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on Business Economics |
| By: | Sonja Fagernäs |
| Abstract: | This paper investigates the effects of corporate governance factors and family ties on the pay of managing directors in a sample of Indian stock listed companies. It uses a unique seven-year firm level panel dataset and controls for firm performance and both CEO and firm specific fixed effects. The hypothesis is that corporate governance, ownership structures and market pressure shape the power relations between the board and managers, and affect the level and structure of CEO pay. The evidence for India supports these hypotheses. Managing directors, who are related to the founding family, or controlling group, or any of the members on the board of directors, are paid more. This holds for total pay and both for the less variable component and the performance-related component of pay. In contrast, the presence of outside representatives on the board - non-executive directors or nominees of creditors or institutional investors - is found to have a disciplinary effect. The presence of nominees lowers the level of pay and that of non-executives ties pay more to firm performance. A further timely finding is that the staged introduction of a recent mandatory corporate governance code, aiming to improve governance and pay disclosure in listed companies, has raised the tendency of firms to tie pay explicitly to firm performance. Overall, the practice of tying pay explicitly to performance has become more common over time. |
| Keywords: | Executive pay, Corporate Governance, Family firms, Corporate Law, India |
| JEL: | G30 J33 K22 M52 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp335&r=bec |
| By: | Kozo Kiyota; Miho Takizawa |
| Abstract: | This paper examines the pre-exit productivity performance and asks how productivity affects future survival, using firm-level data in Japan for 1995-2002. We found that firms did not face "sudden death" but there was a "shadow of death." Future exiting firms had lower performance four years before their exit. Besides, within a hair 's breadth of death, the unobserved heterogeneity of firm such as management effort played an important role in the firm survival. |
| Keywords: | Pre-exit performance, Productivity, Size, Unobserved heterogeneity, Firm survival |
| JEL: | D21 D24 L25 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d06-204&r=bec |
| By: | Mikko Mäkinen |
| Abstract: | This paper examines how CEO pay is related to firm size and to firm performance in Finland by using new individual-level compensation data in 1996-2002. We find robust evidence that CEO average compensation has increased substantially between 1996 and 2002. For example, the ratio between CEO and industrial worker mean total compensation was 7 in 1996, peaked at 24 in 2000, and thereafter dropped to 13 in 2002. We argue that the change in CEO compensation, and especially in total compensation, is highly related to changes in stock market measures of firm performance. Our shareholder wealth measure suggests that the salary and bonus change in CEO wealth is €6.84 per €1,000 change in shareholder wealth. Respectively, the total compensation change is €21.85 per €1,000 change in shareholder wealth. We find no evidence on the contemporaneous link between a change in CEO compensation and change in ROA% (Return on Assets). However, one-year lagged accounting and stock market based firm performance measures are associated with the change in CEO total compensation. In line with previous studies, our findings suggest that pay-for-firm size elasticity is close to 0.3. We also find interesting corporate governance findings. First, the share of foreign ownership is positively and statistically significantly associated with the level of compensation. Also, foreign ownership parameter estimates are about three times larger for total compensation than for salary and bonuses in most specifications. Second, ownership concentration, as measured by the voting share of a largest shareholder, is negatively related to the level of compensation, but only in the pooled model. Third, the size of the board is positively related to the level of compensation, especially to the level of base salary and bonus. |
| Keywords: | CEO compensation, pay for performance, stock options, firm size |
| JEL: | J33 M52 L25 |
| Date: | 2007–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1084&r=bec |
| By: | Alex Bryson |
| Abstract: | We investigate the effect of employer behaviour on job satisfaction. Using linked employer-employee data from the 1998 British Workplace Employee Relations Survey, we consider how eorkplace practices affect individual' satisfaction with four aspects of their jobs, including pay. The paper covers a range of employer practices, including HRM and internal labour markets practices, methods for informing and consulting employees, and job sercurity guarantees. We present an empirical framework for analysing these various facets of job satisfaction simultaaneously and find that the existence of internal labour markets is the most effective workplace practice in fostering employees' satisfaction |
