nep-bec New Economics Papers
on Business Economics
Issue of 2007‒05‒26
twenty-six papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Where do the talented people work as outside directors? By Changmin Lee
  2. Foreign Firms, Domestic Wages By Malchow-Møller, Nikolaj; Markusen, James R.; Schjerning, Bertel
  3. Interlocking Boards and Firm Performance: Evidence from a New Panel Database By Mariëlle C. Non; Philip Hans Franses
  4. Mergers in Asymmetric Stackelberg Markets By Marc Escrihuela Villar; Ramon Fauli Oller
  5. Duopoly Dynamics with a Barrier to Entry By Jaap H. Abbring; Jeffrey R. Campbell
  6. Computing an Optimal Contract in Simple Technologies By Yuval Emek; Michal Feldman
  7. Financial Constraint and R&D Investment: Evidence from CIS By Mohnen, Pierre; Tiwari, Amaresh; Palm, Franz; Schim van der Loeff, Sybrand
  8. What’s happened over the past 10 years to the selection of retired CEOs as board members? By Changmin Lee
  9. Does Corporate Culture Matter? An Empirical Study on Japanese Firms By HIROTA Shinichi; KUBO Katsuyuki; MIYAJIMA Hideaki
  10. Using Behavioral Economic Experiments at a Large Motor Carrier: The Context and Design of the Truckers and Turnover Project By Stephen V. Burks; Jeffrey Carpenter; Lorenz Götte; Kristen Monaco; Kay Porter; Aldo Rustichini
  11. Service Offshoring and the Demand for Less-Skilled Labor: Evidence from Germany By Deborah Schöller
  12. Corporate Entrepreneurship: Building a Knowledge-Based View of the Firm By Isabel Pizarro-Moreno; Juan C. Real; Elena Sousa-Ginel
  13. Consolidation Waves By Ward A. van den Berg; Han T.J. Smit
  14. Positional Power in Hierarchies By René van den Brink; Frank Steffen
  15. The Agency Model as a Predictor of the Size of the Internal Audit Function in Belgian Companies By G. SARENS
  16. Power in the Multinational Corporation in Industry Equilibrium By Marin, Dalia; Verdier, Thierry
  17. La délocalisation et l'emploi au Canada : quelques points de repère By Morissette, Rene; Johnson, Anick
  18. Do Larger Firms Have More Interfirm Relationships? By SAITO (UMENO) Yukiko; WATANABE Tsutomu; IWAMURA Mitsuru
  19. Rational Pessimism, Rational Exuberance, and Asset Pricing Models By Ravi Bansal; A. Ronald Gallant; George Tauchen
  20. The Impact of Legal Sanctions on Moral Hazard when Debt Contracts are Renegotiable. By Régis Blazy; Laurent Weill
  21. Real and Nominal Wage Rigidities in Collective Bargaining Agreements By Louis N. Christofides; Paris Nearchou
  22. An electromagnetic time/cost trade-off optimization in project scheduling By M. VANHOUCKE
  23. A genetic algorithm to investigate the trade-off between project lead time and net present value By M. VANHOUCKE
  24. Corporate Governance: a South-Eastern European perspective By Bobirca, Ana; Miclaus, Paul-Gabriel
  25. Welfare Effects of Financial Integration By Fecht, Falko; Grüner, Hans Peter; Hartmann, Philipp
  26. Financing Development: The Role of Information Costs By Jeremy Greenwood; Juan M. Sanchez; Cheng Wang

  1. By: Changmin Lee (Indiana University Bloomington)
    Abstract: This paper develops a matching model in the director market with outside options to explain the equilibrium board quality. Based on Hermalin (2005) and Gabaix and Landier (2006), the board of directors has the function of monitoring and advising to affect the earning of firm assuming that the impact of a CEO's quality increases with the size of the firm under his control. This model shows that the big firms make board positions more attractive compared to outside options. Also, only when the impact of the advising by the board is strong, the more talented CEO can induce the high qualified outside directors. It follows that the board quality increases. Additionally, the model can explain the observed fact that the quality of directors on the same boards is dispersed. The estimations suggest that the talented ongoing CEOs and retired CEOs go to the firms which have the high market capitalization values and the large amount of sales. The evidence for the effect of the incumbent CEO's talent is mixed. I also find that the firms which have a large amount of sales pay more to outside directors. The compensation for directors, however, does not affect the quality of boards.
