nep-bec New Economics Papers
on Business Economics
Issue of 2007‒12‒19
twelve papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Earnings-Tenure Profiles: Market Characteristics, Intra-Firm Coordination, and the Choice of Human Resource Management Systems: Evidence from New Japanese Data By Kato, Takao; Owan, Hideo
  2. Earnings-Tenure Profiles: Tests of Agency and Human Capital Theories using Individual Performance Data By Dong, Xia-Yuan; Jones, Derek C.; Kato, Takao
  3. Offshoring and Heterogeneous Firms: One Job Offshored, One Job Lost? By Nana Bourtchouladze
  4. Delegation, Externalities and Organizational Design By Axel Gautier; Dimitri Paolini
  5. Consumption-Leisure Trade-offs and Persistency in Business Cycles. By Ilaski Barañano; Paz Moral
  6. Legal Unbundling can be a Golden Mean between Vertical Integration and Separation By Felix Höffler; Sebastian Kranz
  7. Financial Structure, Liquidity, and Firm Locations By Andres Almazan; Adolfo de Motta; Sheridan Titman; Vahap Uysal
  8. Disentangling the firm growth process: evidence from a recursive panel VAR. By Alexander Coad
  9. The Age of Reason: Financial Decisions Over the Lifecycle By Sumit Agarwal; John C Driscoll; Xavier Gabaix; David Laibson
  10. Insurance and Opportunities: A Welfare Analysis of Labor Market Risk By Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
  11. Explaining The Great Moderation: It Is Not The Shocks By Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
  12. Some evidence on financial distress costs and their effect on cash flows By Ignacio Velez-Pareja; Patricia Rojas-Linero

  1. By: Kato, Takao (Department of Economics, Colgate University); Owan, Hideo (Graduate School of International Management, Aoyama Gakuin 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.
    JEL: M5 L2 J53 D2
    Date: 2007–08–01
  2. By: Dong, Xia-Yuan (University of Winnipeg); Jones, Derek C. (Hamilton College); Kato, Takao (Department of Economics, Colgate University)
    Abstract: By using a large new panel of individual data, including objective measures of worker performance, we provide some of the most rigorous evidence to date on several related dimensions of enduring debates surrounding upward-sloping earnings-tenure profiles. Most importantly we provide the first direct test of the relative validity of human capital and agency explanations in accounting for upward-sloping earnings-tenure profiles; our findings strongly support the agency view. Our second area of interest concerns employee ownership (many workers at our case are employee owners.) Consistent with agency theory we find that earnings-tenure profiles for employee owners are not upward-sloping but horizontal. In addition we find that pay-performance sensitivities are substantially weaker for employee owners than for other workers. Finally we investigate the impact of residential policies in China. We find that again consistent with the agency view, earnings-tenure profiles are considerably steeper for urban workers than for migrant workers with far more limited alternative employment opportunities.
    Keywords: Earnings, Tenure, Seniority, Performance, Human Capital, Agency, Employee Ownership
    JEL: J3 M5 L6
    Date: 2007–08–12
  3. By: Nana Bourtchouladze (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: Offshoring has gained a significant momentum in recent years. Firm size appears to be the leading factor differentiating firms that offshore from those that do not. We present a model that blends offshoring, or trade in tasks, with a Melitz-style model of monopolistic competition with heterogeneous firms and show that this is indeed the case. Accounting for firm heterogeneity offers new tools for analyzing the effects of offshoring on the employment dynamics within an individual firm and at the aggregate sector level. We show that offshoring unambiguously reduces per-firm labour demand in smaller firms, but has ambiguous effects in larger firms. As a result, irrespective of whether or not the number of firms operating in the offshoring nation increases, the overall sector employment may increase or decrease. Policies promoting free trade have a significant role to play in job creation. The model also permits a straightforward derivation of positive and normative effects of offshoring: trade in tasks increases productivity of active firms and improves welfare in the offshoring nation.
    Keywords: Trade in tasks, offshoring, heterogeneous firms, employment, productivity, welfare
    JEL: F12 F16 F29
    Date: 2007–12
  4. By: Axel Gautier; Dimitri Paolini
    Abstract: In a repeated interaction between a principal and two agents with inter-agents externalities and asymmetric information, we show that optimal decentralization within the organization is limited to the …first period and across agents.
    Date: 2007
  5. By: Ilaski Barañano (Dpt. Fundamentos Análisis Económico I, UPV/EHU); Paz Moral (Dpt. Economía Aplicada III (Econometría y Estadística), UPV/EHU)
    Abstract: This paper studies whether nonseparabilities between consumption and leisure may help to explain the observed persistence in GNP growth. We consider an extended version of Lucas' (1988) human capital investment model that includes labor adjustment costs and compare its performance under different utility specifications with different degrees of complementarity and substitutability between consumption and leisure. We find that when consumption and leisure are complements the model succeeds in matching not only the autocorrelation of output growth but also the important trend-reverting component found in US data. These results hold even if low adjustment costs of labor are considered. Hence, we conclude that an arguably simple margin not studied previously can provide useful insights into observed business cycle patterns.
