nep-bec New Economics Papers
on Business Economics
Issue of 2007‒04‒14
twenty-two papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Once bitten, twice shy? : The performance of entrepreneurial restarts By Metzger, Georg
  2. Corporate Tax Policy, Entrepreneurship and Incorporation in the EU By Ruud A. de Mooij; Gaëtan Nicodème
  3. Success breeds success locally : a tale of incubator firms By Inci, Eren
  4. Wage Mobility and Dynamics in Italy in the 90's By Bruno Contini; Roberto Leombruni; Lia Pacelli; Claudia Villosio
  5. Business ethics and corporate responsibility:a new perspective By Bhanu Murthy, K.V.
  6. Five Deaths a Day: Workplace Fatalities in Canada, 1993-2005 By Andrew Sharpe; Jill Hardt
  7. The Qualities of Leadership: Direction, Communication, and Obfuscation By Torun Dewan; David P. Myatt
  8. Service Offshoring: A Challenge for Employment? Evidence from Germany By Deborah Schöller
  9. Jolian McHardy, Michael Reynolds and Stephen Trotter. By Jolian McHardy; Michael Reynolds; Stephen Trotter
  10. Credit market and macroeconomic volatility By Caterina Mendicino
  11. Moving Down? Women's Part-time Work and Occupational Change in Britain 1991-2001 By Sara Connolly; Mary Gregory
  12. Trade Marks and Performance in UK Firms: Evidence of Schumpeterian Competition through Innovation By Christine Greenhalgh; Mark Rogers
  13. The effect of firm- ans industry-level contracts on wages : evidence from longitudinal linked employer-employee data By Nicole Gürtzgen
  14. Becoming an Entrepreneur By Hugo Ñopo; Patricio Valenzuela
  15. Hedging global environment risks: An option based portfolio insurance By André de Palma; Jean-Luc Prigent
  16. Unit vs. Ad Valorem Taxes in Multi-Product Cournot Oligopoly By Lapan, Harvey E.; Hennessy, David A.
  17. Wage dispersion between and within plants: Sweden 1985-2000 By Oskar Nordström Skans; Per-Anders Edin; Bertil Holmlund
  18. Interdependent preferences and segregating equilibria By Antonio Cabrales; Antoni Calvo-Armengol
  19. Whatever happened to the business cycle? a Bayesian analysis of jobless recoveries By Kristie M. Engemann; Michael T. Owyang
  20. Multi-Product Firms and Flexible Manufacturing in the Global Economy By Carsten Eckel; J. Peter Neary
  21. Limited Liability and the Trade-off between Risk and Incentives By Matthias Kräkel
  22. You can't make an omelette without breaking eggs : the impact of venture capitalists on executive turnover By Heger, Diana; Tykvová, Tereza

  1. By: Metzger, Georg
    Abstract: The aim of this paper is to analyze the effect of entrepreneurial experience on firm growth. According to the human capital theory, individuals who have higher ‘human capital’ are more successful than others. Entrepreneurial experience is a kind of human capital and, therefore, should affect firm performance positively. In reality, however, not all types of experience indicate enhanced knowledge alone. Bad experience, here the experience of failure, might equally be a signal for entrepreneurial weakness and, thus, an argument for exercising restraint in possible further business ventures. The ambiguous effects of this failure experience on firm success necessitate an in-depth analysis of the issue. Therefore, this paper contains an empirical comparison of firms involving experienced entrepreneurs and novice firms. The analysis shows that entrepreneurial experience affects firm growth positively. Accounting for failure experience separately reveals a negative effect. Interpreting this finding in combination with other control measures indicates that failed entrepreneurs indeed behave more cautiously regarding firm growth.
    Keywords: Business Failure, Firm Growth, Entrepreneurial experience
    JEL: G33 J23 M13
    Date: 2006
  2. By: Ruud A. de Mooij (Erasmus Universiteit Rotterdam); Gaëtan Nicodème (European Commission, and Solvay Business School (ULB))
    Abstract: In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on firm births and legal form of business to analyze income shifting via increased entrepreneurship and incorporation. The results suggest that lower corporate taxes exert an ambiguous effect on entrepreneurship. The effect on incorporation is significant and large. It implies that the revenue effects of lower corporate tax rates – possibly induced by tax competition -- partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 10% and 17% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.2%-points since the early 1990s.
