nep-bec New Economics Papers
on Business Economics
Issue of 2007‒09‒02
twenty-one papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Job Losses, Outsourcing and Relocation: Empirical Evidence Using Microdata By Manuel Artís; Raúl Ramos; Jordi Suriñach
  2. Performance Pay, Training and Labor Mobility By Gielen, A. C.
  3. Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market By Yan-leung Cheung; J. Thomas Connelly; Piman Limpaphayom; Lynda Zhou
  4. Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects By Raff, Horst; Ryan, Michael
  5. Exploring the Boundary between Entrepreneurship and Corporate Venturing: From Assisted Spin-outs to Entrepreneurial Spin-offs By E. VAN DE VELDE; B. CLARYSSE; M. WRIGHT; G. RAYP; J. BRUNEEL
  6. How (Not) to Measure Competition By Boone, J.; Ours, J.C. van; Wiel, H.P. van der
  7. CONFLICT, WAGES, AND MULTIPLE EQUILIBRIA. By Hernando Zuleta; Veneta Andonova
  8. Employee Voice and Human Resource Management: An Empirical Analysis using British Data By Alex Bryson; Paul Willman; Rafael Gomez; Tobias Kretschmer
  9. Innovation, Firm Dynamics, and International Trade By Andrew Atkeson; Ariel Burstein
  10. Prior knowledge and entrepreneurial innovative success By Uwe Cantner; Maximilian Goethner; Andreas Meder
  11. Honesty Is the Best Policy?When There Is Money in It: Can Firms Promote Honest Reporting Behavior by Managers? By Jia, Y.
  12. The Advantage of Experienced Start-Up Founders in Venture Capital Acquisition: Evidence from Serial Entrepreneurs By Junfu Zhang
  13. Job Assignments under Moral Hazard: The Peter Principle Revisited By Alexander K. Koch; Julia Nafziger
  14. The Evolution of Inequality in Productivity and Wages: Panel Data Evidence By Giulia Faggio; Kjell Salvanes; John Van Reenen
  15. Returns to Apprenticeship Training in Austria: Evidence from Failed Firms By Josef Fersterer; Jörn-Steffen Pischke; Rudolf Winter-Ebmer
  16. Financing Constraints and a Firm’s Decision and Ability to Innovate: Establishing Direct and Reverse Effects By Vassilis Hajivassiliou; Frédérique Savignac
  17. A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting of a Small Open Economy By Keisuke Otsu
  18. Fundamentals of the functional theory of company valuation By Matschke, Manfred Jürgen; Brösel, Gerrit
  19. Work Intensification and Employment Insecurity in Professional Work By Suzanne J. Konzelmann; Frank Wilkinson; Roy Mankelow
  20. Business Cycle Comovement and Labor Market Institutions: An Empirical Investigation By Raquel Fonseca; Lise Patureau; Thepthida Sopraseuth
  21. Mind the gap! International Comparisons of Productivity in Services and Goods Production By Inklaar, Robert; Timmer, Marcel; van Ark, Bart

  1. By: Manuel Artís (AQR-IREA, University of Barcelona); Raúl Ramos (AQR-IREA, University of Barcelona and IZA); Jordi Suriñach (AQR-IREA, University of Barcelona)
    Abstract: Using microdata, we analyse the determinants of firm relocation and outsourcing decisions and their effects on firms’ employment decisions. The results for a sample of 32 countries show that both strategies have been more intense in the EU-15 countries than in the rest and that, in some cases, they have been complementary. Regarding the determinants, we have found that while some characteristics such as size, age, activity sector, main market or belonging to a group affect both decisions, other such as a higher innovation, demand sensitivity or productivity explain why some firms choose to subcontract instead of relocate.
    Keywords: firm relocation, outsourcing, triprobit model
    JEL: R30 M55 M51
    Date: 2007–08
  2. By: Gielen, A. C. (Tilburg University, Center for Economic Research)
    Abstract: Market imperfections may cause firms and workers to under-invest in specific training. This paper shows that profit sharing may be a suitable instrument to enhance specific training investments, either by enhancing wage ?exibility or by increasing the returns to training. As a result, profit sharing not only increases productivity by means of an effort effect, but also by increased training investments. Furthermore, the results suggest that older workers' employability can be improved if a profit-related remuneration is paid.
