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on Business Economics |
| By: | Sandén, Klas (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This essay investigates the interaction between demand uncertainty and non-competitive labor markets where firm owners have the option to shut down and relocate. Workers cannot find new jobs instantly and therefore accept wage reductions to avoid unemployment, if firm owners credibly threaten to shut down. The analysis shows that the expected wage rate is a mix of a competitive wage rate and a bargained wage rate and that this lowers the skill premium. Further, the option of firms to shut down and relocate increases the average size of firms. The analysis also shows that outsourcing or contracting out is more likely if demand is more uncertain, if market power is smaller, and if the markets for intermediate goods are more competitive. Fragmentation increases the skill premium because it leads to more homogenous firms, with respect to workers’ skills. With more homogenous firms, low-skill workers cannot compensate their inferior productivity in wage bargains with high-skill workers.<p> |
| Keywords: | Distribution; Wages; Outsourcing; Fragmentation; Bargaining |
| JEL: | J24 J31 J41 J52 L23 L24 |
| Date: | 2007–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0265&r=bec |
| By: | Sergio L. Schmukler; Stijn Claessens |
| Abstract: | This paper studies international financial integration analyzing firms from various countries raising capital, trading equity, and/or cross-listing in major world stock markets. Using a large sample of 39,517 firms from 111 countries covering the period 1989-2000, we find that, although international financial integration increases substantially over this period, only relatively few countries and firms actively participate in international markets. Firms more likely to internationalize are from larger and more open economies, with higher income, better macroeconomic policies, and worse institutional environments. These firms tend to be larger, grow faster, and have higher returns and more foreign sales. While changes occur with internationalization, these firm attributes are present before internationalization takes place. The results suggest that international financial integration will likely remain constrained by country and firm characteristics. |
| Date: | 2007–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/138&r=bec |
| By: | Christian Haefke; Marcus Sonntag; Thijs van Rens |
| Abstract: | Shimer (2005) and Hall (2005) have documented the failure of standard labor market search models to match business cycle fluctuations in employment and unemployment. They argue that it is likely that wages are not adjusted as regularly as suggested by the model, which would explain why employment is more volatile than the model predicts. We explore whether this explanation is consistent with the data. The main insight is that the relevant wage data for the search model are not aggregate wages, but wages of newly hired workers. Our results show that wages for those workers are much more volatile than aggregate wages and respond one-for-one to changes in labor productivity. Thus, we find no evidence for wage rigidity. |
| Keywords: | Wage Rigidity, Search and Matching Model, Business Cycle |
| JEL: | E24 E32 J31 J41 J64 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1047&r=bec |
| By: | Pengfei Wang; Yi Wen |
| Abstract: | This paper shows that incomplete information can be a rich source of sunspots equilibria. This is demonstrated in a standard dynamic general equilibrium model of monopolistic competition … la Dixit-Stiglitz. In the absence of fundamental shocks, the model has a unique certainty (fundamental) equilibrium, but there are also multiple stochastic (sunspots) equilibria that are not mere randomizations over fundamental equilibria. In other words, sunspots can exist in infinite-horizon dynamic models with a unique saddle path steady state. In contrast to the recent sunspots literature (e.g., Benhabib and Farmer 1994), sunspots arising under incomplete information can be serially correlated and are robust to parameters associated with production technologies and preferences. Markup is always countercyclical in sunspots equilibria (which is consistent with empirical evidence) and fluctuations driven by sunspots look very similar to fluctuations driven by technology shocks. |
| Keywords: | Business cycles ; Prices |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-033&r=bec |
| By: | Ursino, Giovanni |
