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

  1. A Calibratable Model of Optimal CEO Incentives in Market Equilibrium By Alex Edmans; Xavier Gabaix; Augustin Landier
  2. Serial CEO Incentives and the Structure of Managerial Contracts By Giannetti, Mariassunta
  3. The Measurement of Firm Ownership and its Effect on Managerial Pay By Wolfgang Eggert; Alfons Weichenrieder; Jeremy S.S. Edwards
  4. Board Committees, CEO Compensation, and Earnings Management By Christian Laux; Volker Laux
  5. Personal experience: a most vicious and limited circle!? : on the role of entrepreneurial experience for firm survival By Metzger, Georg
  6. Pricing, Investments and Mergers with Intertemporal Capacity Constraints By Christou, Charalambos; Kotseva, Rossitsa; Vettas, Nikolaos
  7. What can we learn from privately held firms about executive compensation? By Cole, Rebel; Mehran, Hamid
  8. Corporate Governance and Investments in Scandinavia - ownership concentration and dual-class equity structure By Eklund, Johan E.
  9. The Drivers and Implications of Business Divestiture – An Application and Extension of Prior Findings By Carolin Decker
  10. The Returns to Continuous Training in Germany: New Evidence from Propensity Score Matching Estimators By Muehler, Grit; Beckmann, Michael; Schauenberg, Bernd
  11. Do mergers create or destroy value? Evidence from unsuccessful mergers By Cole, Rebel; Fatemi, Ali; Vu, Joseph
  12. Acquiring foreign firms far away might be hazardous to your share price: evidence from Germany By Michael H. Grote; Fabian Rücker
  13. A Model of Delegated Project Choice With Application to Merger Policy By Mark Armstrong; John Vickers
  14. The Cyclicality of Effective Wages within Employer-Employee Matches : Evidence from German Panel Data By Silke Anger
  15. Labor Market Rigidities and the Employment Behavior of Older Workers By David M. Blau; Tetyana Shvydko
  16. Institutional Owners and the Return on Investments By Bjuggren, Per-Olof; Eklund, Johan E.; Wiberg, Daniel
  17. Comparing Quantitative and Qualitative Survey Data By Rolf Schenker
  18. Can Small Firms' Perceived Constraints Help Explain Survival Rates? By Seán Lyons
  19. On the Role of Entrepreneurial Experience for Start-up Financing: An Empirical Investigation for Germany By Metzger, Georg
  20. Accounting for the Rise in Consumer Bankruptcies By Igor Livshits; James MacGee; Michèle Tertilt
  21. Asset Pricing in a Production Economy with ChewÐDekel Preferences By Claudio Campanale; Rui Castro; Gian Luca Clementi
  22. The Impact of Organizational Structure and Lending Technology on Banking Competition By Degryse, Hans; Laeven, Luc; Ongena, Steven
  23. Mergers as Auctions By Ivaldi, Marc; Motis, Jrissy
  24. Techniques alternatives d’estimation et tests en présence d’erreurs de mesure sur les variables explicatives By Francois-Éric Racicot
  25. Labour Market Dynamics and the Business Cycle: Structural Evidence for the United States By Ravn, Morten O.; Simonelli, Saverio
  26. Macroeconomic Conditions and Business Exit: Determinants of Failures and Acquisitions of UK Firms By Arnab Bhattacharjee; Chris Higson; Sean Holly; Paul Kattuman
  27. Globalization and the twin protections By Jean-Paul Fitoussi

  1. By: Alex Edmans; Xavier Gabaix; Augustin Landier
    Abstract: This paper presents a unified framework for understanding the determinants of both CEO incentives and total pay levels in competitive market equilibrium. It embeds a modified principal-agent problem into a talent assignment model to endogenize both elements of compensation. The model's closed form solutions yield testable predictions for how incentives should vary across firms under optimal contracting. In particular, our calibrations show that the negative relationship between the CEO's effective equity stake and firm size is quantitatively consistent with efficiency and need not reflect rent extraction. Our model and data both also imply that the dollar change in wealth for a percentage change in firm value, scaled by annual pay, is independent of firm size. This may render it an attractive incentive measure as it is comparable between firms and over time. The theory also predicts a positive relationship between pay volatility and firm volatility, and that risk and effort affect total pay along the cross-section but not in the aggregate. Finally, we demonstrate that incentive compensation is effective at solving large agency problems, such as selecting corporate strategy, but smaller issues such as perk consumption are best addressed through direct monitoring.
