nep-bec New Economics Papers
on Business Economics
Issue of 2007‒11‒10
sixteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. The Impact of Mergers and Acquisitions on Executive Pay in the United Kingdom By Paul Guest
  2. Market Characteristics, Intra-Firm Coordination, and the Choice of Human Resource Management Systems: Evidence from New Japanese Data By Takao Kato; Hideo Owan
  3. Real Options in a Dynamic Agency Model, with Applications to Financial Development, IPOs, and Business Risk By Thomas Philippon; Yuliy Sannikov
  4. The Austrian Business Cycle - A Role for Technology Shocks? By Sandra Martina Leitner
  5. Japan's Paradoxical Response to the new 'Global Standard' in Corporate Governance By John Buchanan; Simon Deakin
  6. Uncertainty and Organization Design By Avner Ben-Ner; Fanmin Kong; Stephanie Lluis
  7. Labor Adjustment Costs in a Panel of Establishments: A Structural Approach By João Miguel Ejarque; Pedro Portugal
  8. Functional Chains of Knowledge Management - Effects on Firms' Innovative Performance By Uwe Cantner; Kristin Joel
  9. Technology resistance and globalisation with trade unions: the choice between employment protection and flexicurity By Kjell Erik Lommerud; Odd Rune Straume
  10. Double-Sided Moral Hazard, Efficiency Wages and Litigation By Oliver Gürtler; Matthias Kräkel
  11. Firms' Differential Innovative Success and Market Dynamics By Uwe Cantner
  12. Offshoring and Manufacturing Employment: A General Equilibrium Analysis By Cosimo Beverelli
  13. Winners and Losers in Housing Markets By Nobuhiro Kiyotaki; Alexander Michaelides; Kalin Nikolov
  14. On the Mechanics of Firm Growth By Erzo G.J. Luttmer;
  15. Workaholics and Drop Outs in Optimal Organizations By Wieland Muller; Andrew Schotter
  16. The change of ownership after a buyout: Impact on performance By Goossens, L.; Manigart, S.; Meuleman, M.

  1. By: Paul Guest
    Abstract: We examine the impact of acquisitions on executive pay in UK acquirers over 1984-2001. For the overall sample, which includes foreign, domestic, public and private targets, there is a significant transitory pay increase. Pay changes are not affected by target nationality or organizational form, although initial cross-border acquisitions do result in higher pay. Pay increases are higher following acquisitions of targets with high pay, but not of targets in high pay countries. CEOs are rewarded equally for bad and good acquisitions, and those well rewarded are more likely to reacquire. However, bad acquisitions do not on average increase CEO wealth because of an offsetting decline in CEO shareholding value. Pay impacts are not affected by the corporate governance characteristics of the acquiring firm.
    Keywords: Executive compensation; acquisitions; cross-border; private; corporate governance
    JEL: G34 J33
    Date: 2007–09
  2. By: Takao Kato (Colgate University, Columbia Business School, University of Tokyo, Aarhus School of Business and IZA); Hideo Owan (Aoyama Gakuin University and Hitotsubashi University)
    Abstract: This paper explores theoretically and empirically potentially important yet often-neglected linkage between task coordination within the organization and the structure of organization and bundling of HRMPs (Human Resource Management Practices). In so doing, we also provide fresh insights on the interplay between the firm’s technological and output market characteristics and its choice of HRMP system. We begin with constructing a team-theoretic model and derive three task coordination modes: vertical control, horizontal coordination, and hybrid coordination. The model provides rich implications about complementarity involving task coordination modes, HRMPs, training and hiring, and management strategies, and illustrates how such complementarity is affected by the firm’s technological and output market conditions. Guided by the theoretical exploration, we analyze unique data from a new survey of Japanese firms which provide for the first time data on newer forms of HRMPs adopted by Japanese firms (such as cross-functional offline teams and self-managed online teams). One novel finding (which is consistent with the theory) is that the adoption of both self-managed online teams and cross-functional offline teams usually arises in firms with shop-floor committees while the introduction of cross-functional offline teams alone often takes place in firms with joint labor-management committees. We also confirm implications from our theory that firms in more competitive markets are more likely to adopt both types of teams while firms facing more erratic price movement tend not to adopt self-managed online teams.