| URL: | http://d.repec.org/n?u=RePEc:psi:resdis:22&r=bec |
| By: | Jordi Brandts; Carles Solà |
| Abstract: | We study how personal relations affect performance in organizations. In the experimental game we use a manager has to assign different degrees of decision power to two employees. These two employees then have to make distributive decisions which affect themselves and the manager. Our focus is on the effects on managers' assignment of decision power and on employees' distributive decisions of one of the employees and the manager knowing each other personally. Our evidence shows that managers tend to favor employees that they personally know and that these employees tend, more than other employees, to favor the manager in their distributive decisions. However, this behavior does not affect the performance of the employees that do not know the manager. All these effects are independent of whether the employees that know the manager are more or less productive than those who do not know the manager. The results shed light on discrimination and nepotism and its consequences for the performance of family firms and other organizations. |
| Keywords: | Family firms, nepotism, corporate governance, procedural fairness, experiments |
| JEL: | C92 D23 M50 |
| Date: | 2006–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:692.07&r=bec |
| By: | Thiele, Veikko |
| Abstract: | The transaction cost theory predicts that firms are inclined to vertically integrate transactions in response to the specificity of their required inputs. Yet, reality proves that some firms engage in repeated transactions with external suppliers aimed at procuring highly specific inputs. To explain this phenomenon, this paper elaborates on a firm's make-or-buy decision in a context with relational contracts in order to investigate how this decision is affected by the required input specificity. This paper demonstrates that a high degree of input specificity can lead to repeated market transactions being favored over vertical integration because demanding more specific inputs (i) impose lower costs to maintain repeated market transactions founded on relational contracts; and (ii), facilitate the self-enforcement of these relational contracts. |
| Keywords: | Input specificity; vertical integration; market transactions; relational contracts; transaction cost theory |
| JEL: | D23 L23 L22 |
| Date: | 2007–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2471&r=bec |
| By: | Jonathan B. Berk; Richard Stanton; Josef Zechner |
| Abstract: | We derive a firm's optimal capital structure and managerial compensation contract when employees are averse to bearing their own human capital risk, while equity holders can diversify this risk away. In the presence of corporate taxes, our model delivers optimal debt levels consistent with those observed in practice. It also makes a number of predictions for the cross-sectional distribution of firm leverage. Consistent with existing empirical evidence, it implies persistent idiosyncratic differences in leverage across firms. An important new empirical prediction of the model is that, ceteris paribus, firms with more leverage should pay higher wages. |
| JEL: | G3 G32 G33 J24 J3 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13014&r=bec |
| By: | John S Heywood; Colin Green |
| Abstract: | This paper investigates the influence of performance related pay on several dimensions of job satisfaction. In cross-sectional estimates, performance related pay is associated with increased overall satisfaction, satisfaction with pay, satisfaction with job security and satisfaction with hours. It appears to be negatively associated with satisfaction with the work itself. Yet, after accounting for worker fixed-effects, the positive associations remain and the negative association vanishes. These results appear robust to a variety of alternative specifications and support the notion that performance pay allows increased opportunities for worker optimization and do not generally demotivate workers or crowd out intrinsic motivation. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:004731&r=bec |
| By: | Andriessen, D.; Thölke, J.M.; Wetzels, R.A.E.; Stroes, H.J. (Nyenrode Business Universiteit) |
| Abstract: | People and their relations are the hart of success of every organization. Although there are no studies that directly relate company success to the happiness of the workforce, it is common sense that organizations which are over longer periods work under tension are most likely to be less productive. Humane ways of organizing – ways of organizing that fit to us people and our current state of evolution - are essential for the well being our society. As academics and practitioners in this field however, we encounter several issues that seem to contrast these recent views on putting the well-being of people upfront in order to create successful organizations. In this paper the qualitative research methods of discourse analysis and design-based research are used to discover patterns for humane organizations. It describes the preliminary findings of a research project in which a workshop was designed and tested based on design principles for humane organizations. |