    Keywords: profit-related pay;training;labor productivity;labor mobility.
    JEL: M52 M53 J24 J62
    Date: 2007
  3. By: Yan-leung Cheung (City University of Hong Kong); J. Thomas Connelly (Chulalongkorn University); Piman Limpaphayom (Sasin Graduate Institute of Business Administration of Chulalongkorn University); Lynda Zhou (City University of Hong Kong)
    Abstract: This study develops a model to assess the corporate governance practices of listed companies in Hong Kong. We find that corporate governance is an important factor in explaining the market value of companies listed in Hong Kong. Based on the Revised OECD Principles of Corporate Governance (OECD, 2004) and the Recommended Best Practices (HKEx, 1999), we construct a corporate governance index (CGI) for 168 listed companies. The evidence shows that the companies¡¦ market value (marketto- book ratio, MTBV) is positive and significantly associated with their CGI. The effect is robust to the inclusion of control variables such as performance indicators. Our results imply that companies with better corporate governance are associated with higher market value in Hong Kong. A significant and positive relationship is further found between the transparency index and market value. Our results also suggest that investors are more concerned with corporate governance practices of China-related companies than they are for Hong Kong companies. In summary, this study provides strong evidence that good corporate governance practices are associated with higher firm value in Hong Kong.
    Keywords: Corporate governance, firm profitability, Hong Kong
    Date: 2005–12
  4. By: Raff, Horst; Ryan, Michael
    Abstract: This paper uses a proportional hazard model to study foreign direct investment by Japanese manufacturers in Europe between 1970 and 1994. We divide each firm’s investment total into a sequence of individual investment decisions and analyze how firm-specific characteristics affect each decision. We find that total factor productivity is a significant determinant of a firm’s initial and subsequent investments. Parent-firm size does not have a significant influence on the initial decision to invest. Large firms simply have more investments than smaller firms. Other firm-specific characteristics, such as the R&D intensity, export share and keiretsu membership, also play a role in the investment process.
    Keywords: Foreign direct investment, productivity, hazard model, Japan, keiretsu
    JEL: F23 L20
    Date: 2007
    Abstract: Corporate entrepreneurship and corporate spin-offs have gained importance over the last decades. Corporate spin-offs play an increasingly important role in the development and growth of emerging, high-technology industries, thereby contributing to economic growth. While previous studies on corporate spin-offs have taken the established firm as a point of departure, a central issue concerns the locus of entrepreneurs. We adopt a bottom-up approach by considering those spin-offs that are created by employees, based upon an opportunity spotted while working for the parent company. Based upon the knowledge-based theory of the firm and the literature on opportunity identification, we develop a typology of corporate spin-offs. We identified three types of corporate spin-offs: Assisted spin-outs, Restructuring-driven spin-outs and Entrepreneurial Spin-offs. These types of corporate spin-offs differ from each other in terms of nature and formality of knowledge transfer; detection and implementation of opportunity identification; and performance. Based upon an in-depth analysis of 41 corporate spin-offs in Flanders, we found that Entrepreneurial Spin-offs outperform both Assisted and Restructuring-driven spin-outs on all four performance indicators. Our findings imply that parent companies often miss possibilities to capture value from opportunities that were originally developed in the parent company.
    Date: 2007–06
  6. By: Boone, J.; Ours, J.C. van; Wiel, H.P. van der (Tilburg University, Center for Economic Research)
    Abstract: We introduce a new measure of competition: the elasticity of a firm?s profits with respect to its cost level. A higher value of this profit elasticity (PE) signals more intense competi- tion. Using firm-level data we compare PE with the most popular competition measures such as the price cost margin (PCM). We show that PE and PCM are highly correlated on average. However, PCM tends to misrepresent the development of competition over time in markets with few firms and high concentration, i.e. in markets with high policy relevance. So, just when it is needed the most PCM fails whereas PE does not. From this we conclude that PE is a more reliable measure of competition.