    JEL: D2 D3 G34 J3 J41
    Date: 2007–09
  2. By: Giannetti, Mariassunta
    Abstract: This paper analyzes the optimal contracting consequences of a recent phenomenon in the managerial labour market, CEO job hopping. I show that if the managerial labour market is thin and firm growth opportunities are weak, the optimal contract rewards the CEO for past performance through a bonus. Nevertheless, the CEO takes a long horizon in selecting corporate strategies. If firm growth opportunities improve, but prospects of job-hopping remain limited, the optimal contract includes restricted-equity-like claims, but overall compensation does not increase. However, if the managerial labour market provides more opportunities for job-hopping, large differences in the structure and the level of managerial compensation emerge. If firm growth opportunities are weak, it is optimal to offer a bonus contract, even though the CEO selects an inefficient short-term strategy. If firm growth opportunities are strong, a large amount of long-term equity compensation mitigates short-termist incentives. This drives a surge in CEO compensation. I show that, under these conditions, the optimal contract may include non-restricted equity even though the main problem is managerial retention. Finally, I argue that the model can explain both the surge in U.S. CEO compensation and the differences in managerial compensation across countries and across firms within a country.
    Keywords: executive compensation; managerial labour market; short-termism
    JEL: G32 J33 L14
    Date: 2007–08
  3. By: Wolfgang Eggert (University of Paderborn & CESifo); Alfons Weichenrieder (Goethe University Frankfurt & CESifo); Jeremy S.S. Edwards (University of Cambridge & CESifo)
    Abstract: This paper uses German evidence to address two questions about corporate governance. The effects of ownership on corporate governance have received much recent attention, but very little of this has been devoted to the appropriate way to measure firm ownership. The results of this paper show that the conclusions reached about the effects of ownership on corporate governance can depend critically on the particular ownership measure used, and that the widely-used weakest-link principle is wholly unsatisfactory as a means of dealing with the issues raised by pyramid ownership structures. The paper also shows that greater ownership concentration typically weakens the link between managerial pay and firm profitability. This is inconsistent with the hypothesis, emphasised in the recent literature on the USA, that large owners are a complement to, rather than a substitute for, such a link.
    Keywords: Firm Ownership, Managerial Pay
    Date: 2006–07
  4. By: Christian Laux; Volker Laux
    Abstract: We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of performance-based pay schemes induces the CEO to manipulate earnings, which leads to an increased need for board oversight. If the whole board is responsible for both functions, it is inclined to provide the CEO with a compensation scheme that is relatively insensitive to performance in order to reduce the burden of subsequent monitoring. When the functions are separated through the formation of committees, the compensation committee is willing to choose a higher pay-performance sensitivity as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.
    Keywords: Corporate Governance, Executive Compensation, Earnings Management, Board Oversight
    JEL: M41 D23 D73 G34 K22 L29
    Date: 2007–03
  5. By: Metzger, Georg
    Abstract: The analysis in this paper gives attention to effects on firm survival which come from entrepreneurial experience. It is likely that different kinds of experience result in different firm developments and therefore in different types of firm exit. Particular emphasis is placed upon the effects of failure experience. The results provide evidence that both the kind of experience and the type of exit matter. Negative experience, namely the experience of failure, is found to heighten the risk of failing again. This finding indicates that business failures are largely not exceptions, but rather a sign of the entrepreneurs’ lack of ability.
