nep-bec New Economics Papers
on Business Economics
Issue of 2007‒03‒24
twenty-one papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Corporate governance when managers set their own pay By Pablo Ruiz-Verdu
  2. Identifying key determinants of effective boards of directors By Levrau, A.; Van den Berghe, L.
  3. Business services, trade and costs By Molly Lesher; Hildegunn Kyvik Nordas
  4. Why do some firms contract out production? By Angela Triguero,; Carmen Díaz Mora
  5. Inefficient Intra-Firm Incentives Can Stabilize Cartels in Cournot Oligopolies. By Roland Kirstein; Annette Kirstein
  6. The Design of an Efficient Offshoring Strategy: Some Reflections and Links to SNC-Lavalin By Marcel Boyer
  7. Introduction to Applied Stress Testing By Martin Cihák
  8. The Role of institutional Investors in the Corporate Governance By Moshe Pinto
  9. Innovation and Risk Management By Manuel, Eduardo
  10. Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries By Simon Commander; Jan Svejnar
  11. Models in Management Science: Issues in Implementation By Ravichandran N.
  12. Globalization: How strategic alliances bring production and market advantages. The case of Renault/Nissan By Jean-Jacques Chanarron
  13. Persistence of profits and the systematic search for knowledge - R&D links to firm above-norm profits By Eklund, Johan; Wiberg, Daniel
  14. The Effect of EU Antitrust Investigations and Fines on a Firm’s Valuation By Langus, Gregor; Motta, Massimo
  15. Stakeholders vs. shareholders in corporate governance By Chilosi, Alberto; Damiani, Mirella
  16. Sharing and Anti-Sharing in Teams By Roland Kirstein; Robert D. Cooter
  18. Who cares about Director Independence? By Paolo, Santella; Carlo, Drago; Giulia, Paone
  19. Decomposing differences in total factor productivity across firm size. By Laia Castany; Enrique Lopez-Bazo; Rosina Moreno
  20. Business Cycle Comovement in the G-7: Common Shocks or Common Transmission Mechanisms? By Fabio C. Bagliano; Claudio Morana
  21. Using simple neural networks to analyse firm activity. By Michael Dietrich

  1. By: Pablo Ruiz-Verdu
    Abstract: This paper presents a model of the firm in which the manager has discretion over his own compensation, constrained only by the threat of shareholder intervention. The model addresses two questions: How does shareholder power affect managers' compensation and their incentives to maximize firm value? And, which is the optimal level of shareholder power? Increasing shareholder power leads to lower managerial pay, yet it also weakens managers' incentives to maximize value. The model shows that, because of this incentive effect, restricting shareholder power is necessary to obtain financing, and offers predictions about the relation between the optimal level of shareholder power, performance and firm characteristics.
    Date: 2007–03
  2. By: Levrau, A.; Van den Berghe, L.
    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: 2007–03–15
  3. By: Molly Lesher; Hildegunn Kyvik Nordas
    Abstract: This technical paper analyses the role of business services in selected OECD and non-OECD economies using recently published input-output tables for 32 countries in or close to the year 2000. Business services have long been recognised as important drivers in the global economy, and this study reinforces that view with a comprehensive, quantitative cross-country analysis of how the manufacturing and business services sectors interact in the production process. Our analysis suggests that...
    Keywords: productivity, trade policy, manufacturing, outsourcing, off-shoring
    Date: 2006–12–13
  4. By: Angela Triguero,; Carmen Díaz Mora
    Abstract: The present paper examines which factors determine outsourcing decision using firm-level panel data for Spanish manufacturing industries. Outsourcing is measured as the manufacture of custom-made finished products or parts and components which have been contracted out to third parties. Moreover, we distinguish whether the main contractor provides the materials to the external supplier or not. Following the theoretical framework of Grossman and Helpman (2002), we take into account the persistence of outsourcing decision as well as other firm, industry and market characteristics that influence the likelihood of contracting out. Using a dynamic panel data probit model, our results show that previous subcontracting decision, wages, market changes, R&D activities, product and process innovation, product differentiation, industry-size and exporter status affect positively the current subcontracting decision.
