nep-bec New Economics Papers
on Business Economics
Issue of 2008‒01‒05
sixteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Mentoring and Segregation: Female-Led Firms and Gender Wage Policies By Ana Rute Cardoso; Rudolf Winter-Ebmer
  2. The Cyclicality of Effective Wages within Employer-Employee Matches : Evidence from German Panel Data By Silke Anger
  3. Firm growth and productivity growth evidence from a panel VAR. By Alex Coad; Tom Broekel
  4. Entry, exit and plant-level dynamics over the business cycle By Yoonsoo Lee; Toshihiko Mukoyama
  5. Input and output inventories in general equilibrium By Matteo Iacoviello; Fabio Schiantarelli; Scott Schuh
  6. Firm Growth and Scaling of Growth Rate Variance in Multiplant Firms By Alex Coad
  7. The impact of technological changes on incentives and motivations to work hard By Martin, Ludivine
  8. Firm productivity dynamics in Spain By Paloma López-García; Sergio Puente; Ángel Luis Gómez
  9. Downward wage rigidity for different workers and firms - an evaluation for Belgium using the IWFP procedure By Philip Du Caju; Catherine Fuss; Ladislav Wintr
  10. Risky Earnings, Taxation and Entrepreneurial Choice : A Microeconometric Model for Germany By Frank M. Fossen
  11. Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition By Robert Feenstra; Hong Ma
  12. The Limits of Authority: Motivation versus Coordination By Van den Steen, Eric
  13. What Determines the Structure of Corporate Debt Issues? By Brandon Julio; Woojin Kim; Michael Weisbach
  14. Moral hazard and persistence By Hugo Hopenhayn; Arantxa Jarque
  15. Failure prediction models : performance, disagreements, and internal rating systems By Janet Mitchell; Patrick Van Roy
  16. Hawks and doves in segmented markets : a formal approach to competitive aggressiveness By Claude, DASPREMONT; Rodolphe, DOS SANTOS FERREIRA; Jacques, THEPOT

  1. By: Ana Rute Cardoso (IZA); Rudolf Winter-Ebmer (University of Linz, IHS Vienna, CEPR and IZA)
    Abstract: We explore the impact of mentoring of females and gender segregation on wages using a large longitudinal data set for Portugal. Female managers can protect and mentor female employees by paying them higher wages than male-led firms would do. We find that females can enjoy higher wages in female-led firms, the opposite being true for males. In both cases is a higher share of females reducing the wage level. These results are compatible with a theory where job promotion is an important factor of wage increases: if more females are to be mentored, less promotion slots are available for males, but also the expected chance of a female to be promoted is lower.
    Keywords: female entrepreneurs, wages, gender gap, matched employer-employee data
    JEL: M52 D21 J31 J16
    Date: 2007–12
  2. 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
  3. By: Alex Coad (Max Planck Institute of Economics et Centre d'Economie de la Sorbonne); Tom Broekel (Max Planck Institute of Economics)
    Abstract: This paper offers new insights into the processes of firm growth by applying a reduced form vector autoregression (VAR) model to longitudinal panel data on French manufacturing firms (1996-2004). We observe the co-evolution of key variables such as growth of employment, sales, and gross operating surplus, as well as growth of multifactor productivity. It seems that employment growth is negatively associated with subsequent growth of productivity. This latter result, however, is sensitive to our choice of productivit indicator, i.e. multifactor productivity or labour productivity.
    Keywords: Firm growth, Panel VAR, productivity growth, industrial dynamics, non-parametric frontier analysis.
    JEL: L25 L20
    Date: 2007–12
  4. By: Yoonsoo Lee; Toshihiko Mukoyama
    Abstract: This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants, in terms of employment and productivity between 1972 and 1997. We show how entry and exit patterns vary during the business cycle, and that the cyclical pattern of entry is very different from the cyclical pattern of exit. Second, we build a general equilibrium model of plant entry, exit, and employment and compare its predictions to the data. In our model, plants enter and exit endogenously, and the size and productivity of entering and exiting plants are also determined endogenously. Finally, we explore the policy implications of the model. Imposing a firing tax that is constant over time can destabilize the economy by causing fluctuations in the entry rate. Entry subsidies are found to be effective in stabilizing the entry rate and output.
    Keywords: Business cycles ; Manufacturing industries
    Date: 2007
  5. By: Matteo Iacoviello; Fabio Schiantarelli; Scott Schuh
    Abstract: We build and estimate a two-sector (goods and services) dynamic stochastic general equilibrium model with two types of inventories: materials (input) inventories facilitate the production of finished goods, while finished goods (output) inventories yield utility services. The model is estimated using Bayesian methods. The estimated model replicates the volatility and cyclicality of inventory investment and inventory-to-target ratios. Although inventories are an important element of the model’s propagation mechanism, shocks to inventory efficiency or management are not an important source of business cycles. When the model is estimated over two subperiods (pre- and post-1984), changes in the volatility of inventory shocks, or in structural parameters associated with inventories play a minor role in reducing the volatility of output.