    Keywords: Entrepreneurial Experience, Business Failure, Firm Survival
    JEL: G33 L25 L26 M13
    Date: 2007
  6. By: Christou, Charalambos; Kotseva, Rossitsa; Vettas, Nikolaos
    Abstract: We set up a duopoly model with dynamic capacity constraints under demand uncertainty. We endogenize the investment decisions of the firms, examine their intertemporal pricing behavior, their incentives to merge, as well as the welfare implications of a merger. Whereas under known and constant demand the high capacity firm lets its low capacity rival sell out, under demand uncertainty we obtain a rich set of sales patterns. Each unit of available capacity has an option value (or opportunity cost), which depends on both firms' capacities, the current demand and the remaining horizon. This option value may be higher when the firms act non-cooperatively compared to the case when they merge to form a monopoly. Trade surplus may be higher when a merger takes place, as capacity is more efficiently managed over time. The prospect of a merger also leads to higher investment levels, as each firm wishes to appropriate a higher share of the total surplus. For some levels of the capacity instalment cost, a merger that turns the duopoly into a monopoly is welfare improving.
    Keywords: capacity constraints; dynamic oligopoly; inventories; mergers; price competition
    JEL: D43 L13 L22
    Date: 2007–08
  7. By: Cole, Rebel; Mehran, Hamid
    Abstract: This study examines the determinants of CEO compensation using data from a nationally representative sample of privately held U.S. corporations. We find that: (i) the pay-size elasticity is much larger for privately held firms than for the publicly traded firms on which previous research has almost exclusively focused; (ii) executives at C-corporations are paid significantly more than executives at S-corporations; (iii) executive pay is inversely related to CEO ownership; (iv) executive pay is inversely related to leverage; and (v) executive pay is related to a number of CEO characteristics, including age, education and gender. Executive pay is inversely related to CEO age and positively related to educational attainment. Finally, female executives are paid significantly less than their male counterparts.
    Keywords: Compensation; Organizational Form; Taxes; Ownership; Education; Gende
    JEL: G32 J33 H25 H24
    Date: 2007–08–01
  8. By: Eklund, Johan E. (JIBS and CESIS)
    Abstract: Juridical-political theories suggest that legal origin (La Porta et al. (1997)) and political factors (Roe (2003)) matters for firm performance. In Scandinavia there are a number of legal practices, with common political roots, that impinge on the distribution of corporate control, which accordingly may affect firm performance. This paper examines the return on investments and the effects of ownership concentration in a large sample of listed Scandinavian firms. As a performance measure marginal q developed by Mueller and Reardon (1993) is used. Marginal q measures the marginal return on capital relative its cost of capital. This is a more appropriate measure of performance than Tobin’s average q. The question of how ownership concentration affects managerial investment decisions is examined. A Scandinavian corporate governance feature is the wide spread use of vote-differentiation. How deviations from the one-share-one-vote principle affects this ownership-performance relationship is analyzed.
    Keywords: Investments; Marginal q; Corporate Governance; Ownership Concentration; Dual-Class Shares
    JEL: C23 G30 K22 L25
    Date: 2007–09–06
  9. By: Carolin Decker
    Abstract: The purpose of this study is to extend the current understanding of business divestiture by investigating its potential for triggering strategic reorientation. A divestiture involving strategic reorientation is here denoted as a strategic business exit, otherwise it is a status quopreserving business exit. The motives for divestiture specified in prior studies are mainly associated with firm financial performance and corporate strategy. Most studies investigate their impact on divestiture separately though both may interact. This study contributes to research by, first, distinguishing divestiture types, and, second, empirically testing the influence of performance and strategy both separately and in conjunction on the choice between strategic and status quo-preserving business exit with secondary data on 213 divestitures during 1999-2004 which were undertaken by a cross-industry sample of 91 firms listed in the German CDAX. The findings mainly indicate that firm financial performance is a stronger predictor of strategic business exit than corporate strategy.
    Keywords: Divestiture, Exit, Strategic Reorientation, Performance, Strategy, Diversification.