  5. By: Roland Kirstein (University of Saarland); Annette Kirstein (Universität Karlsruhe)
    Abstract: The need for intra-firm incentive schemes allows remodeling the Cournot duopoly in wages (rather than in output levels). In both versions of the Cournot model, a cartel agreement is unstable. The new formulation, however, allows us to demonstrate that a collective wage agreement on minimum wages can stabilize the cartel solution. Beyond its relevance for strategic management, this result has a policy implication: competition authorities should observe collective wage agreements for their potential collusive effect on product markets. Moreover, the model may provide a new explanation why firms in reality pay lower than efficient variable wages and higher fixed wages than predicted by contract theory.
    Keywords: Principal-agent theory, piece rate, fixed wage, collective wage agreements, Nash bargaining solution.,
    JEL: C72 C78 D43 J33 J50 K31 L41
  6. By: Marcel Boyer
    Abstract: The objectives of this paper are threefold; First, to brush an overview of the underlying drivers of the offshoring phenomenon that have appeared on economic and public policy radar screens over the last 15 years; Second, to look at the recent offshoring experience of a large Canadian engineering firm (SNC-Lavalin) with significant international experience and exposure; Third, to draw from the analysis, the evidence and the case at hand some lessons for public policy aimed at defining winning offshoring strategies. <P>L’objectif de ce rapport est triple : d’abord, dresser le tableau des facteurs sous-jacents au phénomène de l’impartition offshore devenu un sujet de préoccupation en politique publique; ensuite, considérer l’expérience récente d’une grande entreprise canadienne d’ingénierie (SNC-Lavalin) en cette matière; finalement, inférer de ces analyses, de ces données et de ce cas, des leçons pour la définition de politiques gagnantes d’offshoring.
    Keywords: Offshoring, impartition offshore
    Date: 2007–03–01
  7. By: Martin Cihák
    Abstract: Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.
    Keywords: Stress testing , financial soundness indicators , early warning systems ,
    Date: 2007–03–15
  8. By: Moshe Pinto
    Abstract: Corporate governance has recently received much attention due to Adelphia, Enron, WorldCom, and other high profile scandals, serving as the impetus to such recent U.S. regulations as the Sarbanes-Oxley Act of 2002, considered to be the most sweeping corporate governance regulation in the past 70 years, and enhancing the long standing bandwagon for increasing shareholder power. More broadly, the Berle and Means model, in which professional managers control large public companies, is being questioned. The separation of ownership and control creates an agency problem, that managers may run the firm in their own, rather than the shareholders' interest, choosing the maximization of their own utility over the maximization of shareholder value. Commentators with a Law and Economics bent have long claimed that shareholder passivity is inevitable. Modern companies have grown so large that they must rely on many shareholders to raise capital. The shareholders then face severe collective action problems in monitoring corporate managers. Each shareholder owns a small fraction of a company's stock, and thus receives only a fraction of the benefits of playing an active role, while bearing most of the costs. Passivity serves each shareholder's self-interest, even if monitoring promises collective gains. Thus, commentators have entrusted the hostile takeover mechanism to discipline the managers by threatening to oust poor performers by bidders who would consolidate ownership and control. Anti takeover legislation and the spread of intra-corporate mechanisms such as poison pills have, in effect, sterilized the hostile takeover mechanism of its disciplining effect, and have turned commentators' attention to Institutional investors as potential monitors of management. Institutional Investors, such as pension funds and mutual funds, which control over half of publicly traded equities in the United States, by virtue of their size are an exception to the small, rationally apathetic shareholder envisioned by Berle and Means, and thus become the natural candidates to watch the watchers. Bernard S. Black has eloquently stated the case for institutional over sight noting that: "The case for institutional oversight, broadly speaking, is that product, capital, labor, and corporate control market constraints on managerial discretion are imperfect, corporate managers need to be watched by someone, and the institutions are the only watchers available." And indeed, Institutional investors have, in the past decade, increasingly engaged in corporate governance activities, introducing proposals under rule 14a-8, the Securities and Exchange Commission's (SEC) proxy proposal rule, and privately negotiating with management of targeted firms with the stated goal of improving corporate performance (jawboning). Shareholder activism, championed by institutional investors and embraced by individuals, has revolutionized U.S. corporate governance. Investors have assumed a looming presence in corporate boardrooms, and the stories of ousted CEOs, emboldened outside directors, shareholder "target" lists, and corporate capitulations fill the financial headlines. The evident Increase in Institutional Investor's activity, stemmed, inter alia, from the change of position of U.S. government agencies regarding institutional involvement in corporate ownership, control, and monitoring. For instance, the Labor Department now encourages pension funds to be active in monitoring and communicating with corporate management if such activities are likely to increase the value of the funds' holdings11. In 1992 and 1997 decisions by the SEC allowed shareholders more flexibility in communicating with each other and submitting shareholder proposals. And, in 1999, the