    Keywords: Corporate governance, Board of director, Job search, Matching
    JEL: D23 G34 G38 J41 J44 J64 L25
    Date: 2007–05
  2. By: Malchow-Møller, Nikolaj; Markusen, James R.; Schjerning, Bertel
    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.
    Keywords: heterogeneous firms; knowledge transfer; multinationals; productivity; spillovers
    JEL: F16 F2 F23
    Date: 2007–05
  3. By: Mariëlle C. Non (Erasmus Universiteit Rotterdam); Philip Hans Franses (Erasmus Universiteit Rotterdam)
    Abstract: An interlock between two firms occurs if the firms share one or more directors in their boards of directors. We explore the effect of interlocks on firm performance for 101 large Dutch firms using a large and new panel database. We use five different performance measures, and for each performance measure we design three different panel data models, where we allow the effect of the number of interlocks to be linear, quadratic or square root, either with or without lags. Based on all results we conclude that current interlocks can have a negative effect on future firm performance. We show that this negative effect is jointly established by (1) interlocking directors being too busy and (2) by directors being members of a homogenous upper class group.
    Keywords: interlocks; firm performance
    JEL: C23 G34 J53 Z13
    Date: 2007–03–30
  4. By: Marc Escrihuela Villar; Ramon Fauli Oller (School of Economics, Universidad de Guanajuato)
    Abstract: It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.
    Keywords: Mergers, Asymmetries, Stackelberg
    JEL: L13 L40 L41
  5. By: Jaap H. Abbring (Vrije Universiteit Amsterdam); Jeffrey R. Campbell (Federal Reserve Bank of Chicago, and NBER)
    Abstract: This paper considers the effects of raising the cost of entry for a potential competitor on infinite-horizon Markov-perfect duopoly dynamics with ongoing demand uncertainty. All entrants serving the model industry incur sunk costs, and exit avoids future fixed costs. We focus on the unique equilibrium with last-in first-out expectations: A firm never exits leaving behind an active younger rival. We prove that raising a second producer's sunk entry cost in an industry that supports at most two firms reduces the probability of having a duopoly but increases the probability that some firm will serve the industry. Numerical experiments indicate that a barrier to entry's quantitative relevance depends on demand shocks' serial correlation. If they are not very persistent, the direct entry-deterring effect of a barrier to a second firm's entry greatly reduces the average number of active firms. The indirect entry-encouraging effect does little to offset this. With highly persistent demand shocks, the direct effect is small and the barrier to entry has no substantial effect on the number of competitors. This confirms Carlton's (2004) assertion that the effects of a barrier depend crucially on industry dynamics that two-stage "short run/long run" models capture poorly.
    Keywords: LIFO; FIFO; Sunk costs; Markov-perfect equilibrium; Competition policy
    JEL: L13 L41
    Date: 2007–04–27
  6. By: Yuval Emek; Michal Feldman
    Abstract: We study an economic setting in which a principal motivates a team of strategic agents to exert costly effort toward the success of a joint project. The action taken by each agent is hidden and affects the (binary) outcome of the agent's individual task stochastically. A Boolean function, called technology, maps the individual tasks' outcomes into the outcome of the whole project. The principal induces a Nash equilibrium on the agents' actions through payments that are conditioned on the project's outcome (rather than the agents' actual actions) and the main challenge is that of determining the Nash equilibrium that maximizes the principal's net utility, referred to as the optimal contract. Babaioff, Feldman and Nisan [1] suggest and study a basic combinatorial agency model for this setting. Here, we concentrate mainly on two extreme cases: the AND and OR technologies. Our analysis of the OR technology resolves an open question and disproves a conjecture raised in [1]. In particular, we show that while the AND case admits a polynomial-time algorithm, computing the optimal contract in the OR case is NP-hard. On the positive side, we devise an FPTAS for the OR case, which also sheds some light on optimal contract approximation of general technologies.