| Keywords: | Design-based research, discourse analysis, humane organizations, healthy organizations, systems |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:nijrep:2006-11&r=bec |
| By: | Christopher F. Baum (Boston College); Dorothea Schaefer (DIW Berlin); Oleksandr Talavera (DIW Berlin) |
| 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: | 2007–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:mmf:mmfc06:61&r=bec |
| By: | Michael Hübler |
| Abstract: | The paper analyses a partial equilibrium outsourcing model with Cournot competition in intermediate good production. Final production is located in western Europe, whereas the intermediate good can be manufactured by a western (outsourcing) or eastern European supplier (offshore outsourcing). Interregional production (factor) allocation depending on factor prices and productivity levels is investigated analytically and graphically. The main results are: Higher production costs in one region reduce intermediate good production in both regions leading to a substitution effect between high- and low-skilled labour intensive inputs rather than between eastern and western low-skilled labour intensive inputs. The sensitivity of outsourcing activities to production cost changes is highest when the interregional cost differential is smallest. |
| Keywords: | Offshoring, outsourcing, Cournot competition, intermediate good |
| JEL: | D24 D43 F20 J31 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1320&r=bec |
| By: | Miglo, A. |
| Abstract: | We analyze a dynamic (two-period) model with two-dimensional asymmetric information where firm performance may change over time. The employer has better information about firm's earnings potential and the employee is subject to moral hazard. The employee's contract consist of a short-term portion (accounting-based part; profit-based part; annual bonus) and a long-term portion (options and stocks). We focus on two issues: how different degrees of asymmetric information about short-term earnings versus long-term earnings affect optimal contracts and second, if a signalling equilibrium exists which information about the firm's performance profile over time can be conveyed by a choice of contract. We show that if the extent of long-term asymmetric information is larger, short-term compensation prevails. If short-term private information is more important, long-term compensation prevails. With regard to signalling, we show that firms with increasing earnings profiles prefer short-term compensation and firms with stagnating earnings profiles prefer long-term compensation. This provides new insights into the structure of earnings-based compensation. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2006-13&r=bec |
| By: | Nikolaj Malchow-Møller; James R. Markusen; Bertel Schjerning |
| Abstract: | Foreign-owned firms are often hypothesized to generate productivity "spillovers" to the host country, but both theoretical micro-foundations and empirical evidence for this are limited. We develop a heterogeneous-firm model in which ex-ante identical workers learn from their employers in proportion to the firm?s productivity. Foreign-owned firms have, on average, higher productivity in equilibrium due to entry costs, which means that low-productivity foreign firms cannot enter. Foreign firms have higher wage growth and, with some exceptions, pay higher average wages, but not when compared to similarly large domestic firms. The empirical implications of the model are tested on matched employer-employee data from Denmark. Consistent with the theory, we find considerable evidence of higher wages and wage growth in large and/or foreign-owned firms. These effects survive controlling for individual characteristics, but, as expected, are reduced significantly when controlling for unobservable firm heterogeneity. Furthermore, acquired skills in foreign-owned and large firms appear to be transferable to both subsequent wage work and self-employment. |
| JEL: | F16 F2 F23 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13001&r=bec |
| By: | Riccardo Calcagno (Tinbergen Institute and Vrije Universiteit Amsterdam, Department of Finance, De Boelelaan 1105, NL-1081HV Amsterdam.); Florian Heider (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper shows that there is a natural trade-off when designing market based executive compensation. The benefit of market based pay is that the stock price aggregates speculators’ dispersed information and therefore takes a picture of managerial performance before the long-term value of a firm materializes. The cost is that informed speculators’ willingness to trade depends on trading that is unrelated to any information about the firm. Ideally, the CEO should be shielded from shocks that are not informative about his actions. But since information trading is impossible without non-information trading (due to the ”no-trade” theorem), shocks to prices caused by the latter are an unavoidable cost of market based pay. This trade-off generates a number of insights about the impact of market conditions, e.g. liquidity and trading horizons, on optimal market based pay. A more liquid market leads to more market based pay while short-term trading makes it more costly to provide such incentives leading to lower CEO effort and worse firm performance on average. The model is consistent with recent evidence showing that market based CEO incentives vary with market conditions, e.g. bid-ask spreads, the probability of informed trading (PIN) or the dispersion of analysts’ forecasts. JEL Classification: G39, D86, D82. |