    Keywords: HRM systems, task coordination, teams
    JEL: M5 L2 J53 D2
    Date: 2007–10
  3. By: Thomas Philippon; Yuliy Sannikov
    Abstract: We study investment options in a dynamic agency model. Moral hazard creates an option to wait and agency conflicts affect the timing of investment. The model sheds light, theoretically and quantitatively, on the evolution of firms' dynamics, in particular the decline of the failure rate and the decrease in the age of IPOs.
    JEL: D82 D86 D92 E22 G31 G32 G33
    Date: 2007–11
  4. By: Sandra Martina Leitner (Department of Economics, Johannes Kepler University Linz, Austria)
    Date: 2007–11
  5. By: John Buchanan; Simon Deakin
    Abstract: We suggest, on the basis of empirical research into the implementation of recent legal reforms, that Japan is not moving inexorably towards a 'global standard' in corporate governance, based on external monitoring and a market for corporate control. Japanese corporate governance is nevertheless changing: in part as an indirect response to legal initiatives, new structures and practices are emerging, aimed at providing greater flexibility in decision-making, while retaining the organisational core of the Japanese firm. The paradoxical effect of legal reforms aimed, in large part, at transplanting the global standard, may be to renew the distinctive Japanese model of the corporation.
    Keywords: corporate governance, company law reform, Japan
    JEL: G34 K22
    Date: 2007–09
  6. By: Avner Ben-Ner; Fanmin Kong; Stephanie Lluis
    Abstract: The task environment, characterized by the degree of complexity, variability, and routine of workers’ tasks, creates varying degrees of asymmetric information between workers and their supervisors, as well as poses varying degrees of difficulty for supervisors and workers in making correct decisions. Thus the task environment generates internal uncertainty, some of which is under the control of workers, in contrast with external uncertainty, which arises from the market and is beyond their control. The measures that address problems associated with internal uncertainty (including incentives, delegation of decision-making to workers, monitoring by supervisors and internal labor markets) are elements of organization design. We explore theoretically and empirically the relationship between uncertainty and organization design, expanding on Baker and Jorgensen’s (2003) idea that the risk-incentives relationship depends on the nature and sources of risk and Prendergast’s (2002a) idea that incentive pay is not a direct response to a firm’s task attributes but is part of a broader organization design that includes additional complementary and substitutable elements.
  7. By: João Miguel Ejarque (University of Essex); Pedro Portugal (Bank of Portugal, Universidade Nova de Lisboa and IZA)
    Abstract: This paper estimates a structural model of the employment decision of the firm. Our establishment level data displays an extreme degree of rigidity in that employment levels are largely constant throughout our sample. This can be due to the fact that establishments face large shocks but also large adjustment costs, or alternatively that they incur no adjustment costs but that shocks are negligible. Given our identifying assumptions, we find that rigidity is due to adjustment costs and not to the shock process. We further find that these costs reduce the value of the firm as much as 5%. Finally, small fixed costs of adjustment have a large impact on entry and exit job flows.
    Keywords: adjustment costs, employment, rigidity
    JEL: C33 C41 E24 J23
    Date: 2007–10
  8. By: Uwe Cantner (Friedrich-Schiller University Jena, School of Economics and Business Administration, Chair of Microeconomics); Kristin Joel (Friedrich-Schiller University Jena, School of Economics and Business Administration, Chair of Microeconomics)
    Abstract: The aim of this paper is to investigate the role of Knowledge Management (KM) for the innovation success of firms. It is assumed that the functional chains of KM lead directly and indirectly to more innovative success via enhancing the recombination of internal and external knowledge assets. To analyse the embedding of KM in a firm's internal system of innovation we establish a structural equation model. We capture KM as latent concept and trace different functional chains by which KM impacts. Using data on KM and innovation success of 351 German firms of the manufacturing sector and knowledge-intensive services located in Thuringia and Hesse, our findings confirm the (dynamic) capability function of KM, which leads via improving exploitation of internal and external innovation assets to more innovation success.