    Date: 2007–05
  7. By: Mohnen, Pierre (UNU-MERIT and University of Maastricht); Tiwari, Amaresh (University of Maastricht); Palm, Franz (University of Maastricht); Schim van der Loeff, Sybrand (University of Maastricht)
    Abstract: Using direct information on financial constraints from questionnaires, rather than the commonly used balance sheet information, this paper presents evidence that, controlling for traditional factors as size, market share, cooperative arrangement, and expected profitability, financial constraints affect a firm's decision of how much to invest in R&D activities. Apart from these constraints, other hampering factors as market uncertainty and institutional bottlenecks, regulations and organizational rigidities also affect R&D investment. A semiparametric estimator of sample selection is employed to control for potential endogeneity of the regressors. The paper also shows that old firms and firms that belong to a group are less financially constrained when it comes to undertaking R&D activities. For the estimation a semiparametric binary choice model is used.
    Keywords: Research and Development, Investment, Financial Risk
    JEL: O32 G11 G32
    Date: 2007
  8. By: Changmin Lee (Indiana University Bloomington)
    Abstract: I analyze directorships held by CEOs who retired during 1989-1993 and during 1998-2002. My results suggest that retired CEOs became more popular on boards. Also, although pre-retirement accounting performance helps explain the number of outside directorships a retired CEO held in the 1989-1993 sample as Brickley, Linck, and Coles (1999) found, it does not in the 1998-2002 sample. Third, a company's stock performance during a CEO's tenure affects whether he became an inside director of that company after retirement. A 25% change in stock price performance increased the probability by 11% in the 1989-1993 sample, and 51% in the 1998-2002 sample. Finally, if a retired CEO worked in a regulated industry, his probability of serving at least one outside directorship fell by 34% in the 1989-1993 sample, and 24% in the 1998-2002 sample.
    Keywords: Corporate governance, Board of director, Deregulation
    JEL: G34 G38 L10 L51
    Date: 2007–05
  9. By: HIROTA Shinichi; KUBO Katsuyuki; MIYAJIMA Hideaki
    Abstract: Corporate culture does matter. Using Japanese firms' data from 1987-2000, we have shown that the strength of corporate culture significantly affects corporate policies such as employment policy, management structure, and financial structure. We have also confirmed that the culture and its embedding contribute to better corporate performance. These culture effects are found to be considerable in magnitude and at least as large as those of other factors. We suggest that it is important to recognize the existence of the culture for understanding corporate policies and performance.
    Date: 2007–05
  10. By: Stephen V. Burks (University of Minnesota, Morris, and IZA); Jeffrey Carpenter (Middlebury College and IZA); Lorenz Götte (Federal Reserve Bank of Boston and IZA); Kristen Monaco (California State University, Long Beach); Kay Porter (Cooperating Motor Carrier); Aldo Rustichini (University of Minnesota)
    Abstract: The Truckers and Turnover Project is a statistical case study of a single firm and its employees which matches proprietary personnel and operational data to new data collected by the researchers to create a two-year panel study of a large subset of new hires. The project’s most distinctive innovation is the data collection process which combines traditional survey instruments with behavioral economics experiments. The survey data include information on demographics, risk and loss aversion, time preference, planning, non-verbal IQ, and the MPQ personality profile. The data collected by behavioral economics experiments include risk and loss aversion, time preferences (discount rates), backward induction, patience, and the preference for cooperation in a social dilemma setting. Subjects will be followed over two years of their work lives. Among the major design goals are to discover the extent to which the survey and experimental measures are correlated, and whether and how much predictive power, with respect to key on-the-job outcome variables, is added by the behavioral measures. The panel study of new hires is being carried out against the backdrop of a second research component, the development of a more conventional indepth statistical case study of the cooperating firm and its employees. This is a high-turnover service industry setting, and the focus is on the use of survival analysis to model the flow of new employees into and out of employment, and on the correct estimation of the tenureproductivity curve for new hires, accounting for the selection effects of the high turnover.