| Abstract: | There is widespread consensus in the business community that the key to a successful integration strategy is the bargaining position enjoyed by the company at the end of the process. This paper takes on that view in building a new theory of vertical integration. While the perspective of incomplete contracts is adopted (bounded rationality), the analysis focuses on the bargaining problem as the key to understand the economizing properties of vertical integration. A production process composed of several stages is studied. It is shown that when there is "strength in union" and firms gain bargaining power if they join into an integration, then an optimal level of integration is achieved. This allows integrated firms to alleviate the major cost of contractual relations, that is the extent to which the revenue from their specific investment is expropriated by other firms. In fact, vertical integration is shown to be an optimal strategy for those firms which have a high degree of investment specificity. As a drawback, vertical integration imposes an organizational burden which is reflected in ex-post inefficiency. The model is used to give a natural representation of the product cycle which is capable of explaining both domestic and foreign outsourcing, FDI and some stylized North-South differences. It also gives a natural interpretation of why different industries have different organizational structures and provides other testable predictions. The theory and the model presented here naturally integrate the major insights from Transaction Cost Economics (TCE) and indeed provide a comprehensive formal treatment for the theory introduced by Williamson in the 70s. |
| Keywords: | Vertical Integration; Transaction Cost Economics; Bargaining Power |
| JEL: | O30 L22 F2 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4802&r=bec |
| By: | C. Mirjam van Praag (University of Amsterdam; Tinbergen Institute; Max Planck Institute of Economics; IZA Institute for the Study of Labour); Peter H. Versloot (University of Amsterdam; Tinbergen Institute) |
| Abstract: | This paper examines to what extent recent empirical evidence can collectively and systematically substantiate the claim that entrepreneurship has important economic value. Hence, a systematic review is provided that answers the question: What is the contribution of entrepreneurs to the economy in comparison to non-entrepreneurs? We study the relative contribution of entrepreneurs to the economy based on four measures that have most widely been studied empirically. Hence, we answer the question: What is the contribution of entrepreneurs to (i) employment generation and dynamics, (ii) innovation, and (iii) productivity and growth, relative to the contributions of the entrepreneurs' counterparts, i.e. the 'control group'? A fourth type of contribution studied is the role of entrepreneurship in increasing individuals' utility levels. Based on 57 recent studies of high quality that contain 87 relevant separate analyses, we conclude that entrepreneurs have a very important - but specific - function in the economy. They engender relatively much employment creation, productivity growth and produce and commercialize high quality innovations. They are more satisfied than employees. More importantly, recent studies show that entrepreneurial firms produce important spillovers that affect regional employment growth rates of all companies in the region in the long run. However, the counterparts cannot be missed either as they account for a relatively high value of GDP, a less volatile and more secure labor market, higher paid jobs and a greater number of innovations and they have a more active role in the adoption of innovations. |
| Keywords: | entrepreneur, entrepreneurship, self-employment, productivity, economic development, growth, employment, innovation, patents, R+D, utility, remuneration, income. |
| JEL: | D24 D31 E23 E24 J21 J28 J31 L26 M13 |
| Date: | 2007–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-061&r=bec |
| By: | Emilie Dargaud (GATE CNRS) |
| Abstract: | When it examines the risk of coordinated effects, an antitrust authority will usually compare the situation where the merger is accepted with an attendant risk of collusion with the benchmark case in which competition is present ex-post. The main objective of this paper is to show that the antitrust authority must take into account the possibility for firms to collude if a merger is rejected. In fact, firms can have incitations to make collusion ex-post (after a rejection of a merger) whereas they would not make collusion ex-ante. All the papers on mergers and collusion tend to look at a minimal discount factor threshold for collusion to be sustained. This article does not only suggest necessary and sufficient conditions for collusion to be enforced but it also analyses the choice which firms have as to whether to collude. We consider an industry with cost-asymmetric firms and we study the analysis of collusion under leniency programmes. |
| Keywords: | leniency programme, merger, oligopoly supergame |
| JEL: | K42 L11 L41 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0708&r=bec |
| By: | Echtelt, F.E.A. van; Wynstra, J.Y.F.; Weele, A.J. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | This paper examines how firms succeed to leverage supplier involvement in product development. The paper extends earlier work on managing supplier involvement by providing an integrated analysis of results, processes and conditions both at the level of individual development projects and the overall firm. Following a multiple-case study approach with theoretical sampling, the study is carried out by examining eight projects in which four manufacturers from different industries involve multiple suppliers. The findings suggest that successful supplier involvement is dependent on the coordinated design, execution and evaluation of strategic, long-term processes and operational, short-term management processes and the presence of enabling factors such as a cross-functional oriented organization. The required intensity of these processes and enablers depends on contingencies such as firm size and environmental uncertainty. In contrast with previous research, we find no indications that managing supplier involvement requires a different approach in highly innovative projects compared to less innovative projects. |