    Keywords: Knowledge management, innovation, absorptive capacity, resource-based view, structural equation modelling
    JEL: O32 D21 C3
    Date: 2007–11–05
  9. By: Kjell Erik Lommerud (University of Bergen); Odd Rune Straume (Universidade do Minho - NIPE)
    Abstract: We analyse how different labour market institutions — employment protection versus ‘flexicurity’ — affect technology adoption in unionised firms. The analysis is cast in a setting of corporate globalisation, where domestic unionised labour face the double threat of labour-saving technological innovations and international outsourcing of domestic production. In the main part of the analysis, we analyse trade unions’ incentives to oppose or endorse the adoption of new technology. Our main result is that both weaker employment protection and a higher reservation wage for unionsed workers (interpreted as increased ‘flexicurity’) contribute to making trade unions more willing to accept labour-saving technological change. Furthermore, these effects are reinforced by globalisation. In an extension to the main analysis, we endogenise the technological progress by studying firms’ incentives to invest in new technology and find that these incentives are also generally strengthened in a labour market with more ‘flexicurity’.
    Keywords: Technology adoption; Globalisation, Trade unions, Employment protection, Flexicurity
    JEL: F16 F23 J51 O33
    Date: 2007
  10. By: Oliver Gürtler; Matthias Kräkel
    Abstract: We consider a double-sided moral hazard problem where each party can renege on the signed contract since there does not exist any verifi- able performance signal. It is shown that ex-post litigation can restore incentives of the agent. Moreover, when the litigation can be settled by the parties the pure threat of using the legal system may suffice to make the principal implement first-best effort. As is shown in the paper, this finding is rather robust. In particular, it holds for sit- uations where the agent is protected by limited liability, where the parties have different technologies in the litigation contest, or where the agent is risk averse.
    Keywords: double-sided moral hazard, efficiency wage, litigation contest, settlement
    JEL: D86 J33 K41
  11. By: Uwe Cantner (Friedrich Schiller University Jena, Faculty of Economics and Business Administration)
    Abstract: This paper deals with innovative activities of firms, the resulting market success as well as the interdependencies between both. In a first theoretical part, different cases of those interdependencies are investigated by the way of a simple model based on replicator dynamics. It is shown that the resulting differential success (in those activities) of firms in a market leads to specific characteristic pattern of industry dynamics. The second empirical part of the paper is used to get an account of the working of replicator dynamics mechanism within German manufacturing. Doing so changes in firms' market shares and the relation to their respective relative technological performance and to their or innovative performance are investigated with productivity levels as a proxy for technological performance and productivity changes as proxy for innovative performance.
    Keywords: Innovation, market competition, replicator dynamics, productivity decomposition
    JEL: O3 L1 D24
    Date: 2007–11–01
  12. By: Cosimo Beverelli (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: We study the incidence of offshoring, or trade in tasks, on firms' productivity and on manufacturing employment in a standard economic-geography model with iceberg trade costs and a continuum of tasks. In a two-countries world where one country has a Hick's neutral technological edge over the other, tasks in which the productivity edge more than offsets offshoring costs get offshored, giving rise to global disintegration of the production process. Offshoring raises firms' productivity and the number of manufacturing firms in the offshoring countries, thereby reducing costs of living. The general equilibrium incidence of offshoring on labor demand is shown to depend on offshoring costs and trade costs. For high enough offshoring costs, interior equilibria where both countries still produce manufactured goods are likely to be sustained. In this case, offshoring will boost labor demand for low enough trade costs. If, on the other hand, offshoring costs are low enough, core-periphery equilibria with all manufacturing in the offshoring country are likely to emerge. In this case, manufacturing labor demand is positively affected by offshoring as long as offshoring costs are not too low. In a three-countries extension, we show that a country would suffer welfare and employment losses from the adoption of policies that limit its firms' possibility to go offshore while similar countries allow offshoring.