| Keywords: | Executive compensation, moral hazard, liquidity, trading, stock price informativeness. |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070735&r=bec |
| By: | Kuan Xu; Zhengxi Lin (Department of Economics, Dalhousie University; Policy Research and Coordination, Human Resources and Skills Development Canada) |
| Keywords: | Training; Canada; adult; education |
| Date: | 2007–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:dal:wparch:paperb1_7_ic_workingpaper&r=bec |
| By: | Hyunbae Chun; Jung-Wook Kim; Randall Morck; Bernard Yeung |
| Abstract: | Traditional U.S. industries with higher firm-specific stock return and fundamentals performance heterogeneity use information technology (IT) more intensively and post faster productivity growth in the late 20th century. We argue that elevated firm performance heterogeneity mechanically reflects a wave of Schumpeter's (1912) creative destruction disrupting a wide swath of U.S. industries, with newly successful IT adopters unpredictably undermining established firms. This evidence validates endogenous growth theory models of creative destruction, such as Aghion and Howitt (1992); and suggests that recent findings of more elevated firm-specific performance variation in richer, faster growing countries with more transparent accounting, better financial systems, and more secure property rights might partly reflect more intensive creative destruction in those economies. |
| JEL: | E32 G3 O3 O4 O51 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13011&r=bec |
| By: | Lauren Xiaoyuan Lu; Jan A. Van Mieghem; R. Canan Savaskan |
| Abstract: | We study how rework routing together with wage and piece rate compensation can strengthen incentives for quality. Traditionally, rework is assigned back to the agent who generates the defect (in a self routing scheme) or to another agent dedicated to rework (in a dedicated routing scheme). In contrast, a novel cross routing scheme allocates rework to a parallel agent performing both new jobs and rework. The agent who passes quality inspection or completes rework receives the piece rate paid per job. We compare the incentives of these rework allocation schemes in a principal-agent model with embedded quality control and routing in a multi-class queueing network. We show that conventional self routing of rework can never induce first-best effort. Dedicated routing and cross routing, however, strengthen incentives for quality by imposing an implicit punishment for quality failure. In addition, cross routing leads to workload allocation externalities and a prisoner’s dilemma, thereby creating highest incentives for quality. Firm profitability depends on capacity levels, revenues, and quality costs. With ample capacity, dedicated routing and cross routing both achieve first-best profit rate, while self routing does not. With limited capacity, cross routing generates the highest profit rate when appraisal, internal failure, or external failure costs are high, while self routing performs best when gross margins are high. When the number of agents increases, the incentive power of cross routing reduces monotonically and approaches that of dedicated routing. |
| Keywords: | queueing networks; routing; Nash equilibrium; quality control; piece rate; epsilon equilibrium. |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1436&r=bec |
| By: | Thiele, Veikko |
| Abstract: | This paper analyzes a multi-task agency framework where the agent exhibits task-specific abilities. Besides investigating the appendant consequences of applying incongruent performance measures in incentive contracts, this paper demonstrates how the provision of incentives - including the optimal aggregation of information - takes the agent's task-specific abilities into consideration. It further emphasizes the relation between job characteristics and the principal's preference for selecting specific agents. This paper essentially demonstrates that differences in task-specific abilities across agents can provide a supplementary explanation of why they are allocated to various jobs; or why they receive different incentive contracts, even if their jobs are identical. |
| Keywords: | Task-specific human capital; performance measurement; distortion; multi-task agencies; congruence; incentives |
| JEL: | D23 J24 D82 |
| Date: | 2007–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2470&r=bec |
| By: | Susan Helper; Morris M. Kleiner |