    Keywords: competition;profit elasticity;measures of competition;concentration;price cost margin;profits
    JEL: D43 L13
    Date: 2007
  7. By: Hernando Zuleta; Veneta Andonova
    Abstract: Firms’ compensation practices affect the protection of investors’ interests and the degree of economic inequality by changing the stakes of engaging in appropriation activities versus respecting the status quo. We use a general equilibrium model where workers can either work peacefully or join a guerrilla movement that expropriates entrepreneurs. If workers are peaceful, they receive a competitive wage. If they join a guerrilla movement, they receive a share of the appropriated wealth, which depends positively on the number of guerrilla members. In this framework, we find one low-income, low-wage equilibrium with guerrilla activity and one peaceful, high-income, high-wage equilibrium. The peaceful equilibrium can be reached through redistribution policies such as efficiency wages, which are also used to control agency problems. In essence, through their compensation policies entrepreneurs might be able to control the internal principal-agent issues and simultaneously protect their assets against expropriation, while alleviating economic inequality.
    Date: 2006–10–01
  8. By: Alex Bryson; Paul Willman; Rafael Gomez; Tobias Kretschmer
    Abstract: Using British workplace data we examine the relationship between human resource management (HRM) and different forms of employee voice. After controlling for observable establishment characteristics, we find voice and HRM are positively correlated, but this positive association is confined to certain voice regimes. Previous research has found no association between HRM and union voice. However, distinguishing between union-only voice regimes and dual channel (i.e. union and nonunion) voice regimes reveals that union-only regimes have the lowest incidence and intensity of HRM adoption while dual channel regimes have the highest HRM incidence and intensity. The implications of these findings for theory and practice are discussed.
    Date: 2007
  9. By: Andrew Atkeson; Ariel Burstein
    Date: 2007–08–24
  10. By: Uwe Cantner (School of Business and Economics, Friedrich-Schiller University Jena, Germany); Maximilian Goethner (School of Business and Economics, Friedrich-Schiller University Jena, Germany); Andreas Meder (School of Business and Economics, Friedrich-Schiller University Jena, Germany)
    Abstract: This paper is concerned with the relationship between innovative success of entrepreneurs and their prior knowledge at the stage of firm formation. We distinguish between different kinds of experience an entrepreneur can possess and find evidence that the innovative success subsequent to firm formation is enhanced by entrepreneur's prior technological knowledge but not by prior market and organizational knowledge. Moreover we find that prior technological knowledge gathered through embeddedness within a research community has an additionally positive influence on post start-up innovative success. This is a first hint towards the importance of collective innovation activities.
    Keywords: Entrepreneurship, Networks, Prior knowledge
    JEL: L25 O31 Z13
    Date: 2007–08–27
  11. By: Jia, Y. (Tilburg University, Center for Economic Research)
    Abstract: This paper provides experimental evidence on how incentive compensation, peer-group behavior, and audit (team) effectiveness influence managerial reporting behavior. Results show that an increase in incentive compensation intensity induces subjects to report less truthfully. High level of peer honesty promotes truthful reporting; however, the effects are weaker when incentive compensation intensity is high. Audit (team) effectiveness shows no significant influence on reporting behavior. The results provide the first clear evidence that firms need to consider carefully the effect of incentive compensation as well as the influence of peer groups when designing contracts. Furthermore, without a credible penalty for untruthful financial report, increased audit (team) effectiveness will not promote honest reporting.
    Keywords: Managerial honesty; Incentive compensation intensity; Peer behavior; Audit effectiveness
    JEL: G30 J33 M41
    Date: 2007
  12. By: Junfu Zhang (Clark University and IZA)
    Abstract: Existing literature suggests that entrepreneurs with prior firm-founding experience have more skills and social connections than novice entrepreneurs. Such skills and social connections could give experienced founders some advantage in the process of raising venture capital. This paper uses a large database of venture-backed companies and their founders to examine experienced founders' access to venture capital. Compared to novice entrepreneurs, entrepreneurs with venture-backed founding experience tend to raise more venture capital at an early round of financing and tend to complete the early round much more quickly. In contrast, experienced founders whose earlier firms were not venture-backed do not show a similar advantage over novice entrepreneurs, suggesting the importance of connections with venture capitalists in the early stage of venture capital financing. However, when the analysis also takes into account later rounds of financing, all entrepreneurs with prior founding experience appear to raise more venture capital. This implies that skills acquired from any previous founding experience can make an entrepreneur perform better and in turn attract more venture capital.
