nep-bec New Economics Papers
on Business Economics
Issue of 2007‒07‒27
twelve papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Conflicts of Interests Among Shareholders: The Case of Corporate Acquisitions By Jarrad Harford; Dirk Jenter; Kai Li
  2. Human Capital and Productivity in Microenterprises By Mungaray, Alejandro; Ramirez-Urquidy, Martin
  3. Incorporating Both Undesirable Outputs and Uncontrollable Variables into DEA: the Performance of Chinese Coal-Fired Power Plants By Yang, H.; Pollitt, M.
  4. Changes in Math Prerequisites and Student Performance in Business Statistics: Do Math Prerequisites Really Matter? By Jeffrey J. Green; Courtenay C. Stone; Abera Zegeye; Thomas A. Charles
  5. The Non-neutrality of Corporate Tax: An Entrepreneurial Perspective By Filoso, Valerio
  6. Work, Rest, and Play: Exploring Trends in Time Allocation in Canada and the United States By McFarlane, Adian; Tedds, Lindsay
  7. Monitoring In Teams: A Model and Experiment on the Central Monitor Hypothesis By Stefan Grosse; Louis Putterman; Bettina Rockenbach
  8. Which Firms Benefit More from Financial Development? By Bena, Jan; Jurajda, Stepan
  9. Cyclical Dynamcis in Three Industries By Hao Tan; John A. Mathews
  10. Modelling Volatilities and Conditional Correlations in Futures Markets with a Multivariate t Distribution By Pesaran, B.; Pesaran, M.H.
  11. Asian Currency Crises: Do Fundamentals still Matter? A Markov-Switching Approach to Causes and Timing By J L Ford; Bagus Santoso; N J Horsewood
  12. What Makes a Successful Entrepreneur? Evidence from Brazil By Simeon Djankov; Yingyi Qian; Gerard Roland; Ekaterina Zhuravskaya

  1. By: Jarrad Harford; Dirk Jenter; Kai Li
    Abstract: We identify important conflicts of interests among shareholders and examine their effects on corporate decisions. When a firm is considering an action that affects other firms in its shareholders' portfolios, shareholders with heterogeneous portfolios may disagree about whether to proceed. This effect is measurable and potentially large in the case of corporate acquisitions, where bidder shareholders with holdings in the target want management to maximize a weighted average of both firms' equity values. Empirically, we show that such cross-holdings are large for a significant group of institutional shareholders in the average acquisition and for a majority of institutional shareholders in a significant number of deals. We find evidence that managers consider cross-holdings when identifying potential targets and that they trade off cross-holdings with synergies when selecting them. Overall, we conclude that conflicts of interests among shareholders are sizeable and, at least in the case of acquisitions, affect managerial decisions.
    JEL: G30 G34
    Date: 2007–07
  2. By: Mungaray, Alejandro; Ramirez-Urquidy, Martin
    Abstract: The hypothesis that human capital increases productivity is tested using data from a sample of low value-added microenterprises. A special attribute of this paper is the join treatment of formal learning or training in education institutions, and informal training by experience of the owner in the firm management. Following previous studies, the relation between human capital and productivity is determined by estimating production functions with the inclusion of dummy variables to control for formal education and informal training by experience. Evidence of the linkage of human capital and productivity is reported. It is also reported that both types of investment in human capital have asymmetrical contribution to productivity, where the impact of experience is predominant. This allows concluding that the long-run existence of the firms in the sample is explained by the accumulation of experience in the management. Returns to education occur primarily for technical education and are lower than those generated by experiential learning in the firm management.
    Keywords: Human Capital; Productivity; Small Enterprises
    JEL: M21
    Date: 2007–04
  3. By: Yang, H.; Pollitt, M.
    Abstract: There are two difficulties in doing an objective evaluation of the performance of decision-making units (DMUs). The first one is how to treat undesirable outputs jointly produced with the desirable outputs, and the second one is how to treat uncontrollable variables, which often capture the impact of the operating environment. Given difficulties in both model construction and data availability, very few published papers simultaneously consider the above two problems. This article attempts to do so by proposing six DEA-based performance evaluation models based on a research sample of the Chinese coal-fired power plants. The finding of this paper not only contributes for the performance measurement methodology, but also has policy implications for the Chinese coal-fired power sector.
    Keywords: Data envelopment analysis, performance measurement, technical efficiency, electricity
    Date: 2007–07
  4. By: Jeffrey J. Green (Department of Economics, Ball State University); Courtenay C. Stone (Department of Economics, Ball State University); Abera Zegeye (Department of Economics, Ball State University); Thomas A. Charles (Department of Economics, Ball State University)
    Abstract: We use a binary probit model to assess the impact of several changes in math prerequisites on student performance in an undergraduate business statistics course. While the initial prerequisites did not necessarily provide students with the necessary math skills, our study, the first to examine the effect of math prerequisite changes, shows that these changes were deleterious to student performance. Our results helped convince the College of Business to change the math prerequisite again beginning with the 2008/2009 academic year. Thus, this study is also the first to actually help strengthen math prerequisites and improve student performance in business statistics.
    Keywords: binary probit; business statistics; math prerequisites; student performance.
    Date: 2007–07
  5. By: Filoso, Valerio
    Abstract: While corporate taxation is a major issue in the debate over international finance, economic theory has no clear stance on who bears its burden. On balance, economists seem still more prone to accept that taxing profits does not affect corporations' outcomes. This paper makes three cases for non-neutrality. First, since corporate taxation is asymmetric between profit and loss, the tax rate may change the ranking of alternative investments. Secondly, the imperfect observability of the use of internal resources makes pure economic profits very difficult to detect. Thirdly, when the pervasive role of entrepreneurship is fully taken into account, corporate taxation appears clearly as a direct tax on market adjustments and as an indirect tax on wages.