U.S. Congress repealed the Glass-Stega Act, ending restrictions on direct ownership of U.S. equity by banks. More recently, in July 2003, the Securities and Exchange Commission proposed opening up the director nominations process to shareholders ("SEC Roundtable"). The General feature of the above regulatory milieu change is enabling Institutional Investors to take action not aimed at control and enable Institutional Voice. To be sure institutional activism hasn't been monolithic and different institutions vary in their craving for the task and there are reasons to suspect that even further reducing legal encumbrances won't stir the more lethargic institutions of their somnolence. Taking them as a whole, I conclude that there is a strong case for enhanced legal measures that will further facilitate joint shareholder action not directed at control, and further reduce obstacles to particular institutions owning stakes not large enough to confer working control. Narrowly speaking, I purport that the core of legislative action should be on requiring companies, under certain circumstances, to include in their proxy materials shareholder-nominated candidates for the board. The concerns about institutional oversight arise for two main reasons. First, controlling shareholders may divert funds to themselves at the expense of noncontrolling shareholders or may pursue interests of special interest groups that will use their power as lever vis-à-vis corporate management. Second, the institutions are themselves managed by money managers who need (and often don't get) watching and appropriate incentives. Several factors limit the downside risk from increasing institutional power: First, the accumulated evidence concerning the consequences of the increased institutional investors activism proves that much of the alleged adverse effects of institutional voice did not materialize. On the contrary, with a few exceptions the institutions are mainly passive. Second, institutional voice means asking one set of agents (money managers) to watch another set of agents (corporate managers). Money managers have limited incentives to monitor because they keep only a fraction of the portfolio gains. But, money managers also won't take the legal chances that an individual shareholder might, because they face personal risk if they breach their fiduciary duty or break other legal rules. The institution, however, realizes most of the gains from such misdeeds. That limits the downside risk from institutional voice. Third, institutional voice requires a number of institutions, including different types of institutions, to join forces to exercise influence. That further limits the downside risk from institutional power, because money managers can monitor each others' actions to some extent, and won't cooperate unless a proposed initiative benefits all the shareholders; Reputation is a central element in this second form of watching. Diversified institutions are repeat players that interact over and over, at many different companies, over a span of years. Game theory teaches us that a repeat game of this sort induces the actors to cooperate earn good reputation and elicit cooperation from other institutions; realizing that cheating will invite retaliation ("tit for tat" strategy). Fourth, corporate managers can watch their watchers, and if the institutions abuse their power, corporate managers can complain -- loudly and often -- to lawmakers. If the costs to other shareholders, including smaller institutions, of abuse of power by the largest institutions exceed the other shareholders' gains from better monitoring, those shareholders will support corporate managers' efforts to clip the large institutions' wings. Money managers know that, which limits their incentive to misbehave in the first place. Much of the promise of shareholder monitoring lies in informal shareholder efforts to monitor corporate managers or to express a desire for change in a company's management or policies. But, in order to induce managers to cooperate with the active shareholders in the pursuit of improved corporate performance, shareholders must have a "big stick" in the form of a viable option to remove the board of directors and subsequently the underperforming management. Moreover, because institutional incentives push against direct, company-specific monitoring, facilitating indirect monitoring through the board of directors would enhance the chance of awakening private institutional investors from their alleged somnolence. If the institutions can more easily select directors, at least for a minority of board seats, they can hire directors to watch companies on their behalf and be accountable to them. Currently, directors are often more loyal to corporate officers than to the shareholders whom the directors nominally serve. Reform should focus on the process of voting, rather than on substantive governance rules. To be sure, lawmakers should not mandate activism or impose large regulatory costs on companies or shareholders; rather they should empower the institutions to make their own decisions about optimal governance structures. They have incentives to make good choices -- or at least better choices than lawmakers would. Oversight will take place only where the institutions conclude that the benefits of monitoring outweigh the costs. The desired policy goal will let six or ten institutions collectively have a significant say in corporate affairs, while limiting the power of any one institution to act on its own. The focal point of lawmakers' efforts should be on measures that would sway the incentives of shareholders towards more active monitoring of corporate management; the final decision should be left to the shareholders. This paper proceeds as follows. Part 2 develops the qualitative case for believing that institutional voice can improve corporate performance in general and specifically through evaluating the issue of CEOs succession. I evaluate the potential benefits of