    Keywords: firm-founding experience, serial entrepreneur, venture capital
    JEL: M13 G24
    Date: 2007–07
  13. By: Alexander K. Koch (Royal Holloway, University of London and IZA); Julia Nafziger (ECARES, Université Libre de Bruxelles)
    Abstract: The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct ‘wrong’ promotion decision? This paper shows in a complete contracting setting that a simple trade-off between incentive provision and efficient job assignment may make it optimal to promote some employees to a job at which they produce less than they would at the previous level.
    Keywords: moral hazard, information, job assignments, Peter Principle
    JEL: D82 J31 J33 M12
    Date: 2007–08
  14. By: Giulia Faggio; Kjell Salvanes; John Van Reenen
    Abstract: There has been a remarkable increase in wage inequality in the US, UK and many other countries over the past three decades. A significant part of this appears to be within observable groups (such as age-gender-skill cells). A generally untested implication of many theories rationalizing the growth of within-group inequality is that firm-level productivity dispersion should also have increased. The relevant data for the US is problematic, so we utilize a UK panel dataset covering the manufacturing and non-manufacturing sectors since the early 1980s. We find evidence that productivity inequality has increased. Existing studies have underestimated this increased dispersion because they use data from the manufacturing sector which has been in rapid decline. Most of the increase in individual wage inequality has occurred because of an increase in inequality between firms (and within industries). Increased productivity dispersion appears to be linked with new technologies as suggested by models such as Caselli (1999) and is not primarily due to an increase in transitory shocks, greater sorting or entry/exit dynamics.
    JEL: D24 J24 J31 O31
    Date: 2007–08
  15. By: Josef Fersterer; Jörn-Steffen Pischke; Rudolf Winter-Ebmer
    Abstract: Little is known about the payoffs to apprenticeship training in the German speaking countries for the participants. OLS estimates suggest that the returns are similar to those of other types of schooling. However, there is a lot of heterogeneity in the types of apprenticeships offered, and institutional descriptions suggest that there might be an important element of selection in who obtains an apprenticeship, and what type. In order to overcome the resulting ability bias we estimate returns to apprenticeship training for apprentices in failed firms in Austria. When a firm fails, current apprentices cannot complete their training in this firm. Because apprentices will be at different stages in their apprenticeship at that time, the failure of a firm will manipulate the length of the apprenticeship period completed for some apprentices. The time to the firm failure therefore serves as an instrument for the length of the apprenticeship completed both at the original firm and at other firms. We find instrumental variables returns which are similar or larger than the OLS returns in our sample, indicating relatively little selection.
    JEL: J24 J31
    Date: 2007–08
  16. By: Vassilis Hajivassiliou; Frédérique Savignac
    Abstract: The paper analyzes the existence and impact of financing constraints as a possibly serious obstacle to innovation by .rms. Direct measures of financing constraints are employed using survey data collected by the Banque de France and the European Commission, which overcomes the problems with the traditional approach of trying to deduce the existence and impact of financing constraints through the significance of firm wealth variables. The econometric framework employed for this study is the simultaneous bivariate probit with mutual endogeneity. The paper discusses the important identification issue of coherency conditions in such LDV models with endogeneity and flexible temporal and contemporaneous correlations in the unobservable error terms. Conditions for coherency as discussed in the existing literature are reviewed and shown to be rather esoteric. Two novel methods for establishing coherency conditions are presented, which have intuitive interpretations. Finally, the paper presents alternative approaches for achieving coherency in models hitherto classified as incoherent through the use of prior sign restrictions on model parameters. This allows us to obtain estimates of the interaction between financing constraints and a firm’s decision and ability to innovate without forcing the econometric models to be recursive. Thus, direct as well as reverse interaction effects are obtained for the first time.Keywords: Limited Dependent Variable Models, Coherency ConditionsJEL Classifications: C51, C52, C15
    Date: 2007–06
  17. By: Keisuke Otsu (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper applies the business cycle accounting method a la Chari, Kehoe and McGrattan (2007) to a standard neoclassical small open economy model and assesses the recent crises in Hong Kong, Korea, Singapore and Thailand. The key common features of these crises are the sudden output collapses and consumption drops as large as the output drops. Quantitative results show that the sudden drops in total factor productivity are important in explaining the output drops. Distortions in the foreign debt market are important in Korea and Thailand whereas distortions in the domestic capital market are important in Hong Kong and Singapore in explaining the large consumption drops.