    Keywords: field experiment, risk aversion, loss aversion, time preference, IQ, MPQ, numeracy, U.S. trucking industry, for-hire carriage, truckload (TL), driver turnover, employment duration, survival model, tenure-productivity curve
    JEL: C81 C93 L92 J63
    Date: 2007–05
  11. 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 in terms of both quantity and quality. One decade ago, most services were considered non-tradable, but the emergence of new information and communication technologies has contributed to overcoming geographical distance. The move towards the liberalization of international service trade has further accelerated this process. The empirical part of this paper first calculates German service offshoring intensities 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 2003. In a next step, the impact of service offshoring on the demand for heterogeneous labor in Germany is estimated at a sectoral level including 28 manufacturing sectors. The partial static equilibrium model is based on a variable unit cost function in the general translog form allowing for quasi-fixed input factors. Two different skill-levels are taken into account. The estimation results indicate that service offshoring reduced the relative demand for less-skilled labor in the German manufacturing sectors by on average -0.06 to -0.16% per year between 1991 and 2000.
    Keywords: service offshoring; labor demand; less-skilled labor; globalization; technological change
    JEL: F1 F2
    Date: 2007–05
  12. By: Isabel Pizarro-Moreno (Department of Business Administration, Universidad Pablo de Olavide); Juan C. Real (Department of Business Administration, Universidad Pablo de Olavide); Elena Sousa-Ginel (Department of Business Administration, Universidad Pablo de Olavide)
    Abstract: Increasing globalisation and dynamism in the economy has made it necessary for established companies to regenerate themselves and renew their ability to compete. This is the goal of Corporate Entrepreneurship (CE) activities, which involve extending the firm’s domain of competence and corresponding opportunity set, through internally generated new resource combinations. The purpose of this study is to contribute to the understanding of the way the process of CE is developed within the organizations. In order to achieve this, a model relating key components of the CE process (opportunity, initiative and capability) to five phases of knowledge creation taken from Nonaka & Takeuchi is proponed.
    Keywords: organizational knowledge creation; corporate entrepreneurship; knowledge-base view; innovation; development of capabilities
    Date: 2007–03
  13. By: Ward A. van den Berg (Erasmus Universiteit Rotterdam); Han T.J. Smit (Erasmus Universiteit Rotterdam)
    Abstract: This paper explains why consolidation acquisitions occur in waves and it predicts the differing role each firm is likely to play in the consolidation game. We propose that whether a firm assumes the role of rival consolidator, target, or passive observer depends on the position of the firm relative to the entity that merges first. Our model predicts that an initial acquisition triggers a wave of follow-on acquisitions, where the process of asset accumulation by the consolidator is accelerated since the value of follow-on acquisitions is enhanced by the more concentrated industry structure. An initial consolidation can trigger a consolidating acquisition by a rival in a remote market segment, while some firms prefer to be a target and others remain passive observers that await the outcome of the consolidation process rather than merge amongst themselves. Fragmentation, demand uncertainty, and investment costs determine the timing of acquisitions.