greater oversight examining the domains in which institutional oversight is more likely to be value enhancing. Moreover, I explore the SEC's proposal to enable shareholder access to the ballot and stress the importance of indirect monitoring through trade groups and through the board of directors. Finally, I explore the role of indirect monitoring through trade groups and the role of the Institutional Investor Service ("ISS"). Part 3 contends that the downside risk from institutional voice is negligible. It responds to the predominant concerns with institutional power, including the risks inherent in asking one set of agents to monitor another set of agents; whether money managers will use their power to obtain private benefits or promote special interest; and concerns about institutional or managerial focus on the short term. Part 4 deals with the evidenced disparity in scope and focus of institutional oversight between different types of institutional investors, and examines the incentive structure of different institutional investors. In addition, since monitoring has to be done by money managers within the institutions, I investigate the incentives of money managers and the impact of promanager conflicts of interests. Furthermore, I asses the regulatory milieu in which various institutional investors operate in order to determine whether legal barriers the cause of relative somnolence of certain types of institutional investors. And finally, I consider the policy questions raised by increased shareholder activism and try to determine the optimal format policy-makers should pursue regarding shareholder activism. Part 5 concludes this paper.
  9. By: Manuel, Eduardo
    Abstract: Always, anytime, we speak about innovation, that it occurs in our live, firms, countries and regions. The innovation is very important for survive of any firm, any entrepreneur, any country and any region in world market due to their speed evolution. This paper has as objective to approach the relationship between Innovation and Risk Management. We concluded that the relationship between innovation and risk management will exist always whereas we are continuing to live in global world that it originated a global market in all economic sectors. And for any firm, any entrepreneur, any country or any region that wants to survive in this world or market it need to do a risk management that consist in to innovate, and so can reduce the uncertainty relatively their contextual environment that affect a determined activity and consequently that is affecting their performance.
    Keywords: Innovation; Risk; Risk Management
    JEL: M29 O31 M19 D81
    Date: 2007–03–15
  10. By: Simon Commander (EBRD, London Business School and IZA); Jan Svejnar (University of Michigan, CERGE-EI, CEPR and IZA)
    Abstract: We analyze a large stratified random sample of firms that provide us with measures of performance and each firm’s top manager’s perception of the severity of business environment constraints faced by his/her firm. Unlike most existing studies that rely on external and aggregated proxy measures of the business environment, defined to include legal and institutional features, we have information from each surveyed firm. Specifically, we use the 2005 and 2002 Business Environment and Enterprise Performance Survey (BEEPS) to assess the effect on performance of ownership, competition, export orientation and the business environment of the firm. We employ a variety of approaches to deal with the problem of omitted variables, errors in variables and endogeneity that plague studies in this area. We find that foreign ownership and competition have an impact on performance – measured as the level of sales controlling for inputs. Export orientation of the firm does not have an effect on performance once ownership is taken into account. When we analyze the impact of perceived constraints, we show that few retain explanatory power once they are introduced jointly rather than one at a time, or when country, industry and year fixed effects are introduced. Indeed, country fixed effects largely absorb the explanatory power of the constraints faced by individual firms. Replicating the analysis with commonly used countrylevel indicators of the business environment, we do not find much of a relationship between constraints and performance. Our analysis brings into question an important part of the conventional wisdom in this area. It indicates that country fixed effects, reflecting timeinvariant differences in the business environment but also other factors, matter for firm performance, but that differences in the business environment observed across firms within countries do not. Moreover, the limited firm- and country-level variations in the business environment over time do not appear to affect performance either. This suggests that the effect of business environment on performance and the analysts’ ability to identify this effect are more limited than has been assumed to date.
    Keywords: firm performance, productivity, competition, institutions, business environment, export orientation, firm ownership, subjective data
    JEL: D24 L21 O12 O57
    Date: 2007–02
  11. By: Ravichandran N.
    Abstract: Based on an empirical analysis of several real-life case studies in this paper, we identify the key drivers for maximizing the chances of successful implementation of management science models. The choice of (technique) methodology used, model sophistication, top management involvement, training and orientation of middle management cadre in the organization, intensity of competition, perceived fear and anxiety in implementing the new solution procedure by the front-line staff, and the involvement of an implementation agency in the organization emerge as some of the key elements that influence the effectiveness of the implementation process. Based on the experience of these situations, we propose a broad framework for an effective implementation of management science model.