    Keywords: Business Cycle Accounting, Small Open Economy, Asian Crisis
    JEL: E13 E32
    Date: 2007–08
  18. By: Matschke, Manfred Jürgen; Brösel, Gerrit
    Abstract: After a brief overview of different company valuation theories, this paper presents the main functions (decision, arbitration, and argument or negotiation function) of company valuation according to the functional (i.e. purpose-oriented) theory. The main body of the paper focusses on the decision function and shows how the decision value can be derived as a subjective limit value that different economic agents assign to the company. Finally, the differences between the functional and the market value oriented theory of company valuation are discussed.
    Keywords: Unternehmensbewertung; company valuation; decision function; subjective limit value; waluacja przedsiębiorstwa
    JEL: G13 M20 G11 M40 G34
    Date: 2007
  19. By: Suzanne J. Konzelmann; Frank Wilkinson; Roy Mankelow
    Abstract: Professional work is a category of employment that has traditionally been associated with high levels of worker autonomy, economic and social status. During the past decade, changes in customer expectations, government policy and technology have generated pressures resulting in enhancement of the quality and efficiency of service provision, expansion in task requirements and a need for higher levels of discretion. In this sense, professional work has been upgraded. However, the changes have also led to a deterioration in the economic and social status of professional work, adversely impacting on the social and psychological well-being of professional workers. This paper examines these developments in five professions including two established professions (lawyers and pharmacists), one aspiring profession (midwives) and two emerging professions (counselling psychologists and human resource managers). The empirical findings are based on a survey of 1270 professional workers conducted in 2000 and 2001.
    Keywords: Professional work, counseling psychologists, human resource managers, lawyers, midwives, pharmacists, job satisfaction and morale.
    JEL: J44 L84
    Date: 2007–06
  20. By: Raquel Fonseca; Lise Patureau; Thepthida Sopraseuth
    Abstract: This paper examines the impact of labor market institutions (LMI) on business cycle (BC) synchronization. The authors first develop a two-country right-to-manage model of wage bargaining. They find that, following a symmetric demand change, cross-country differences in LMI generate divergent responses in employment and output. They then investigate the empirical relevance of this result using panel data of 20 OECD countries observed over 40 years. Their estimation strategy controls for a large set of possible factors influencing GDP correlations, which allows to confront their results with those found in previous studies. Consistently with their theoretical results, they find that similar labor markets tend to favor more synchronized cycles. In particular, disparity in tax wedges yields lower GDP comovement. Besides, interactions between labor market institutions do matter, as they are found to affect the effect of tax wedge divergence on BC synchronization. Their overall results suggest that the impact of distortions in demand-supply labor mechanism should be investigated in international business cycle models.
    Keywords: International business cycle, business cycle synchronization, labor market institutions, panel data estimation
    JEL: F42 C23 J32 J52
    Date: 2007–05
  21. By: Inklaar, Robert; Timmer, Marcel; van Ark, Bart (Groningen University)
    Abstract: In this paper, we make a comparison of industry output, inputs and productivity growth and levels between seven advanced economies (Australia, Canada, France, Germany, Netherlands, UK and U.S.). Our industry-level growth accounts make use of input data on labour quantity (hours) and composition (schooling levels), and distinguish between six different types of capital assets (including three ICT assets). The comparisons of levels rely on industry-specific purchasing power parities (PPPs) for output and inputs, within a consistent input-output framework for the year 1997. Our results show that differences in productivity growth and levels can mainly be traced to market services, not to goods-producing industries. Part of the strong productivity growth in market services in Anglo-Saxon countries, such as Australia and Canada, may be related to relatively low productivity levels compared to the U.S. In contrast, services productivity levels in continental European countries were on par with the U.S. in 1997, but growth in Europe was much weaker since then. In terms of factor input use, the U.S. is very different from all other countries, mostly because of the more intensive use of ICT capital in the U.S.
    Date: 2006

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