    Keywords: Corporate Taxation; Entrepreneurship; Tax Incidence; Austrian Economics
    JEL: H22 L26 B25 H25
    Date: 2007–07–20
  6. By: McFarlane, Adian; Tedds, Lindsay
    Abstract: We control for demographic changes to document trends in the allocation of time using time diary data for Canada (1986 to 2005) and the United States (1985 to 2005). We find that (1) in 2005, average weekly hours spent on market work is higher in Canada than in the U.S. (37.29 vs. 33.29) , (2) between 1986 and 2005 market work increased by an average of 3.75 hours per week in Canada, but in the U.S it remained relatively stable, and (3) over the sample period, leisure time increased in the U.S., but fell in Canada. In addition, the least educated enjoy more leisure relative to the most highly educated in both countries but this inequality is narrowing for Canadian men.
    Keywords: Market Work; Home Production; Leisure; Time Use
    JEL: O57 J22 D13
    Date: 2007–07
  7. By: Stefan Grosse; Louis Putterman; Bettina Rockenbach
    Date: 2007
  8. By: Bena, Jan; Jurajda, Stepan
    Abstract: We test whether more developed financial systems are better at tackling asymmetric information proxied by firm age and size. Comparing the growth effect of financial development (FD) across firms of different type, we find that FD disproportionately fosters the growth of young companies, while there is relatively little evidence of differences in the effect across firms of different size. The disproportionate gains from FD for youngest firms are concentrated among firms with lower shares of equity capital on total assets as these firms are in more need of external financing.
    Keywords: Corporate growth; Financial development; Information Asymmetry
    JEL: F36 G15 G21 O16 O52
    Date: 2007–07
  9. By: Hao Tan; John A. Mathews
    Abstract: In this paper we offer a procedure to identify the industry cycles, and apply the procedure to the industrial data of three industries, namely semiconductors, PCs and FPDs. The identified cycles enable us to conduct two comparison analyses: (1) comparing the cycles with those suggested by industry experts in the corresponding industries; (2) comparing the industry cycles across the three industries. Moreover, we examine the factors possibly contributing to the cyclical dynamics of the industries built on three lines of explanations in the literature. Our vector auto regression (VAR) models establish that the dynamics of aggregate economy and capacity are among the most significant drivers in our semiconductor industry cycle.
    Keywords: Industry cycle; business cycle; technology cycle; business dynamics; VAR model
    JEL: L60 L63
    Date: 2007
  10. By: Pesaran, B.; Pesaran, M.H.
    Abstract: This paper considers a multivariate t version of the Gaussian dynamic conditional correlation (DCC) model proposed by Engle (2002), and suggests the use of devolatized returns computed as returns standardized by realized volatilities rather than by GARCH type volatility estimates. The t-DCC estimation procedure is applied to a portfolio of daily returns on currency futures, government bonds and equity index futures. The results strongly reject the normal-DCC model in favour of a t-DCC specification. The t-DCC model also passes a number of VaR diagnostic tests over an evaluation sample. The estimation results suggest a general trend towards a lower level of return volatility, accompanied by a rising trend in conditional cross correlations in most markets; possibly reflecting the advent of euro in 1999 and increased interdependence of financial markets.
    Keywords: Volatilities and Correlations, Futures Market, Multivariate t, Financial Interdependence, VaR diagnostics.
    JEL: C51 C52 G11
    Date: 2007–06
  11. By: J L Ford; Bagus Santoso; N J Horsewood
    Abstract: This paper examines the extent to which the Asian currency crises can be accounted for by the macroeconomic fundamentals suggested by first and second generation models, exclusive of the ideas of the third generation models. In doing so we extend the literature on the earlier models by using GARCH and Path Independent Markov-Switching GARCH models to explain the market pressure on the exchange rate, and the probability of the timing of a crisis. In addition, we account for appreciations of the exchange rate. Our empirical estimates for Indonesia, South Korea, Malaysia and Thailand confirm that macroeconomic variables can explain the crises and the probability of occurrence at any time, dominating the conventionally used logit model.
    Keywords: Currency crisis, macroeconomic fundamentals, Markov-switching, volatile sate, stable state, probability of a crisis, logit model
    JEL: F31 F40
    Date: 2007–07
  12. By: Simeon Djankov (the World Bank); Yingyi Qian (UC Berkeley and CERP); Gerard Roland (UC Berkeley and CEPR); Ekaterina Zhuravskaya (New Economic School/CEFIR and CEPR)
    Abstract: We report the results of a new survey on entrepreneurship in Brazil. In September 2006, we interviewed 400 entrepreneurs and 550 non-entrepreneurs of the same age, gender, education and location in 7 Brazilian cities. The data are used to test three competing hypotheses on entrepreneurship: the role of economic and legal institutions (security of property rights; access to credit); the role of sociological characteristics (family background, social networks); and the role of individual features (attitude towards risk, I.Q., self-confidence) in becoming an entrepreneur. In line with our previous research in China and Russia, we find that sociological characteristics have the strongest influence on becoming an entrepreneur. In contrast, success as an entrepreneur is primarily determined by the individual’s smartness and higher education in the family. Entrepreneurs are not more self-confident than non-entrepreneurs; and overconfidence is bad for business success.
    Date: 2007–05

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