    Date: 2007–03–20
  12. By: Jean-Jacques Chanarron (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines], EMSI - Ecole de Management des Systèmes d'Information - [Ecole de Management de Grenoble])
    Abstract: This contribution is based on a previous review (Chanaron, 1999) and a critical analysis of various literature: academic articles and books, corporate documents, consultancy reports and interviews of key industry representatives.
    Keywords: globalization ; strategic alliances ; Renault/Nissan
    Date: 2007–03–19
  13. By: Eklund, Johan (Jönköping International Business School (JIBS) and CESIS); Wiberg, Daniel (Jönköping International Business School (JIBS) and CESIS)
    Abstract: Economic theory tells us that abnormal firm and industry profits will not persist for any significant length of time. Any firm or industry making profits in excess of the normal rate of return will attract entrants and this competitive process will erode profits. However, a substantial amount of research has found evidence of persistent profits above the norm. Barriers to entry and exit, is an often put forward explanation to this anomaly. In the absence of, or with low barriers to entry and exit, this reasoning provides little help in explaining why these above-norm profits arise and persist. In this paper we explore the links between the systematic search for knowledge and the persistence of profits. By investing in research and development firms may succeed in creating products or services that are preferred by the market and/or find a more cost efficient method of production. Corporations that systematically invest in research and development may, by doing this, offset the erosion of profits and thereby have persistently high profits which diverge from the competitive return.We argue that even in the absence of significant barriers to entry and exit profits may persist. This can be accredited to a systematic search for knowledge through research and development.
    Keywords: Persistence of Profits; Profit Dynamics; R&D; Innovation Activity; Knowledge
    JEL: C10 C32 O10 O32
    Date: 2007–03–13
  14. By: Langus, Gregor; Motta, Massimo
    Abstract: We estimate, using event study techniques, the impact of the main events in an antitrust investigation on a firm’s stock market value. A surprise inspection at the firm’s premises has a strong and statistically significant effect on the firm’s share price, with its cumulative average abnormal return being approximately -2%. Further, we find that a negative Decision by the European Commission results in a cumulative average abnormal return of about -3.3%. Overall, the fine accounts for a relatively small fraction of this loss in value. Finally, if the Court annuls or reduces the fine, this has a positive (+2%) effect on the firm’s valuation.
    Keywords: antitrust; deterrence; event studies; fines
    JEL: K21 K42 L4
    Date: 2007–03
  15. By: Chilosi, Alberto; Damiani, Mirella
    Abstract: The paper is divided in two coordinate parts. The first considers in general the issue of stockholders vs. stakeholders oriented governance systems and their relative merits and demerits. The second part deals specifically with the issue of the principal-agent problem in a stakeholder context.
    Keywords: Stakeholders; Corporate Governance; Varieties of Capitalism
    JEL: P1 L2 G3
    Date: 2007–03–20
  16. By: Roland Kirstein (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Robert D. Cooter
    Abstract: Compared to budget-balanced Sharing contracts, Anti-Sharing may improve the efficiency of teams. The Anti-Sharer collects a fixed payment from all team members; he receives the actual output and pays out its value to them. If a team members becomes Anti-Sharer, he will be unproductive in equilibrium. Hence, internal Anti-Sharing fails to yield the first-best outcome. Anti-Sharing is more likely to yield a higher team profit than Sharing, the larger the team, the curvature of the production function, or the marginal effort cost. Sharing is more likely to be better, the greater the marginal product, the cross-partials of the production function, or the curvature of the effort cost.
    Keywords: North-South, growth model, innovation assimilation
    JEL: E32 R10
    Date: 2006–12
  17. By: Paolo Santella (European Commission); Giulia Paone (Dartmouth College, NH, USA); Carlo Drago (University of Naples "Federico II")
    Abstract: In this article, we provide an interpretation for the voluntary independence requirements contained in the Italian Corporate Governance Code (Preda Code) checking them against a proxy for international best practice, the independence criteria provided in the EC Recommendation on non-executive and supervisory directors of 2005. We then check to what extent company disclosure for 2003 allows the verification of the independence of directors qualified as independent by the Italian 40 blue chips. We find that the Preda Code (currently under revision) should be updated in several respects in order to make it abreast with best practice in the European Union. We also find that for two key independence requirements (not to have business relationships with the company and not to have too many concurrent commitments outside of the company) the level of compliance is dramatically low (4% and 16% respectively). Overall, for only 5 out of the 284 directors declared as independent by the Italian blue chips is it possible to verify the respect of all the Italian independence standards (and for only 4 directors with respect to the EC standards). This raises the problem of who should monitor what listed companies declare.
