper, we give an overview of the different objectives and considerations that have been proposed in the literature. We show that capital structure decisions can be framed as multiple criteria decision problems which can then benefit from multiple criteria decision support tools that are widely available.
    Keywords: Capital structure;Multi criteria decision analysis;MCDA;
    Date: 2006–12–12
  10. By: Verheul, I.; Carree, M.A.; Thurik, A.R. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This paper investigates time allocation decisions in new ventures of female and male entrepreneurs using a new model that distinguishes between preference and (expected) productivity effects on the number of working hours. Using data of 1203 entrepreneurs we find that the preference for work time in new ventures is related to the motivation for starting up a business, the propensity to take risk, the availability of other income sources, firm size and sector. Productivity of work time is explained by human, financial and social capital, outsourcing and firm characteristics. This study also evaluates actual profit effects one year after start-up. With respect to gender we find that ? on average ? women invest less time in the business than men largely due to a lower productivity per working hour, explained by lower endowments of human, social and financial capital.
    Keywords: Time allocation;New ventures;Gender;
    Date: 2007–02–05
  11. By: Siem Jan Koopman (Vrije Universiteit Amsterdam and Tinbergen Institute Amsterdam); Roman Kräussl (Vrije Universiteit Amsterdam and CFS); André Lucas (Vrije Universiteit Amsterdam and Tinbergen Institute Amsterdam); André Monteiro (Vrije Universiteit Amsterdam and Tinbergen Institute Amsterdam)
    Abstract: We study the relation between the credit cycle and macro economic fundamentals in an intensity based framework. Using rating transition and default data of U.S. corporates from Standard and Poor’s over the period 1980–2005 we directly estimate the credit cycle from the micro rating data. We relate this cycle to the business cycle, bank lending conditions, and financial market variables. In line with earlier studies, these variables appear to explain part of the credit cycle. As our main contribution, we test for the correct dynamic specification of these models. In all cases, the hypothesis of correct dynamic specification is strongly rejected. Moreover, accounting for dynamic mis-specification, many of the variables thought to explain the credit cycle, turn out to be insignificant. The main exceptions are GDP growth, and to some extent stock returns and stock return volatilities. Their economic significance appears low, however. This raises the puzzle of what macro-economic fundamentals explain default and rating dynamics.
    Keywords: Credit Cycles, Business Cycles, Bank Lending Conditions, Unobserved Component Models, Intensity Models, Monte Carlo Likelihood
    JEL: G11 G21
    Date: 2007–01–02
    Abstract: Mainstream research on boards of directors has been focusing on a direct relationship between board characteristics and firm performance, but up till now the results are inconclusive. Although these studies revealed interesting and useful insights, little is known about the factors that shape board effectiveness. This paper aims to reduce this gap by exploring the variety of indicators that contribute to the effectiveness of boards. The paper derives from an interview-based investigation among 104 directors of Belgian listed companies. The findings are further elaborated with quantitative data from two written questionnaires, involving directors of non-listed companies and experts in the field of corporate governance. The results point to three major issues. First, there appears to be a gap between a limited number of structural board measures consistently found in literature and the systematic occurrence of a set of behavioural criteria of board effectiveness in the perceptions of (Belgian) directors. Second, the findings suggest that the value of independence may be overemphasized at the cost of the broader issue of diversity. Third, it appears that mainstream board research ignores to a large extent two additional conditions (the information flow and the leadership style of the chairman) under which a board of directors can make an effective contribution to the strategic direction and control of a company. Our findings suggest that the ambiguity found in current research evidence can to some extent be attributed to the ignorance of a wide range of interconnected structural (such as diversity and competence) and behavioural factors (such as trust, attitude, norms and conduct) which actually shape the effectiveness of boards in performing their roles.