    JEL: G34 L11 L25 M10
    Date: 2007–09
  10. By: Muehler, Grit; Beckmann, Michael; Schauenberg, Bernd
    Abstract: The present paper examines the wage effects of continuous training programs using individual-level data from the German Socio Economic Panel (GSOEP). In order to account for selectivity in training participation we estimate average treatment effects (ATE and ATT) of general and firm-specific continuous training programs using several state-of-the-art propensity score matching (PSM) estimators. Additionally, we also apply a combined matching difference-indifferences (MDiD) estimator to account for unobserved individual characteristics (e.g. motivation, ability). While the estimated ATE and ATT for general training are significant ranging between about 4 and 7.5 %, the corresponding wage effects of firm-specific training are mostly insignificant. Using the more appropriate MDiD estimator, however, we find a more precise and highly significant wage effect of about 5 to 6 %, though only for general training and not for firm-specific training. These results are consistent with standard human capital theory insofar as general training is associated with larger wage increases than firm-specific training. Furthermore, we conclude that firms may intend to use specific training to adjust to new job requirements, while career-relevant changes may be conditioned to general training.
    Keywords: Continuous training, wage effect, average treatment effect, selectivity bias, propensity score matching estimators
    JEL: C21 J24 J31 M53
    Date: 2007
  11. By: Cole, Rebel; Fatemi, Ali; Vu, Joseph
    Abstract: In this study, we examine unsuccessful takeover attempts for new evidence on whether mergers create or destroy value for acquirers and targets. We contribute to the literature in three important areas. First, we contribute to the literature on signaling by investigating whether a takeover attempt signals investors about the quality of firm management as well as the quality of the specific firm investment under consideration. We find that bid announcement returns are partially, but not completely, reversed by termination announcement returns, evidence that the merger proposal itself contains information about the value of the bidding firm. Second, we contribute to the literature on the value of diversification by examining how merger bids and terminations affect the relative values of bidders attempting diversifying and focusing takeovers. Our evidence enables us to differentiate between the synergistic and agency views of mergers. We find significant differences in the responses of firms attempting focusing versus diversifying mergers. The reversal of bid announcement returns by termination announcement returns is significantly different for focusing and diversifying firms. There is no reversal for diversifying firms while there is a partial reversal for focusing firms. This provides evidence in support of both the synergistic and agency views of mergers. Synergies are evident in focusing mergers while agency costs are evident in diversifying mergers. Third, we contribute to the literature on the valuation effects of mergers by using data from the 1991-2000 period to re-examine the important topic of who wins and who loses when mergers are terminated. Previous research examining terminated mergers has relied exclusively upon data from the 1980s.
    Keywords: acquisition; diversification; focus; merger; signaling; takeover; terminated merger
    JEL: G34 G14
    Date: 2006–10
  12. By: Michael H. Grote; Fabian Rücker
    Abstract: This paper examines shareholder wealth effects of cross-border acquisitions. In a sample of 155 large acquisitions by German corporations from 1985–2006 international transactions in total do not lead to significant announcement returns. Geography, however, makes a difference: Shareholders of acquiring firms gain 6.5% in cross-border transactions into countries that have a common border with Germany but lose 4.4% in other international transactions. We find proximity to be one of the most important success factors in cross-border mergers and acquisitions, even when we control for firm, deal and country characteristics.
    Date: 2007–08
  13. By: Mark Armstrong; John Vickers
    Abstract: We present a model in which a principal delegates the choice of project to an agent with different preferences. A project`s characteristics are verifiable once presented to the principal, but the principal does not know how many projects are available to the agent. The principal chooses the set of projects which the agent can implement. Three frameworks are considered: (i) a static setting in which the set of available projects is exogenous to the agent but uncertain; (ii) a dynamic setting in which by expending effort the agent can affect the number of projects, and (iii) a dynamic setting in which the agent must wait for projects to materialize. The model is applied to the choice of welfare standard for merger policy.
    Keywords: Delegation, Principal-Agent, Search, Merger Policy
    JEL: D82 D83 L4
    Date: 2007
  14. By: Silke Anger
    Abstract: Using individual based micro-data from the German Socio-Economic Panel Study (SOEP), I analyze the cyclicality of real wages for male workers within employer-employee matches over the period 1984-2004, and compare different wage measures: the standard hourly wage rate, hourly wage earnings including overtime and bonus payments, and the effective wage, which takes into account not only paid overtime, but also unpaid working hours. None of the hourly wage measures is shown to exhibit cyclicality except for the group of salaried workers with unpaid overtime. Their effective wages react strongly to changes in unemployment in a procyclical way. Despite acyclical wage rates, salaried workers without unpaid hours but with income from extra payments, such as bonuses, experienced procyclical earnings movements. Monthly earnings were also procyclical for hourly paid workers who received overtime payments. The procyclicality of earnings revealed for Germany is of comparable size with the one in the U.S.