| Abstract: | The study examines US-European productivity and worker attitude differences, focusing on changes in incentive structures. We analyze productivity and worker attitudes in five plants in the UK and US belonging to the same multinational producer of automotive sensors and actuators. We examine the firm's efforts to make complementary changes in product strategy and human-resource policies. In particular, we look at the impact of a Value-Added Gainsharing plan (VAG) that was introduced at different times among the four plants. Our analysis draws on multiple plant visits, surveys of almost all of the workforce, and confidential financial data. Our study offers a rare look inside a low-wage, non-union firm. We find that the VAG had an impact on productivity and profitability. We find that the UK plant's productivity and worker satisfaction was well below that of the US plants. However, neither our analysis nor interviews with managers suggest that differences in national institutions play a key role in explaining these results. |
| JEL: | D21 D24 J31 J33 J53 J81 L11 L2 L23 L25 L6 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13015&r=bec |
| By: | Yayla, Hilmi Erdogan; Kirkbir, Fazil; Cengiz, Ekrem |
| Abstract: | The purpose of this paper is to analyze interpersonal relationships of accounting employees affecting the effectiveness of firms’ performance. For this purpose, a structural equation model was adopted from Kang et al. (2004) and was tested. A questionnary was distributed to 187 companies’ accounting departments from Blacksea region of Turkiye which are choosen with arbitrary sampling method from the lists of related region’s Chambers of Commerce and Industry. We find that, although no significant relation between balanced power and confidence, there are significant relationships between conflict and confidence, shared values and confidence, conflict and collaboration, shared values and collaboration, balanced power and collaboration, communication and collaboration. Overall our findings indicate that confidence and collaboration among the accounting department employees have direct influence on the firm performance. |
| Keywords: | Accounting departments; departmental behaviors; firm performance. |
| JEL: | J20 M12 M41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2558&r=bec |
| By: | Katsuya Takii (Osaka School of International Public Policy, Osaka University) |
| Abstract: | In this paper, we construct a dynamic assignment model that can provide a unified explanation of several observed features of persistent differences in productivity, wages, skill mixes and profits between firms. Large organization capital (high firm-specific knowledge) attracts skilled workers, who can create further organization capital in the future. This positive feedback brings about persistent differences in these variables. We also analyze how the real and perceived values of a firm's organization capital interactively influence persistence. We estimate parameters and simulate the model. Our results show that a positive assignment mechanism accounts for a large part of the observed persistence. |
| Keywords: | Organization Capital, Assignment, Persistence |
| JEL: | J24 L25 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:07e002&r=bec |
| By: | Chrsitiane Clemens (Otto-von-Guericke University Magdeburg); Maik Heinemann (University of Lueneburg) |
| Abstract: | This paper examines the effects of credit market imperfections and idiosyncratic risks on occupational choice, capital accumulation, as well as on the income and wealth distribution in a two sectore heterogeneous agent general equilibrium model. Workers and firm owners are subject to idiosyncratic shocks. Entrepreneurship is the riskier occupation. Compared to an economy with perfect capital markets, we find for the case of serially correlated shocks that more individuals choose the entrepreneurial profession in the presence of credit consraints, and that the fluctuation between occupationa increase too. Workers and entrepreneurs with high individual productivity tend to remain in their present occupantion, whereas low productivity individuals are more likely to switch between professions. Interestingly, these results reverse if we assume iid shocks, thus indicating that the nature of the underlying shocks plays an important role for the general equilibrium effects. In general, the likelihood of entrepreneurship increases with individual wealth. |
| Keywords: | DSGE model, wealth distribution, occupational choice, credit constraints |
| JEL: | C68 D3 D8 D9 G0 J24 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:46&r=bec |
| By: | Brendan Burchell; Alan Hughes |
| Abstract: | It is commonly asserted that high rates of entrepreneurship and superior economic performance in the United States is linked to a higher cultural tolerance of business failure. After reviewing cross country patterns of entrepreneurship we develop in this paper a measure of cultural attitudes towards failure which has two components. We term these failure tolerance which captures attitudes towards the risk of a business failing and second chancing which measures the degree of agreement with the proposition that those who have failed should be given a second chance. Using a unique dataset on attitudes to failure for a sample of 9,500 individuals drawn from 19 economies for the year 2002 we show that respondents in the USA appear to have relatively high levels of failure tolerance. However, they are less willing to grant a second chance to those who have tried and failed. We find that having relatively high levels of failure tolerance is not positively correlated with GDP growth. Having a relatively positive attitude towards second chancing across countries is positively related to GDP growth. Taken together these results suggest there is a link between attitudes to failure and economic growth, but it is not the one conventionally assumed in current policy rhetoric which argues that relatively favourable attitudes towards second chancing in the USA explains its more entrepreneurial activity. |