    Keywords: Corporate tax; Personal tax; Entrepreneurship; Incorporation; Income shifting
    JEL: H25 L26
    Date: 2007–03–22
  3. By: Inci, Eren
    Abstract: This paper focuses on the pre-establishment period of start-ups in industrial districts. The industrial architecture is what I call a "rationed agglomeration" in which some entrepreneurs gather around an established firm while other entrepreneurs in the same business stand alone. In a rationed agglomeration, I analyze the e¤ects of relations between established firms, network entrepreneurs, and local financiers on the market prices of loans. I show that such relations improve the match of capital to ideas in the network even though the overall distribution of capital to ideas remains unchanged. This suggests that success breeds success in the networks of established firms. The existence of networks overturns the claim that there are no motives to engage in information gathering in a simple market regime with information asymmetries. In particular, I show that there are market incentives for established firms to decrease the information gap between network entrepreneurs and local financiers.
    Keywords: agglomeration, entrepreneur, dispersion, innovation, local financiers, networks, regional economies, project financing, signaling, start-up
    JEL: D82 G20 L26 R12
    Date: 2006
  4. By: Bruno Contini; Roberto Leombruni; Lia Pacelli; Claudia Villosio
    Abstract: Inspite of the centralized nature of wage bargaining in Italy, we find some evidence suggesting the existence of firm-wage policies. Firstly, the ratio of the between-firm wage variability relative to total wage variability is sizeable, and not very dissimilar from that reported for other countries. Secondly, the tide raising all boats is quite suggestive: not only do individual wages throughout the whole distribution increase as average firm wages increases, but the spread increases too. Firm wage policy matters in shaping not only the wage level distribution but also the wage change distribution. The within-firm s.d. of wage change is almost as high as that of individual wage change, and much higher than between-firm variability of average change in wages. Worker-based statistics, on the other side, show that relative changes in individual wages follow the business cycle, although different parts of the distribution react in a different way to it, the upper tail having a higher responsiveness. Both facts are at odds with the often reported rigidity of Italian wages. Indeed, the detected flexibility is mainly driven by movers and short tenure workers. The cross-country comparison suggests that the relatively high degree of wage compression in Italy could be associated with higher entry and exit rates.
    JEL: J21 J3 J5
    Date: 2007–04
  5. By: Bhanu Murthy, K.V.
    Abstract: Starting from the famous but controversial statement of Peter Drucker (1981) - “There is neither a separate ethics of business nor is one needed”, this paper goes on to argue that business ethics and social responsibility are not unrelated. It shows how it is necessary to distinguish between business philosophy and philosophy of business. Through this distinction it develops a framework that relates the two – business ethics and CSR. It goes on to argue that there is a paradigm shift in the philosophy of business. This shift leads to a framework wherein a new perspective on business ethics and social responsibility emerges. It is coined as Corporate Responsibility. It consists of (a) good governance (b) corporate social responsibility (“CSR”) (c) environmental accountability. It discusses the role of top managers in achieving Corporate Responsibility through Organizational Transformation. This is the integrated approach to Corporate Responsibility that needs to be incorporated into International Standards of Social Responsibility. However, the major challenge is of evolving a strategy for laying down standards that take care of major issues and provide standards that are measurable, objective and universal. The three central issues of International Social Responsibility Standards are: 1. Acceptance of the tri-focal approach – Governance, Responsibility and Accountability. 2. Approach to methods of measurement is resolved. 3. The mandatory versus voluntary issue can be resolved only if issues of measurement and their universal applicability is resolved.
    JEL: M21 D02 D21
    Date: 2007–04–09
  6. By: Andrew Sharpe; Jill Hardt
    Abstract: According to data collected by the Association of Workers’ Compensation Boards of Canada, 1,097 workplace fatalities were recorded in Canada in 2005, up from 758 in 1993. As Canadians work on average 230 days per year, this means that there were nearly five work-related deaths per work day in this country. The objective of this study is to provide a detailed analysis of the characteristics of persons who die on the job and the reasons they die, and to gain a better understanding of developments over time in this key indicator of job quality and labour market well-being.
    Keywords: Workplace fatalities, Worker's compensation, Dangerous industries, Occupational diseases, International comparisions.