    Keywords: Independent directors, Corporate governance,
  18. By: Paolo, Santella; Carlo, Drago; Giulia, Paone
    Abstract: In this article we have expanded the analysis of the new dataset we created in Santella, Paone, Drago (2005) which analysed and quantified corporate disclosure on directors formally identified as independent by the forty Italian Blue Chips. We find here a general low level of compliance with independence requirements for both financial and non-financial companies, particularly with regard to the two key independence criteria of not having too many concurring commitments and not having business relationships with the company or an associated company. We also find that financial companies show a lower level of compliance than non-financial ones and are connected with each other and with a few non-financial companies through networks of cross-directorships: two directors (one independent and one executive) who also sit at the same time on another company board. Finally, those non-financial companies that have a relatively fragmented shareholder structure tend to be characterised by higher levels of compliance and disclosure (but not always by lower levels of not compliance) than tightly-controlled non-financial companies, presumably because of sensitivity to a larger pool of small shareholders. Peculiarly, financial companies with fragmented shareholder structure tend to be characterised by low disclosure levels, although such companies are also subject to strong financial supervision.
    Keywords: corporate governance; independent directors; interlocking directorships; empirical legal studies
    JEL: K22 K2 K0 G3
    Date: 2007–03–14
  19. By: Laia Castany (Faculty of Economics, University of Barcelona); Enrique Lopez-Bazo (Faculty of Economics, University of Barcelona); Rosina Moreno (Faculty of Economics, University of Barcelona)
    Abstract: This paper investigates the extent to which the gap in total factor productivity between small and large firms is due to differences in the endowment of factors determining productivity and to the returns associated with these factors. We place particular emphasis on the contribution of differences in the propensity to innovate and in the use of skilled labor across firms of different size. Empirical evidence from a representative sample of Spanish manufacturing firms corroborates that both differences in endowments and returns to innovation and skilled labor significantly contribute to the productivity gap between small and large firms. In addition, it is observed that the contribution of innovation to this gap is caused only by differences in quantity, while differences in returns have no effect; in the case of human capital, however, most of the effect can be attributed to increasing differences in returns between small and large firms.
    Keywords: Total Factor Productivity, skilled labor, innovation, firm size, Oaxaca decomposition
    Date: 2007–03
  20. By: Fabio C. Bagliano; Claudio Morana
    Abstract: What are the sources of macroeconomic comovement among G-7 countries? Two main candidate explanations may be singled out: common shocks and common transmission mechanisms. In the paper it is shown that they are complementary, rather than alternative, explanations. By means of a large-scale factor vector autoregressive (FVAR) model, allowing for full economic and statistical identification of all global and idiosyncratic shocks, it is found that both common disturbances and common transmission mechanisms of global and country-specific shocks account for business cycle comovement in the G-7 countries. Moreover, spillover effects of foreign idiosyncratic disturbances seem to be a less important factor than the common transmission of global or domestic shocks in the determination of international macroeconomic comovements.
    Keywords: business cycle comovement, factor vector autoregressive model, transmission mechanisms.
    JEL: C32 E32
    Date: 2007
  21. By: Michael Dietrich (Department of Economics, The University of Sheffield)
    Abstract: IntroductionCharacteristically, in economics, the analysis of firm activity is based on a production function that defines a deterministic relationship between factor inputs and firm output. The analysis of the firm as an organisation takes a somewhat different approach. For instance, behavioural economics (for example Simon, 1955; March and Simon, 1958; Cyert and March, 1963), transaction cost theory (Williamson, 1975, 1985) and capabilities approaches (for example Foss and Loasby, 1998; Foss, 2005) emphasise that economic agents have inevitably incomplete information and knowledge and are at most boundedly or limitedly rational. The implication here is that while general principles governing intra-firm interaction can be specified, detailed organisational processes inside the firm are, for practical academic purposes, effectively unobservable. Hence, the usual analytical tools designed to analyse firm behaviour, based on production functions and optimising principles with full information, are in practice an oversimplification of firm activity (Loasby, 1999).
    Date: 2005–07

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