| Keywords: | Attitudes to failure, Entrepreneurship, Cross-country comparisons |
| JEL: | L26 Z1 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp334&r=bec |
| By: | Bouckenooghe, D.; Devos, G. |
| Abstract: | Organisational change often yields limited success. Failure in many cases is due to the motivation or readiness to change among employees. This article proposes and tests a multilevel model of readiness to change. Contrary to most works on readiness to change, readiness is conceptualised as a multifaceted construct (i.e. emotional involvement and commitment to change). Relationships of several context, process variables and locus of control with both components of readiness to change were examined. By means of a large scale survey administered in 56 public and private sector organisations, we collected 1,559 responses in total. Multilevel random coefficient modeling showed that a proportion of the total variance in emotional involvement and commitment to change is explained at the organizational level. Furthermore, the results indicated that the organization’s change history, the sector (public versus private), participation in the change process and support of top management toward change are important variables in understanding readiness to change. |
| Keywords: | commitment to change, context factors of change, emotional involvement, locus of control, multilevel analysis and process factors of change |
| Date: | 2007–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2007-12&r=bec |
| By: | Testuya Shinkai (Kwansei Gakuin University); Makoto Okamura (Hiroshima University) |
| Abstract: | We consider an oligopoly with a principal-agent relationship, in which a firm's marginal cost is decreasing in a manager's managerial effort and is subject to an additive uncertainty. Two types of firms operate: one displays symmetric information between the owner and the manager, another presents asymmetric information. We show that if the marginal cost's derivative of the manager is sufficiently small, then the expected effort level in an asymmetric information firm exceeds that in a symmetric one. We also show that the expected total output and consumer surplus may reduce at equilibrium, as the number of symmetric information firms increases. |
| Keywords: | asymmetric information, incentive scheme, competition effort, oligopoly |
| JEL: | D82 L13 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:29&r=bec |
| By: | Benno Torgler; Sascha L. Schmidt; Bruno S. Frey |
| Abstract: | Many studies have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. However, behavioral evidence is rare. This paper provides an empirical analysis on how individuals’ relative income position affects their performance. Using a unique data set for 1040 soccer players over a period of eight seasons, our analysis suggests that if a player’s salary is below the average and this difference increases, his performance worsens and the productivity decreasing effects of positional concerns are stronger. Moreover, the larger the income differences within a team, the stronger positional concern effects are observable. We also find that the more the players are integrated in a particular social environment (their team), the more evident a relative income effect is. Finally, we find that positional effects are stronger among high performing teams. |
| Keywords: | Relative income, positional concerns, envy, performance, social integration |
| JEL: | D00 D60 L83 |
| Date: | 2007–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:qut:dpaper:212&r=bec |
| By: | Sean Holly (Cambridge University); Emiliano Santoro (Cambridge University) |
| Abstract: | There is growing evidence that the cross section of the growth rate of firms is subject to systematic distortions at business cycle frequencies. In this paper we briefly review this evidence and then offer a theoretical model that incorporates nonlinearities in the way in which firms respond to aggregate and ideosyncratic shocks. We are able to replicate the most commonly found regularity - skewness in the cross section is counter-cyclical - and show that the strength of this relationship varies with the extent of financial fragility |
| Keywords: | financial fragility, cross section, business cycle |
| JEL: | E32 E44 |
| Date: | 2007–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:mmf:mmfc06:96&r=bec |
| By: | Marco Caliendo; Alexander S. Kritikos |