    JEL: I10 J28 J30 J38 J81 J83 Z0
    Date: 2006–12
  7. By: Torun Dewan; David P. Myatt
    Abstract: Party activists wish to (i) advocate the best policy and yet (ii) unify behind a common party line. An activist`s understanding of his environment is based on the speeches of party leaders. A leader`s influence, measured by the weight placed on her speech, increases with her judgement on policy (sense of direction) and her ability to convey ideas (clarity of communication). A leader with perfect clarity of communication enjoys greater influence than one with a perfect sense of direction. Activists can choose how much attention to pay to leaders. A necessary condition for a leader to monopolize the agenda is that she is the most coherent communicator. Sometimes leaders attract more attention by obfuscating their messages. A concern for party unity mitigates this incentive; when activists emphasize following the party line, they learn more about their environment.
    Keywords: Leadership, Direction, Coordination, Communication, Oligarchy
    JEL: D7 D8 H1
    Date: 2007
  8. By: Deborah Schöller
    Abstract: Besides material offshoring, economists have started to analyze the impact of service offshoring on domestic employment. Services are of particular interest since their significance has grown not only in terms of quantity, but also of qualitative understanding. One decade ago, most services were considered non-tradable, but the appearance of new information and communication technologies has contributed to overcoming geographical distance. The introduction of the paper aims at giving an appropriate definition of service offshoring also taking into account the different motives behind offshoring. The theoretical part gives a brief literature overview of the predicted effects of offshoring on domestic employment. The empirical part first compares import data of computing and information as well as other business services and states that service offshoring is more relevant in Germany than in most other countries. Secondly, German service offshoring intensities are calculated on a sectoral basis using input-output data. This measurement represents the proportion of imported service inputs used in home production. Germany’s average service offshoring intensity more than doubled from 1991 to 2002. Besides this, indications for a possible negative correlation between German service offshoring and manufacturing employment are given. Thirdly, the impact of service offshoring on German domestic manufacturing employment is estimated at a sectoral level. The author refers to the labor demand specification of Hamermesh using sectoral wages, output and other input prices as exogenous variables. The estimation results indicate that service offshoring was negatively related to manufacturing employment in Germany between 1991 and 2000.
    Keywords: Service Offshoring, Employment, Globalization
    JEL: F1 F2
    Date: 2007–04–10
  9. By: Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter
    Abstract: The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.
    Keywords: Networks, Regulation, Duopoly, Agent
    JEL: D43 L13 R48
    Date: 2007–02
  10. By: Caterina Mendicino (Monetary and Financial Analysis Department, Bank of Canada, 234 Wellington St., Ottawa, K1A 0G9, Ontario, Canada.)
    Abstract: This paper investigates the role of credit market size as a determinant of business cycle fluctuations. First, using OECD data I document that credit market depth mitigates the impact of variations in productivity to output volatility. Then, I use a business cycle model with borrowing limits a la Kiyotaki and Moore (1997) to replicate this empirical regularity. The relative price of capital and the reallocation of capital are the key variables in explaining the relation between credit market size and output volatility. The model matches resonably well the reduction in productivity-driven output volatility implied by the established size of the credit market observed in OECD data. JEL Classification: E21, E22, E44, G20.
    Keywords: Credit frictions, reallocation of capital, asset prices.
    Date: 2007–03
  11. By: Sara Connolly; Mary Gregory
    Abstract: The UK`s Equal Opportunities Commission has recently drawn attention to the `hidden brain drain` when women working part-time are employed in jobs below their level of educational attainment and/or previous experience. These inferences were based on self-reporting. We give an objective and quantitative analysis of the nature of occupational change as women make the transition between full-time and part-time work. In order to analyse down-grading we construct an occupational classification which supports a ranking of occupations by the average level of qualification of those employed there on a full-time basis. We note that the incidence (and by implication the availability) of part-time work differs across occupations, and that occupational concentration is more acute for part-time work. Using a large sample of panel observations over the period 1991-2001 we show that women moving from full- to part-time work are approximately twice as likely to move down as up the occupational ladder, while those moving from part-time back to full-time work are twice as likely to be moving up than down the ranking. These effects are particularly marked when a change of employer is involved. Not all women are equally at risk of downgrading. It is particularly likely among women in management positions; over one-third of women in managerial or high-skilled clerical/administrative jobs downgrade when they move into part-time employment. But women in some occupations with higher specific skill requirements and where employees may have a stronger sense of vocation, notably teaching and nursing, are much less likely to experience downgrading. Nonetheless, 20% of teachers and nurses who change employer and switch into part-time work move downwards. These findings indicate a loss of economic efficiency through the underutilisation of the skills of many of the women who work part-time.