    Keywords: Acquisitions; Spatial competition; Real options
    JEL: G34 L10
    Date: 2007–03–08
  14. By: René van den Brink (Vrije Universiteit Amsterdam); Frank Steffen (Management School (ULMS), University of Liverpool)
    Abstract: Power is a core concept in the analysis and design of organisations. In this paper we consider positional power in hierarchies. One of the problems with the extant literature on positional power in hierarchies is that it is mainly restricted to the analysis of power in terms of the bare positions of the actors. While such an analysis informs us about the authority structure within an organisation, it ignores the decision-making mechanisms completely. The few studies which take into account the decision-making mechanisms make all use of adaptations of well-established approaches for the analysis of power in non-hierarchical organisations such as the Banzhaf measure; and thus they are all based on the structure of a simple game, i.e. they are ‘membershipbased’. We demonstrate that such an approach is in general inappropriate for characterizing power in hierarchies as it cannot be extended to a class of decision-making mechanisms which allow certain actors to terminate a decision before all other members have been involved. As this kind of sequential decision-making mechanism turns out to be particularly relevant for hierarchies, we suggest an action-b! ased approach - represented by an extensive game form - which can take the features of such mechanisms into account. Based on this approach we introduce a power score and measure that can be applied to ascribe positional power to actors in sequential decision making mechanisms.
    Keywords: hierarchies; decision-making mechanism; power; positional power; power measure
    JEL: C79 D02 D71
    Date: 2007–05–03
  15. By: G. SARENS
    Abstract: This study contributes to the literature by using an agency model to explain the size of internal audit functions in a non-Anglo-Saxon environment. Data to test this model were collected from annual reports and a questionnaire sent to Chief Audit Executives. The results show that the agency model has high explanatory power and reveals that the more diffused the ownership structure of the company, the larger the company and the more reporting levels within the company, the larger the internal audit function. The results of this study confirm the growing monitoring role of internal auditing in contemporary corporate governance.
    Keywords: internal auditing, Belgium, agency theory, questionnaire, annual report
    Date: 2007–04
  16. By: Marin, Dalia; Verdier, Thierry
    Abstract: Recent theories of the multinational corporation introduce the property rights model of the firm and examine whether to integrate our outsource firm activities locally or to a foreign country. This paper focus instead on the internal organization of the multinational corporation by examining the power allocation between headquarters and subsidiaries. We provide a framework to analyse the interaction between the decision to serve the local market by exporting or FDI, market acces and the optimal mode of organization of the multinational corporation. We find that subsidiary managers are given most autonomy in their decision how to run the firm at intermediate levels of local competition. We then provide comparative statics for changes in fixed FDI entry costs and trade costs, information technology, the number of local competitors, and in the size of the local market.
    Keywords: foreign direct investment; power allocation in the firm; international trade and the organization of production
    JEL: D23 F1 F2
    Date: 2007–05
  17. By: Morissette, Rene; Johnson, Anick
    Abstract: Dans la présente étude, nous regroupons une grande gamme d'ensembles de données en vue de produire un ensemble de faits stylisés relatifs à la délocalisation et à l'évolution de l'emploi survenues au Canada ces dernières années. Notre principale constatation est que presque tous les ensembles de données utilisés ne permettent jusqu'à présent de dégager que peu de preuves d'une corrélation entre la délocalisation, quelle qu'elle soit définie, et l'évolution des taux d'emplois et de mises à pied. Bien que nos analyses soient assez simples, elles suggèrent toutes que l'incidence que pourrait avoir eue jusqu'à maintenant l'externalisation sur l'emploi et le déplacement de la main d'oeuvre canadienne est vraisemblablement modérée et, donc, peu probablement décelable à l'aide de données au niveau de l'industrie ou de la catégorie professionnelle.
    Keywords: Commerce international, Travail, Importation de services, Emploi et chômage, Mondialisation et marché du travail
    Date: 2007–05–22
  18. By: SAITO (UMENO) Yukiko; WATANABE Tsutomu; IWAMURA Mitsuru
    Abstract: In this study, we investigate interfirm networks by employing a unique dataset containing information on more than 800,000 Japanese firms, about half of all corporate firms currently operating in Japan. First, we find that the number of relationships, measured by the indegree, has a fat-tail distribution, implying that there exist "hub" firms with a large number of relationships. Moreover, the indegree distribution for those hub firms also exhibits a fat tail, suggesting the existence of "super-hub" firms. Second, we find that larger firms tend to have more counterparts, but that the relationship between firms' size and the number of their counterparts is not necessarily proportional; firms that already have a large number of counterparts tend to grow without proportionately expanding it.