    Keywords: Wage cyclicality, effective wages, unpaid overtime, bonus payments, firm stayers
    JEL: E32 J31
    Date: 2007
  15. By: David M. Blau (Ohio State University and IZA); Tetyana Shvydko (University of North Carolina at Chapel Hill)
    Abstract: The labor market is often asserted to be characterized by rigidities that make it difficult for older workers to carry out their desired trajectory from work to retirement. An important source of rigidity is restrictions on hours of work imposed by firms that use team production or face high fixed costs of employment. Such rigidities are difficult to measure directly. We develop a model of the labor market in which technological rigidity affects the age structure of a firm’s work force in equilibrium. Firms using relatively flexible technology care only about total hours of labor input, but not hours of work per worker. Older workers with a desire for short or flexible hours of work are attracted to such firms. Firms using a more rigid technology involving team production impose a minimum hours constraint, and as a result tend to have a younger age structure. A testable hypothesis of the model is that the hazard of separation of older workers is lower in firms with an older age structure. We use matched worker-firm data to test this hypothesis, and find support for it. Specification tests and alternative proxies for labor market rigidity support our interpretation of the effect of firm age structure on the separation propensity. These results provide indirect but suggestive evidence of the importance of labor market rigidities.
    Keywords: labor demand, retirement, labor market institutions
    JEL: J26 J23
    Date: 2007–08
  16. By: Bjuggren, Per-Olof (JIBS and CESIS); Eklund, Johan E. (JIBS and CESIS); Wiberg, Daniel (JIBS and CESIS)
    Abstract: Examining a large number of Swedish listed firms, this paper analyses how institutional owners affects the investment decisions and firm performance. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. To measure investment performance Mueller and Reardon’s (1993) marginal q is used. Marginal q measures the ratio of the return on investments to the cost of capital. We find that institutional and foreign owners positively influence the performance of firms. Furthermore a non-liner relation between ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. The practice of dual-class shares which separate cash-flow rights and control rights is also found to be an important determinant of firm performance.
    Keywords: marginal q; investment returns; institutional owners
    JEL: C23 G30 K22 L25
    Date: 2007–09–06
  17. By: Rolf Schenker (KOF Swiss Economic Institute, ETH Zurich)
    Abstract: This paper compares quantitative and qualitative data on firm level. The data is taken from two Swiss investment surveys. This has not yet been done in the literature. We will see that the mean change in investment of firms planning to increase (decrease) investments is positive (negative). In contrast, the mean change in investment of firms indi- cating “no change” is indeed virtually zero. Carlson & Parkin (1975) assume the quantitative observations to follow a normal distribution. Other research (e.g. Dasgupta & Lahiri 1992) has been done assuming other distributions. In this paper we show that the micro data does not follow a normal, logistic or exponential distribution. Furthermore, we adopt the response functions presented by Ronning (1984) to the investment data. They help us to determine the share of firms giving the different qualitative statement for every instance of the quantitative data. We will show that with larger (smaller) quantitative changes, more firms give positive (negative) qualitative statements.
    Keywords: C5, E22, C42
    Date: 2007–06
  18. By: Seán Lyons (Economic and Social Research Institute (ESRI))
    Abstract: Survey evidence on small firms’ perceived constraints might provide useful information on the effects of institutional impediments, such as regulatory burdens, on post-entry performance. Using a new dataset that merges ENSR survey data on small firms’ major constraints with Eurostat small firm demography data, we find that some perceived constraints are associated with significant differences in survival rates for new small firms. However, the constraints variables seem only weakly related to survival, and some prominent constraints including administrative regulations and availability of finance are not significant. We suggest refinements in survey design that might improve the usefulness of such data for inter-country comparisons.