    Keywords: Female Employment, Part-time Work, Occupation, Life-cycle, Downgrade
    JEL: C23 C25 C33 C35 J16 J22 J62
    Date: 2007
  12. By: Christine Greenhalgh; Mark Rogers
    Abstract: This paper uses novel data on trade mark activity of UK manufacturing and service sector firms to investigate whether trade marks improve the profitability and productivity of firms. We first analyse Tobin`s q, the ratio of stock market value to book value of tangible assets. We then investigate the relationship between trade mark activity and productivity, using a value added production function. Finally we examine interactions between firms IP activity, to explore creative destruction and growth via innovation. We find trade marks are positively related to both Tobin`s q and to productivity. Also in the short run greater IP activity by other firms in the industry reduces the value added of the firm, but this same competitive pressure has later benefits via productivity growth, also reflected in higher stock market value. This describes the Schumpeterian process of competition through innovation, restraining profit margins while increasing product variety and quality.
    Keywords: Trade Marks, Market Value, Productivity, Manufacturing, Services
    JEL: O30 L60 L80
    Date: 2007
  13. By: Nicole Gürtzgen
    Abstract: Using a large linked employer-employee data set, this paper presents new evidence on the collective bargaining wage effect in western and eastern Germany. The novel feature of our analysis is that we use a longitudinal data set. Thus, in contrast to previous studies, we seek to assess the extent to which differences in wages between workers in covered and uncovered firms really represent an effect of collective bargaining coverage, rather than a consequence of the non-random selection of workers and firms into the different regimes. By measuring the relative wage gains or losses of workers employed in firms that change contract status, we obtain estimates that depart considerably from previous results relying on cross-sectional data. Industrylevel contracts in western Germany and firm-level contracts in eastern Germany are associated with a small, but statistically significant average wage premium of about 2 per cent. Moreover, wage decompositions indicate that the overall effect of collective bargaining coverage on the returns to observable attributes appears to be negligible once the selection into the regimes is accounted for.
    Keywords: Union Wage Premium, Collective Bargaining Coverage
    JEL: J31 J51
    Date: 2006
  14. By: Hugo Ñopo (Inter-American Development Bank); Patricio Valenzuela (International Monetary Fund)
    Abstract: Using the 1996-2001 Chilean CASEN Panel Survey, this paper analyzes the impact on income of the switch from salaried employment to entrepreneurship (self-employment and leadership of micro-enterprises). By means of a difference-in-differences non-parametric matching estimator the paper alleviates problems of selection bias (on observable and unobservable traits) and creates the appropriate counterfactuals of interest. The results indicate that the income gains associated with the switch from salaried employment to entrepreneurship are positive, statistically significant and financially substantial. Even more, the results are qualitatively the same using mean and medians, suggesting that the impacts are not influenced by the presence of few “superstar winners.” Additionally, the income changes associated with the reverse switches (from self-employment to salaried jobs) are negative. The results also suggest interesting gender differences, as females show higher gains than males on the switch from salaried jobs to entrepreneurship and lower losses on the reverse switch.
    Keywords: difference-in-differences; non-parametric matching; micro-enterprises
    JEL: J16 J31 J41
    Date: 2007–03
  15. By: André de Palma (University of Cergy-Pontoise (THEMA),and Ecole Polytechnique); Jean-Luc Prigent (University of Cergy-Pontoise (THEMA))
    Abstract: This paper introduces a financial hedging model for global environment risks. Our approach is based on portfolio insurance under hedging constraints. Investors are assumed to maximize their expected utilities defined on financial and environmental asset values. The optimal investment is determined for quite general utility functions and hedging constraints. In particular, our results suggest how to introduce derivative assets written on the environmental asset.
    Keywords: utility maximization, hedging, environmental asset, martingale theory
    JEL: C6 G11 G24 L10
    Date: 2007
  16. By: Lapan, Harvey E.; Hennessy, David A.
    Abstract: The welfare dominance of ad valorem taxes over unit taxes in a single-market Cournot oligopoly is well-known. This article extends the analysis to multi-market oligopoly. Provided all ad valorem taxes are positive, unit costs are constant, firms are active in all considered markets, and a representative consumer has convex preferences, it is shown that ad valorem taxes dominate in multi-product equilibrium. We discuss the role of unit cost covariances across multi-product firms in determining the extent of cost efficiencies arising under ad valorem taxation. The issue of merger under oligopoly is also considered. Conditions are identified under which a merger increases the sum of consumer and producer surpluses while also increasing the revenue yield from a set of unit taxes. If not all firms are active in all considered markets, then it is also shown that additional conditions are required to ensure the dominance of ad valorem taxes. In multi-input Cournot oligopsony, however, unit taxation welfare dominates. This is because ad valorem taxes on inputs reduce demand elasticities, amplifying market power distortions.