    Date: 2007–05
  19. By: Ravi Bansal; A. Ronald Gallant; George Tauchen
    Abstract: The paper estimates and examines the empirical plausibiltiy of asset pricing models that attempt to explain features of financial markets such as the size of the equity premium and the volatility of the stock market. In one model, the long run risks model of Bansal and Yaron (2004), low frequency movements and time varying uncertainty in aggregate consumption growth are the key channels for understanding asset prices. In another, as typified by Campbell and Cochrane (1999), habit formation, which generates time-varying risk-aversion and consequently time-variation in risk-premia, is the key channel. These models are fitted to data using simulation estimators. Both models are found to fit the data equally well at conventional significance levels, and they can track quite closely a new measure of realized annual volatility. Further scrutiny using a rich array of diagnostics suggests that the long run risk model is preferred.
    JEL: G0 G00 G1 G10 G12
    Date: 2007–05
  20. By: Régis Blazy (CREFI-LSF, Luxembourg University, Luxembourg School of Finance, Luxembourg.); Laurent Weill (LARGE, Université Robert Schuman, Institut d'Etudes Politiques, France)
    Abstract: This research investigates how bankruptcy law influences the design of debt contracts and the investment choice through the sanction of faulty managers. We model a lending relationship between a small firm and a monopolistic bank which decides the loan rate. The firm may perform asset substitution, which is punished by the Law through legal sanctions. These sanctions are implemented in case of costly bankruptcy only. This way of resolving financial distress can be avoided yet, if a private agreement is achieved. First, – when sanctions are high – we show that costly bankruptcy may be preferred by honest firms over private negotiation. Thus costly bankruptcy cannot be avoided under a severe legal environment. However, as the bank internalizes the rules of default, debt contracts are designed so that this situation never happens at equilibrium (“legal efficiency”).Second, a peculiar legislation may incite banks to accept generalized moral hazard (“economic inefficiency”). Then, the legislator can indectly enforce economic efficiency. However he must consider effects beyond the simple comparison between legal sanctions and bankruptcy costs, and focus on the impact of such legal sanctions on the design of the debt contract. Simulated results show that even small changes of legal sanctions may have drastic effects on the firm’s investment policy. Besides, it appears that extreme severity (i.e. 100% of the manager’s wealth is subject to legal sanctions) is not needed to ensure economic efficiency. Last, in some cases, the legislator may have the choice between several levels of legal sanctions all leading to economic efficiency: when choosing between them, the legislator affects the profit sharing only.
    Keywords: Bankruptcy, Credit Lending, Moral Hazard, Sanctions
    JEL: G33 D82 D21
    Date: 2007–05
  21. By: Louis N. Christofides (University of Cyprus, University of Guelph, CLLRNet, CESifo and IZA); Paris Nearchou (University of Cyprus)
    Abstract: An earlier study of wage agreements, reached in the Canadian unionized sector between 1976-99, found that wage adjustment is characterized by downward nominal rigidity and significant spikes at zero. We extend this earlier approach to encompass the possibility of real as well as nominal wage rigidity. The addition of real wage rigidity variables enhances earlier results and suggests that real rigidity increases significantly the mass in the histogram bin containing the mean anticipated rate of inflation, as well as in adjacent bins. Downward nominal wage rigidities and spikes at zero remain important.