    Date: 2007–02
  19. By: Metzger, Georg
    Abstract: Entrepreneurs are often faced with problems regarding start-up financing. But compared to novice entrepreneurs, experienced entrepreneurs should have both more knowledge and better contacts, which should potentially reduce the occurrence of problems and affect finance composition. However, experience of business failure might result in additional effects. This analysis therefore investigates the effects of experience on several aspects of start-up financing. It is based on data from the KfW Start-up Monitor, a representative annual survey of the German population. The results show that experience affects several financing issues. Yet the impacts depend on the kind of experience. With regard to previously failed entrepreneurs, who are of particular interest, the findings indicate that they cut back their financing demand and are more likely faced with problems satisfying this demand. However, previously failed entrepreneurs do not significantly differ in the sources they use to finance their businesses.
    Keywords: Entrepreneurial experience, restart, start-up financing
    JEL: G32 L26 M13
    Date: 2007
  20. By: Igor Livshits; James MacGee; Michèle Tertilt
    Abstract: Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age population in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive financial intermediaries who can observe households' earnings, age and current asset holdings to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot quantitatively account for the rise in bankruptcies. Instead, the rise in filings appears to mainly reflect changes in the credit market environment. We find that credit market innovations which cause a decrease in the transactions cost of lending and a decline in the cost of bankruptcy can largely accounting for the rise in consumer bankruptcy. We also argue that the abolition of usury laws and other legal changes are unimportant.
    JEL: E21 E44 G18 K35
    Date: 2007–09
  21. By: Claudio Campanale (University of Alicante, Spain); Rui Castro (University of Montreal, Canada.); Gian Luca Clementi (New York University, USA and The Rimini Centre for Economic Analysis, Italy)
    Abstract: In this paper we provide a thorough characterization of the asset returns implied by a simple general equilibrium production economy with convex investment adjustment costs. When households have EpsteinÐZin preferences, there exist plausible parameter values such that the model generates unconditional mean riskÐfree rate and equity return, and volatility of consumption growth, which are in line with historical averages for the US economy. Consistently with the data, the priceÐdividend ratio is proÐcyclical and stock returns are predictable (and increasingly so as the time horizon increases), while dividend growth is not. The model also implies realistic values for (i) the correlation of the riskÐfree rate with output growth and consumption growth and (ii) the correlation pattern between riskÐfree rate, equity return, and equity premium. The risk implied by the model is rather low. Given the work of Rabin (2000) among others, it is not surprising that our EpsteinÐZin agent exhibits a much higher risk aversion when faced with substantially larger risks. This shortcoming, however, does not extend to the case in which agents are disappointment averse in the sense of Gul (1991). When faced with a lottery that has a coefficient of variation 100 times as large as that implied by our model, a disappointment averse agent displays the same relative risk aversion as an expected utility agent with logarithmic utility!
    Keywords: Equity Premium, Business Cycle, Predictability, Disappointment Aversion.
    JEL: D81 E32 E43 E44 G12
    Date: 2007–07
  22. By: Degryse, Hans; Laeven, Luc; Ongena, Steven
    Abstract: Recent theoretical models argue that a bank’s organizational structure reflects its lending technology. A hierarchically organized bank will employ mainly hard information, whereas a decentralized bank will rely more on soft information. We investigate theoretically and empirically how bank organization shapes banking competition. Our theoretical model illustrates how a lending bank’s geographical reach and loan pricing strategy is determined not only by its own organizational structure but also by organizational choices made by its rivals. We take our model to the data by estimating the impact of the lending and rival banks’ organization on the geographical reach and loan pricing of a singular, large bank in Belgium. We employ detailed contract information from more than 15,000 bank loans granted to small firms, comprising the entire loan portfolio of this large bank, and information on the organizational structure of all rival banks located in the vicinity of the borrower. We find that the organizational structures of both the rival banks and the lending bank matter for branch reach and loan pricing. The geographical footprint of the lending bank is smaller when rival banks are large and hierarchically organized. Such rival banks may rely more on hard information. Geographical reach increases when rival banks have inferior communication technology, have a wider span of organization, and are further removed from a decision unit with lending authority. Rival banks’ size and the number of layers to a decision unit also soften spatial pricing. We conclude that the organizational structure and technology of rival banks in the vicinity influence local banking competition.