    Keywords: International Economics, Exchange Rates, Trade
    JEL: F12 F16 F29
    Date: 2007–10–11
  13. By: Nobuhiro Kiyotaki; Alexander Michaelides; Kalin Nikolov
    Abstract: This paper is a quantitatively-oriented theoretical study into the interaction between housing prices, aggregate production, and household behaviour over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial structures. We find that, in an economy where the share of land in the value of structures is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing large redistribution effects between net buyers and net sellers of houses. Changing the financing constraint, however, has limited effects on housing prices.
    Keywords: Real estates, Land, Housing Prices, Life cycle, Collateral constraints.
    JEL: E21
    Date: 2007–11
  14. By: Erzo G.J. Luttmer (Department of Economics, University of Minnesota);
    Abstract: When the rate at which any given blueprint can be replicated is subject to decreasing returns, it is optimal to replicate high-quality blueprints more quickly than low-quality blueprints. The cost of introducing high-quality “start-up” blueprints will also rise with the rate at which they are introduced, and so low-quality blueprints will continue to enter the population. This naturally leads to persistent heterogeneity in blueprint quality. If quality begets quality and firms are identified with collections of blueprints derived from the same initial blueprint, then firms grow at a constant mean rate along the balanced growth path. A firm size distribution with the thick right tail observed in the data can then arise only when the number of blueprints in the economy grows over time. When calibrated to match the firm entry rate and the right tail of the size distribution, a homogeneous quality version of this model implies that the median age among firms with more than 10,000 employees is about 750 years. If the relative quality of a firm’s blueprints depreciates over time, then firm growth rates are not constant but slow down with age. If the successful replication of new blueprints is rapid but noisy, and high relative quality is sufficiently persistent, this version of the model can explain high observed entry rates, the thick-tailed size distribution, and the relatively young age of large U.S. corporations.
    Keywords: firm size, productivity, replication
    JEL: L1 O3
    Date: 2007–10–30
  15. By: Wieland Muller (Department of Economics, New York University); Andrew Schotter (Department of Politics, New York University)
    Abstract: This paper reports the results of experiments designed to test the theory of the optimal composition of prizes in contests. We find that while in the aggregate the behavior of our subjects is consistent with that predicted by the theory, such aggregate results mask an unexpected compositional effect on the individual level. While theory predicts that subject efforts are continuous and increasing functions of ability, the actual efforts of our laboratory subjects bifurcate. Low ability workers drop out and exert little or no effort while high ability subjects try too hard. This discontinuity, which is masked by aggregation, has significant consequences for behavior in organizations.
    Keywords: Contests, All-Pay Auctions, Experiments
    JEL: C92 D44 J31 D72 D82
    Date: 2007–01–05
  16. By: Goossens, L.; Manigart, S. (Vlerick Leuven Gent Management School); Meuleman, M. (Vlerick Leuven Gent Management School)
    Abstract: This paper analyses the impact of the change in ownership after a management buyout on both post-buyout efficiency and growth. We contrast family firm buyouts with divisional buyouts, and private equity (PE) financed buyouts with non-PE financed buyouts. We analyse the four-year post-buyout growth and efficiency of 167 Belgian companies (of which 43 are transfers from family owned businesses) that did a buyout between 1996 and 2003. Results show that the source of a buyout (family owned buyout versus divisional buyout) has no impact on the post-buyout growth, but the presence of a PE has. PE-backed buyouts grow less in assets, but more in employees. Neither sales growth nor efficiency are different between different types of buyouts.
    Keywords: buyout, ownership, private equity, performance
    Date: 2007–11–08

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