    Keywords: ad valorem tax; imperfect competition; oligopoly merger; quantity-setting game; specific tax; tax efficiency; tax revenue
    JEL: D4 H2
    Date: 2007–04–10
  17. By: Oskar Nordström Skans; Per-Anders Edin; Bertil Holmlund
    Abstract: The paper describes the Swedish wage distribution and how it correlates with worker mobility and plant-specific factors. It is well known that wage inequality has increased in Sweden since the mid-1980s. However, little evidence has so far been available as to whether this development reflects increased dispersion between plants, between individuals in the same plant, or both. We use a new linked employer-employee data set and discover that a trend rise in between-plant wage inequality account for the entire increase in wage dispersion. This pattern, which remains when we control for observable individual human capital characteristics, may reflect increased sorting of workers by skill levels and/or increased scope for rent sharing in local wage negotiations. Our discussion suggests that both factors may have become more important.
    JEL: J31 J63
    Date: 2007–04
  18. By: Antonio Cabrales; Antoni Calvo-Armengol
    Abstract: This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable effects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely “selfish” preferences leads to widespread workplace skill segregation. This result holds for a broad class and distribution of social preferences. That is, workers of different abilities tend to work in different firms, as long as they care somewhat more about the utilities of workers who are “close”.
    Date: 2007–03
  19. By: Kristie M. Engemann; Michael T. Owyang
    Abstract: During the typical recovery from U.S. post-War period economic downturns, employment recovers to its pre-recession level within months of the output trough. However, during the last two recoveries, employment has taken up to two years to achieve its pre-recession benchmark. We propose a formal empirical model of business cycles with recovery periods to demonstrate that the last two recoveries have been statistically different from previous experiences. We find that this difference can be attributed to a shift in the speed of transition between business cycle regimes. Moreover, we find this shift results from both durable and non-durable manufacturing sectors losing their cyclical characteristics. We argue that this finding of acyclicality in post-1980 manufacturing sectors is consistent with previous hypotheses (e.g., improved inventory management) regarding the reduction in macroeconomic volatility over the same period. These results suggest a link between the two phenomena, which have heretofore been studied separately.
    Keywords: Business cycles ; Labor market
    Date: 2007
  20. By: Carsten Eckel; J. Peter Neary
    Abstract: We present a new model of multi-product firms (MPFs) and flexible manufacturing and explore its implications in partial and general equilibrium. International trade integration affects the scale and scope of MPFs through a competition effect and a demand effect. We demonstrate how MPFs adjust in the presence of single-product firms and in heterogeneous industries. Our results are in line with recent empirical evidence and suggest that MPFs in conjunction with flexible manufacturing play an important role in the impact of international trade on product diversity.
    Keywords: Multi-Product Firms, Flexible Manufacturing, General Oligopolistic Equilibrium (GOLE), International Trade, Product Diversity
    JEL: F12 L13
    Date: 2006
  21. By: Matthias Kräkel (Department of Economics, BWL II, University of Bonn, Adenauerallee 24-42, D-53113 Bonn. Tel: +49-228-739211, Fax: +49-228-739210, Germany, e-mail:
    Abstract: Several empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.
    Keywords: limited liability, piece rates, risk aversion, risk-incentives trade-off
    JEL: D01 D82 J3 M5
    Date: 2007–04
  22. By: Heger, Diana; Tykvová, Tereza
    Abstract: We present evidence on venture capitalists’ (VCs) impact on turnover of executives for a sample of nearly 47,000 German high-tech start-ups between 1995 and 2004. We confirm that the presence of VCs increases the probability of a change in the initial executive team. Additionally, we take a closer look on the subsample of venturebacked firms. We find that a small distance between the VCs and the companies they finance and a larger total stake in the company owned by VCs increase the probability of changes in the initial executive teams.
    Keywords: Venture Capital, Executive Turnover
    JEL: G24 G32
    Date: 2007

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