    Keywords: Real Business Cycle Models; Endogenous Growth; Propagation Mechanism; Persistence.
    JEL: E32 O41 C52
    Date: 2007–12–12
  6. By: Felix Höffler; Sebastian Kranz
    Abstract: We study an industry in which an upstream monopolist supplies an essential input at a regulated price to several downstream firms. Legal unbundling means that a downstream firm owns the upstream firm but this upstream firm is legally independent and maximizes its own upstream profits. We allow for non-tariff discrimination by the upstream firm and show that under quite general conditions legal unbundling yields (weakly) higher quantities in the downstream market than vertical separation and integration. Therefore, typically consumer surplus will be largest under legal unbundling. Outcomes under legal unbundling are still advantageous when we allow for discriminatory capacity investments, investments into marginal cost reduction and investments into network reliability. If access prices are unregulated, however, legal unbundling may be quite undesirable.
    Keywords: Network industries, regulation, vertical relations, investments, ownership, sabotage
    JEL: D2 D4 L1 L42 L43 L51
    Date: 2007–11
  7. By: Andres Almazan; Adolfo de Motta; Sheridan Titman; Vahap Uysal
    Abstract: This paper investigates the relation between a firm's location and its corporate finance decisions. We develop a simple model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more financial slack. Consistent with our model we find that firms that are located within industry clusters tend to make more acquisitions, and have lower debt ratios and larger cash balances than their industry peers located outside clusters. In addition, we document that firms in growing cities and technology centers also maintain more financial slack. Overall, these findings, which reveal systematic patterns between geography and corporate finance choices, suggest the importance of growth opportunities in firms’ financial decisions.
    JEL: G30 G32 G34 R3
    Date: 2007–11
  8. By: Alexander Coad
    Abstract: We attempt to describe the coevolution of employment growth, sales growth and growth of profits in a panel of French manufacturing firms 1996-2004. Our analysis entails ‘recursive’ panel vector autoregressions, whereby we impose the structure of employment growth leading to contemporaneous sales growth, which in turn is associated with contemporaneous growth of profits. We observe that whilst employment growth has a direct negative association with profit growth, there are indirect effects through which employment growth leads to sales growth which in turn has a large effect on profits growth. The net effect of employment growth is thus positive growth of profits. Counter to some ‘replicator dynamics’ theories of industrial development, profit growth is not followed by much subsequent growth of employment.
    Keywords: Firm Growth, Panel VAR, Recursive VAR, Employment Growth, Industrial Dynamics Length 15 pages
    JEL: L20 L25
    Date: 2007–11
  9. By: Sumit Agarwal; John C Driscoll; Xavier Gabaix; David Laibson
    Date: 2007–12–12
  10. By: Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
    Abstract: Using a model with constant relative risk-aversion preferences, endogenous labor supply and partial insurance against idiosyncratic wage risk, we provide an analytical characterization of three welfare effects: (a) the welfare effect of a rise in wage dispersion, (b) the welfare gain from completing markets, and (c) the welfare effect from eliminating risk. Our analysis reveals an important trade-off for these welfare calculations. On the one hand, higher wage uncertainty increases the cost associated with missing insurance markets. On the other hand, greater wage dispersion presents opportunities to raise aggregate productivity by concentrating market work among more productive workers. Our welfare effects can be expressed in terms of the underlying parameters defining preferences and wage risk, or alternatively in terms of changes in observable second moments of the joint distribution over individual wages, consumption and hours.
    JEL: E21 J22 J31
    Date: 2007–11
  11. By: Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
    Abstract: This paper shows that the explanation of the decline in the volatility of GDP growth since the mid-eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism.
    Keywords: Great Moderation; Information; Shocks
    JEL: C32 C53 E32 E37
    Date: 2007–12
  12. By: Ignacio Velez-Pareja; Patricia Rojas-Linero
    Abstract: In this work we explore the effect of book value leverage upon some financial indexes, such as real growth, payment terms from suppliers and gross and operating margins. We explore if there is statistical evidence on the influence of the book value leverage level in the financial distress or bankruptcy costs that appear as measured by the worsening of those indexes. Four dependent variables were explored: gross margin, operating margin, real growth in sales and payment terms from suppliers. In order to estimate the financial distress and bankruptcy costs associated with each dependent variable, logarithmic and semi-logarithmic models were constructed using data panel. We used a balanced sample composed by 644 firms from the commercial Colombian industry, provided by the Superintendence of Societies of Colombia. We also examined an unbalanced sample of 683 firms with Ordinary Least Squares (OLS) analysis. We found that there exists a relationship between book value leverage perceived by the market and gross margin. This allows us to explore the possibility to introduce the financial distress costs in the cash flows. The aim of the study is to explore a model that allows the analyst to include this effect in the forecasted financial statements. When this effect is included in the financial statements the free cash flows will be affected and hence the interaction of cash flows, cost of capital (weighted average cost of capital) and firm value calculated with the cash flows will eventually allow determining an optimal capital structure.
    Date: 2007–12–04

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