    Keywords: real, nominal wage rigidities
    JEL: J52 J31
    Date: 2007–05
  22. By: M. VANHOUCKE
    Abstract: Time/cost trade-offs have been extensively studied in the literature since the development of the critical path method. Recently, the discrete version of the problem formulation has been extended to various practical assumptions, and solved with both exact and heuristic optimization procedures. In this paper, we present a electromagnetic meta-heuristic (EM) algorithm for the discrete time/cost trade-off problem under four different assumptions. We extend the standard electromagnetic meta-heuristic with problem specific features and investigate the influence of various EM specific parameters on the solution quality. We test the new meta-heuristic on a benchmark set from the literature and present extensive computational results.
    Keywords: discrete time/cost trade-off problem; work continuity; time/switch constraints; net present value; electromagnetism
    Date: 2007–04
  23. By: M. VANHOUCKE
    Abstract: In this paper, we present a new genetic algorithm for the resource-constrained project scheduling problem with discounted cash flows and investigate the trade-off between a project’s net present value and its corresponding lead time. We consider a problem formulation where the pre-specified project deadline is not set as a hard constraint, but rather as a soft constraint that can be violated against a certain penalty cost. The genetic algorithm creates children from parents taken from three different populations, each containing relevant information about the (positive or negative) activity cash flows. We have tested various parent selection methods based on four crossover operators taken from literature and present extensive computational results.
    Keywords: Resource-constrained project scheduling; net present value; genetic algorithm
    Date: 2007–03
  24. By: Bobirca, Ana; Miclaus, Paul-Gabriel
    Abstract: The purpose of the article is to illustrate the main characteristics of the corporate governance challenge facing the countries of South-Eastern Europe (SEE) and to subsequently determine and assess the extensiveness and effectiveness of corporate governance regulation in these countries. Therefore, we start with an overview on the subject of the key problems of corporate governance in transition. We then address the issue of corporate governance measurement for SEE countries. To this end, we include a review of the methodological framework for determining both the extensiveness and the effectiveness of corporate governance legislation, as defined by the EBRD and a discussion on aspects related to corporate governance development, the quality of corporate governance codes and of the “law on the books”. We then focus on the actual analysis of legal institutions effectiveness and provide a measure of corporate governance in Romania and other SEE emerging markets. The paper concludes by emphasizing the relationship between legal change and the development of financial markets in the SEE region.
    Keywords: corporate governance; South-Eastern Europe; transition; extensiveness; effectiveness
    JEL: G38 P31 K22 G34
    Date: 2007–01
  25. By: Fecht, Falko; Grüner, Hans Peter; Hartmann, Philipp
    Abstract: This paper compares four forms of inter-regional financial risk sharing: (i) segmentation, (ii) integration trough the secured interbank market, (ii) integration trough the unsecured interbank market, (iv) integration of retail markets. The secured interbank market is an optimal risk-sharing device when banks report liquidity needs truthfully. It allows diversification without the risk of cross-regional financial contagion. However, free-riding on the liquidity provision in this market restrains the achievable risk-sharing as the number of integrated regions increases. In too large an area this moral hazard problem becomes so severe that either unsecured interbank lending or, ultimately, the penetration of retail markets is preferable. Even though this deeper financial integration entails the risk of contagion it may be beneficial for large economic areas, because it can implement an efficient sharing of idiosyncratic regional shocks. Therefore, the enlargement of a monetary union, for example, extending the common interbank market might increase the benefits of also integrating retail banking markets through cross-border transactions or bank mergers. We discuss these results in the context of the ongoing debate on European financial integration and the removal of bank branching restrictions in the United States during the 1990s, and we derive implications for the relationship between financial integration and financial stability. Last we illustrate the scope for cross-regional risk sharing with data on non-performing loans for the European Union, Switzerland and the United States.
    Keywords: cross border lending; financial contagion; financial integration; interbank market
    JEL: F36
    Date: 2007–05
  26. By: Jeremy Greenwood; Juan M. Sanchez; Cheng Wang
    Abstract: How does technological progress in financial intermediation affect the economy? To address this question a costly-state verification framework is embedded into a standard growth model. In particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.
    JEL: E44 O11 O16 O43
    Date: 2007–05

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