| Keywords: | new product development;innovation;R&D management;supplier relations;purchasing; |
| Date: | 2007–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:300011710&r=bec |
| By: | Ibrahim, M.K.M.; Ribbers, P.M.A.; Bettonvil, B.W.M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | This paper analyses how human knowledge resources affect capabilities and subsequently attainment of operational and strategic benefits. We test a conceptual model using data from two qualitative case studies and a quantitative field study. The findings indicate that human knowledge positively influences IOS capabilities related to cross-organizational business processes and transfer of knowledge. The data show that strategic benefits are the consequence of knowledge transfer, when the transfer supports business processes resulting in operational benefits. |
| Keywords: | Interorganizational systems;resource-based view;IOS capabilities;Strategic benefits;Human Knowledge; |
| Date: | 2007–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:300011715&r=bec |
| By: | Ross Levine; Luc Laeven |
| Abstract: | The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: 100 percent small shareholders or one large, controlling owner combined with small shareholders. In this paper, we question the empirical validity of this dichotomy. In fact, one-third of publicly listed firms in Europe have multiple large owners, and the market value of firms with multiple blockholders differs from firms with a single large owner and from widely-held firms. Moreover, the relationship between corporate valuations and the distribution of cash-flow rights across multiple large owners is consistent with the predictions of recent theoretical models. |
| Date: | 2007–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/140&r=bec |
| By: | Sandén, Klas (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This essay presents a new theory explaining increased wage inequality. A standard endogenous growth model is augmented with occupational choice of highskill workers. Depending on the occupational choice, high-skill workers earn either a certain or uncertain income. Wage inequality, measured by the average wage of high-skill workers divided by the average wage of low-skill workers, can increase or decrease due to an increased supply of high-skill workers. <p> |
| Keywords: | Distribution; Wages; Cooperatives; Technological Change; Economic Growth |
| JEL: | D33 J31 J54 O32 O41 |
| Date: | 2007–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0263&r=bec |
| By: | Jonathan Witmer; Lorie Zorn |
| Abstract: | This paper estimates the implied cost of equity for Canadian and U.S. firms using a methodology based on the dividend discount model and utilizing firms' current stock price and analysts' forecasted earnings. We find that firm size and firm stock liquidity are negatively related to cost of equity, while greater firm financial leverage and greater dispersion in analysts' earnings forecasts are associated with a higher cost of equity. Moreover, longer-term sovereign bond yields also seem to play a role in a firm's cost of equity. After controlling for several factors, both at a firm-level and at an aggregate level, we find that the cost of equity for Canadian firms is 30-50 bps higher than that of U.S. firms during 1988-2006. Because our estimates may not fully account for factors such as currency risk, inflation uncertainty, degree of market integration, personal taxes, and differences in regulatory environments, we might shed further light on these results by incorporating proxies for these factors and perhaps extending our comparison to more countries. |
| Keywords: | Financial markets; International topics |
| JEL: | G30 G38 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-48&r=bec |
| By: | Wendelin Schnedler (University of Heidelberg, Department of Economics); Radovan Vadovic (ITAM Mexico City, Department of Economics) |
| Abstract: | What is the motivational effect of imposing a minimum effort require- ment? Agents may no longer exert voluntary effort but merely meet the requirement. Here, we examine how such hidden costs of control change when control is considered legitimate. We study a principal- agent model where control signals the expectations of the principal and the agent meets these expectations because he is guilt-averse. We conjecture that control is more likely to be considered legitimate (i) if it is not exclusively aimed at a specifc agent or (ii) if it protects the endowment of the principal. Given the conjecture, the model predicts that hidden costs are lower when one of the two conditions is met. We experimentally test these predictions and find them confirmed. |