    Keywords: authority; banking sector; competition; hierarchies; technology
    JEL: G21 L11 L14
    Date: 2007–08
  23. By: Ivaldi, Marc; Motis, Jrissy
    Abstract: Most empirical studies that evaluate motives and gains in M&A conclude that acquirers at best do not lose from the deal while targets obtain positive gains. With a database containing merging firms’ characteristics and final bids, we propose a structural approach to infer acquirers’ gains from merging by interpreting a merger as an auction. Using nonparametric methods, we estimate bidders’ private values for targets and informational rents. We provide evidence of significant and positive merging gains. Moreover, investigating for the source of bidders’ private valuation and informational rents, our empirical analysis supports the synergy hypothesis as a motive in horizontal mergers.
    Keywords: auctions; corporate finance; event studies; merger
    JEL: C14 G14 G34 L10 L20
    Date: 2007–08
  24. By: Francois-Éric Racicot (Département des sciences administratives, Université du Québec (Outaouais) et LRSP)
    Abstract: Dans cet essai, nous présentons deux nouveaux estimateurs qui ont la propriété d’être convergents en présence d’erreurs de mesure sur les variables. Ces estimateurs sont basés sur les cumulants d’ordre deux et trois de la matrice des variables explicatives. Nous présentons également de nouveaux tests d’erreurs de mesure basés sur la procédure d’Hausman. Nous évaluons la performance échantillonnale de ces nouveaux estimateurs à l’aide d’expériences de Monte Carlo. Nos résultats préliminaires montrent qu’ils se comportent bien dans la mesure où la taille des erreurs de mesure est suffisamment importante.
    Keywords: Erreurs de mesure; estimateurs convergents; moments supérieurs; régressions artificielles; test d’Hausman; variables instrumentales
    JEL: G12 G13 G33
    Date: 2007–04–01
  25. By: Ravn, Morten O.; Simonelli, Saverio
    Abstract: We use a 12-dimensional VAR to examine the dynamic effects on the labour market of four structural technology and policy shocks. For each shock, we examine the dynamic effects on the labour market, the importance of the shock for labour market volatility, and the comovement between labour market variables and other key aggregate variables in response to the shock. We document that labour market indicators display "hump-shaped" responses to the identified shocks. Technology shocks and monetary policy shocks are important for labour market volatility but the ranking of their importance is sensitive to the VAR specification. The conditional correlations at business cycle frequencies are similar in response to the four shocks apart from the correlations between hours worked, labour productivity and real wages. To account for the unconditional correlations between these variables, a mixture of shocks are required.
    Keywords: Beveridge curve; Dunlop; Dunlop-Tarshis observation; labour market dynamics; neutral and investment specific technology shocks; structural VAR
    JEL: C32 E24 E32 E52 E62
    Date: 2007–08
  26. By: Arnab Bhattacharjee; Chris Higson; Sean Holly; Paul Kattuman
    Abstract: We study the impact of macroeconomic instability on business exit in a world where acquisition and bankruptcy are co-determined. Our objective is to discover how the processes that determine bankruptcies and acquisitions depend on the macroeconomic environment, particularly, macroeconomic instability. To this end we estimate competing risks hazard regression models using data on UK quoted firms spanning a thirty-eight year period that witnessed several business cycles. We find that macroeconomic instability has opposite effects on bankruptcy hazard and acquisition hazard, raising the former and lowering the latter. While it is not surprising that bankruptcy hazard is counter-cyclical and acquisition hazard pro-cyclical, it is noteworthy that the US business cycle is a better predictor of UK acquisitions and bankruptcies than the UK cycle itself.
    Keywords: Bankruptcy, Acquisitions, Macroeconomic Instability, Competing Risks, Cox Proportional Hazards Model.
    JEL: E32 D21 C41 L16
    Date: 2007–09
  27. By: Jean-Paul Fitoussi (Observatoire Français des Conjonctures Économiques)
    Date: 2007

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