| Abstract: | This paper empirically analyzes whether the character-based approach, which is based on the personality structure and the human capital of business founders, allows prediction of entrepreneurial success. A unique data set is used consisting of 414 previously unemployed persons whose personal characteristics were screened by different methods, namely a one-day assessment center (AC) and a standardized questionnaire, before they launched their business. Results are partly unexpected: first, there is almost no correlation between the AC data and the questionnaire. Second, the predictive power of the AC data is slightly better than that of the questionnaire, but lower than expected in theory. Interestingly, for those subgroups where the AC data have low predictive power, the questionnaire does better. Third, when success is measured in terms of employees hired, the character-based approach is a poor predictor. |
| Keywords: | Entrepreneurship, psychological assessment, character-based approach, success prediction |
| JEL: | M13 J23 C13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp684&r=bec |
| By: | Thiele, Veikko |
| Abstract: | This paper considers a principal-agent relationship and explores the incentive provision when the agent's performance cannot be verified. It contrasts two alternatives for the principal to provide incentives: (i) to subjectively evaluate the agent's performance; and (ii), to delegate this task to a supervisor. Supervision induces contractible information about the agent's performance, but could result in vertical collusion. This paper demonstrates that collusion-proofness can require an inefficiently high payment to the supervisor, and too low powered incentives for the agent. The eventuality of collusion is further found to potentially (i), improve the profitability; and (ii), facilitate the achievement of relational contracts based upon subjective performance evaluations. |
| Keywords: | Subjective performance measurement; collusion; relational contracts; limited liability; incentives |
| JEL: | D86 D82 |
| Date: | 2007–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2472&r=bec |
| By: | Thiele, Veikko |
| Abstract: | This paper analyzes a multi-task agency model with a risk-neutral and financially constrained agent. The agent's performance evaluation is thereby incongruent, i.e. it does not perfectly reflect the relative contribution of the agent's multi-dimensional effort to firm's profit. This paper elaborates on the improvement of the agent's performance evaluation through the costly acquisition of additional performance measures aimed at inducing the agent to implement a more efficient effort allocation across tasks. It contrasts two alternatives for the principal: (i) to centrally invest in the information acquisition; or (ii), to delegate this task to a supervisor. This paper demonstrates that the principal generally favors delegation for a sufficiently incongruent measurement of the agent's performance, and a centralized investment, otherwise. |
| Keywords: | Multi-task agencies; performance measurement; distortion; congruity; limited liability; incentives |
| JEL: | D23 M52 D82 |
| Date: | 2007–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2469&r=bec |
| By: | Jordi Brandts; David J. Cooper; Enrique Fatas |
| Abstract: | We study how the heterogeneity of agents affects the extent to which changes in financial incentives can pull a group out of a situation of coordination failure. We focus on the connections between cost asymmetries and leadership. Experimental subjects interact in groups of four in a series of weak-link games. The treatment variable is the distribution of high and low effort cost across subjects. We present data for one, two and three low-cost subjects as well as control sessions with symmetric costs. The overall pattern of coordination improvement is common across treatments. Early coordination improvements depend on the distribution of high and low effort costs across subjects, but these differences disappear with time. We find that initial leadership in overcoming coordination failure is not driven by low-cost subjects but by subjects with the most frequent cost. This conformity effect can be due to a kind of group identity or to the cognitive simplicity of acting with identical others. |
| Keywords: | Experiments, Coordination, Organizational change, Heterogeneous agents, Leadership |
| JEL: | C70 C90 D63 D64 |
| Date: | 2006–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:691.07&r=bec |
| By: | Alex Bryson |
| Abstract: | The paper estimates the union wage premium in Britain’s private sector in 1998, after nearly two decades of union decline. It examines the performance of the linear estimator alongside a semi-parametric technique (propensity score matching (PSM)) – hitherto unused in the wage premium literature - which shares the same identifying assumption, namely that selection into membership is captured with observable data. Results using the two techniques are compared, and reasons for differences in results are identified and discussed. By altering the information set entering estimation the paper shows the sensitivity of OLS and PSM results to data quality. |
| URL: | http://d.repec.org/n?u=RePEc:psi:resdis:9&r=bec |