| Keywords: | moral-hazard, intrinsic motivation, guilt-aversion |
| JEL: | C7 C9 M5 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0450&r=bec |
| By: | Sandén, Klas (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This paper investigates the relationship between various market imperfections and the skill premium. The model in this paper assumes perfectly competitive labor markets but distorted product and financial markets. The model predicts that the skill premium is positively correlated with market power, modeled using preference for variety, and shorter product cycles. The effect from financial market distortions or taxes on financial income is ambiguous. Positive external effects among firms developing new goods decrease the skill premium. <p> |
| Keywords: | Wage Inequality; Monopolistic Competition; Innovation |
| JEL: | D33 D43 D50 D91 D92 J31 L13 O31 |
| Date: | 2007–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0264&r=bec |
| By: | Joachim Wagner (University of Lueneburg and Max Planck Institute of Economics) |
| Abstract: | Using panel data from Spain Farinas and Ruano (IJIO 2005) test three hypotheses from a model by Hopenhayn (Econometrica 1992): (H1) Firms that exit in year t were in t-1 less productive than firms that continue to produce in t. (H2) Firms that enter in year t are less productive than incumbent firms in year t. (H3) Surviving firms from an entry cohort were more productive than non-surviving firms from this cohort in the start year. Results for Spain support all three hypotheses. This paper replicates the study using a unique newly available panel data sets for all manufacturing plants from Germany (1995 - 2002). Again, all three hypotheses are supported empirically. |
| Keywords: | entry, exit, productivity |
| JEL: | L11 L60 |
| Date: | 2007–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-064&r=bec |
| By: | Danielle GALLIANO (LEREPS–GRES & INRA–ESR); Olivier SOULIE (LEREPS-GRES & INRA–ESR) |
| Abstract: | This article aims to analyse the factors that determine the existence of multi-unit firms and that influence the intensity of their organisational fragmentation. More precisely, we identify the firm’s internal characteristics and their spatial, sectoral and competitive environments that are conducive (or not) to the adoption of a multi-unit form of organisation. We test these hypotheses by using a two stage Heckman type model (1979). This model allows us to take into account the determinants of the organisational choice in the intensity of multi-location. Beyond the general model, we seek to highlight that the logics differ according to the location of the firm’s head office (urban, peri-urban or rural) and according to the firm’s industrial profile (horizontal or vertical). These empirical models are based on individual data on all French industrial firms, derived from the annual survey on firms and their establishments conducted by the French National Institute of Statistics (INSEE). One of our main results is to reveal the role of this complex interaction between industrial and spatial dynamics in organisational choices. |
| Keywords: | Multi-unit firm, Firm location, Organisation of the firm, French industry |
| JEL: | L2 L6 R3 O18 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:grs:wpegrs:2007-17&r=bec |
| By: | Akito Matsumoto |
| Abstract: | This paper analyzes the role of nonseparable utility and nontradables in business cycles and portfolio choice. I find that nonseparability in utility can change the portfolio choice significantly. Unlike previous results in literature, the optimal portfolio of the traded-good sector equities is no longer a well diversified portfolio and becomes sensitive to parameter values. As a result, the model often generates extreme home bias or anti-home bias portfolios implying that some frictions in asset markets, which prevent agents from holding these extreme portfolios, can explain the lack of international risk sharing. |
| Date: | 2007–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/163&r=bec |
| By: | Aaro Hazak; Kadri Männasoo |
| Abstract: | The present paper contributes to the research on the indicators that provide a warning of company failure by employing micro and macro variables within a framework of survival analysis using a sample of 0.4 million companies from the European Union (EU). The sensitivity of the results is checked using two complementary event definitions - bankruptcy and negative equity. Our results imply that the baseline hazard of a default is a U-shaped function of the time the company has survived. High leverage and a low return on assets appear to be strong predictors of failure. Macroeconomic variables give mixed evidence for old and new member states as well as for the two default definitions |
| Keywords: | corporate default, bankruptcy, survival analysis |
| JEL: | G33 C41 |
| Date: | 2007–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2007-10&r=bec |
| By: | David K. Backus; Jonathan H. Wright |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:07-22&r=bec |