    Date: 2007–01
  13. By: Solinger O.N.; Olffen W. van; Roe R.A. (METEOR)
    Abstract: Adding to empirically based critique in the last 15 years, this paper offers a critical conceptual analysis of the three-component model of organizational commitment in order to arrive at a unequivocal grounding of the concept in standard attitudinal theory. Using the attitude-behavior model by Eagly & Chaiken (1993), we demonstrate that the three-component model combines fundamentally different attitudinal phenomena. Instead, we argue that general organizational commitment can best be conceived of as affective commitment only, being a genuine attitude towards an object: the organization. Normative and continuance commitment, in contrast, appear to be attitudes regarding specific forms of behavior (i.e., staying or leaving) that may or may not follow from the affective bond with the organization. The conclusion of our analysis is that the threecomponent model fails to qualify as a general model of organizational commitment, but instead represents a specific model to predict turnover behavior. Therefore, we suggest limiting the use of the TCM to predicting turnover and to abandon it as a general model of employee commitment. We propose to return to the conceptualization of organizational commitment as an attitude towards the organization and to use Eagly & Chaiken’s model to generate specific models for predicting a broad range of organizational behaviors. Finally, we discuss the definition and measurement of organizational commitment, arguing that covering affective, cognitive and behavioral facets of this attitude helps to differentiate the construct from other constructs and to enhance the construct validity of measurement instruments.
    Keywords: management and organization theory ;
    Date: 2007
  14. By: David Besanko; Ulrich Doraszelski; Yaroslav Kryukov; Mark Satterthwaite
    Date: 2007–03–14
  15. By: I.U. Zeytinoglu; G.B. Cooke; K. Harry
    Abstract: This paper provides evidence of on-the-job training among older workers in Canada. It also examines the effect of age associated with on-the-job training. Statistics Canada’s Workplace and Employee Survey (WES) 2001 data, linking employee responses to workplace (i.e. employer) responses are used. Three quarters of workers are categorized as middle aged, with about one in ten being younger and one in five considered to be older. Only 32% of Canadian workers received on-the-job training in the year preceding this survey. When separating workers into the three age categories, 37%, 34%, and 24% of younger, middle-aged, and older workers, respectively, received on-the-job training in that year. Logistic regression analysis results showed that, controlling for workplace, job and individual factors, as compared to middle-aged workers, older workers are significantly less likely to receive on-the-job training. The lack of on-the-job training for older workers should be a concern for policy makers at a time when labour shortages are being predicted. Older workers are healthier than ever and the provision of on-the-job training should be encouraged to retain older workers in the labour market in Canada.
    Keywords: older workers, on-the-job training, Workplace and Employment Survey
    JEL: J14 J18 J24
    Date: 2007–03
  16. By: Benoit Dostie (IEA, HEC Montréal)
    Abstract: In this article, we estimate age based wage and productivity differentials using linked employer-employee Canadian data from the Workplace and Employee Survey 1999-2003. Data on the firm side is used to estimate production functions taking into account the age profile of the firm’s workforce. Data on the workers’ side is used to estimate wage equations that also depend on age. Results show concave age-wage and age-productivity profiles. Wage-productivity comparisons show that the productivity of workers aged 55 and more with at least an undergraduate degree is lower than their wages. For other groups, we find that wages do not deviate significantly from productivity estimates.
    Date: 2006–12
  17. By: Hajime Tomura
    Abstract: This paper analyzes endogenous fluctuations in total factor productivity (TFP) in a dynamic general equilibrium model with heterogeneous agents, and illustrates the interaction of credit market frictions, asset prices, the entry and exit of firms, and fluctuations in TFP in response to firm-level productivity and aggregate credit-market shocks. I also analyze the effect of bankruptcy and foreclosure laws on fluctuations in TFP through their effect on credit market frictions. Implications of the model are consistent with the features of the stagnation in Japan in the 1990s.
    Keywords: Financial stability; Productivity
    JEL: D24 E44 G33
    Date: 2007
  18. By: F. GAILLY; G. POELS
    Abstract: Business modelling research is increasingly interested in exploring how domain ontologies can be used as reference models for business models. The Resource Event Agent (REA) ontology is a primary candidate for the ontology-driven modelling of business processes because the REA point of view on business reality is close to the conceptual modelling perspective on business models. In this paper Ontology Engineering principles are employed to restructure REA in order to make it more suitable for ontology-driven business modelling. The redesigned conceptual representation of REA uses a single representation formalism, includes a more complete domain axiomatization (containing definitions of concepts, concept relations and ontological axioms), and is proposed as a meta-model to instantiate valid business models.
    Date: 2007–01

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