    Keywords: Stochastic analysis ; Inventories
    Date: 2007
  6. By: Alex Coad (Max Planck Institute of Economics, Jena, Germany; Centre d'Economie de la Sorbonne, Equipe MATISSE, Univ. Paris 1 - CNRS)
    Abstract: While Gibrat's Law assumes that growth rate variance is independent of size, empirical work has usually found a negative relationship between growth rate variance and ï¬rm growth. Using data on French manufacturing ï¬rms, we observe a relatively low, but statistically signiï¬cant, negative relationship between ï¬rm size and growth rate variance. Furthermore, we observe that growth rate variance does not decrease monotonically the more plants a ï¬rm possesses, which is at odds with a number of theoretical models.
    Keywords: Growth rate variance, Firm growth, Scaling relationship, Multiplant ï¬rms, Gibrat's Law
    JEL: L25 L20
    Date: 2007–12–18
  7. By: Martin, Ludivine (CREM-UMR CNRS 6211-Université de Rennes 1)
    Abstract: The diffusion of Information and Communication Technologies (ICT) associated with the diffusion of new work practices since fifteen years has raised concerns about the impact of these changes on productivity. Some recent studies underline a positive impact of ICT and of new work practices on firms' productivity. But as well known in the principal-agent literature agents are predisposed to shirking, so, in order to obtain productivity gains firms need to provide workers with sufficient incentives and to encourage motivations. Our main results, obtained with data collected in Luxembourg in 2004-2005, indicate that ICT permit to create a team spirit and an enriching work environment that influences positively pure intrinsic motivations of workers. These motivations, associated with positive incentives, can be substitutes for the direct monitoring introduced usually to obtain the effort of employees, but hard to be used in a context of increasing autonomy.
    Keywords: Technologies; Incentives ; Motivations
    JEL: O33 J81 L22
    Date: 2007–12
  8. By: Paloma López-García (Banco de España); Sergio Puente (Banco de España); Ángel Luis Gómez (Banco de España)
    Abstract: We have constructed a new database aimed at the study of the relation between firm demography and labour productivity, with a large number of Spanish firms from both industry and service sectors. This database allows us to analyze in detail the degree of dispersion and persistence of productivity levels, as well as the contribution of firm demography to productivity growth. This analysis has been done at different levels of sector aggregation. We have also studied explicitly the differential role of small and large firms.
    Keywords: entry and exit, micro-data, labour productivity
    JEL: D24 J24 L11 L25
    Date: 2007–12
  9. By: Philip Du Caju (Research Department, National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Catherine Fuss (Research Department, National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Ladislav Wintr (Research Department, National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.)
    Abstract: This paper evaluates the extent of downward nominal and real wage rigidity for different categories of workers and firms using the methodology recently developed by the International Wage Flexibility Project (Dickens and Goette, 2006). The analysis is based on an administrative data set on individual earnings, covering one-third of employees of the private sector in Belgium over the period 1990-2002. Our results show that Belgium is characterised by strong real wage rigidity and very low nominal wage rigidity, consistent with the Belgian wage formation system of full indexation. Real rigidity is stronger for white-collar workers than for blue-collar workers. Real rigidity decreases with age and wage level. Wage rigidity appears to be lower in firms experiencing downturns. Finally, smaller firms and firms with lower job quit rates appear to have more rigid wages. Our results are robust to alternative measures of rigidity. JEL Classification: J31.
    Keywords: Wage rigidity, matched employer-employee data.
    Date: 2007–12
  10. By: Frank M. Fossen
    Abstract: Which role do individual income prospects play in the decision to be an entrepreneur rather than an employee? In a model of occupational choice, higher expected after-tax earnings attract people to self-employment, while more risky net earnings deter risk-averse individuals. In this paper I analyse the expected value and variance of income in self-employment and dependent employment empirically, accounting for selection. Based on this analysis, structural models of self-employment entry and exit under risk are estimated, which include a standard risk aversion parameter. The model predicts that the German income tax reduction of 2000 induced smaller exit rates out of self-employment for men and smaller entry rates for women.
    Keywords: Entrepreneurship, Risk, Returns to Self-Employment, Taxation
    JEL: J23 H24 D81 C51
    Date: 2007
  11. By: Robert Feenstra; Hong Ma
    Abstract: In this paper we develop a monopolistic competition model where firms exercise their market power across multiple products. Even with CES preferences, markups are endogenous. Firms choose their optimal product scope by balancing the net profits from a new variety against the costs of "cannibalizing" their own sales. With identical costs across firms, opening trade leads to fewer firms surviving in each country but more varieties produced by each of those firms. With heterogeneous costs, the number of firms surviving in equilibrium is quite insensitive to the market size. When trade is opened, more firms initially enter, but the larger market size reduces the cannibalization effect and expands the optimal scope of products. As a result, the less efficient firms exit, and the larger market is accommodated by more efficient firms that produce more varieties per firm on average.
    JEL: F12 L1
    Date: 2007–12
  12. By: Van den Steen, Eric
    Abstract: This paper studies the effects of open disagreement on motivation and coordination. It shows how - in the presence of differing priors - motivation and coordination impose conflicting demands on the allocation of authority, leading to a trade-off between the two. The paper first derives a new mechanism for delegation: since the agent thinks - by revealed preference applied to differing priors - that his own decisions are better than those of the principal, delegation will motivate him to exert more effort when effort and correct decisions are complements. A need for implementation effort will thus lead to more decentralization. The opposite holds for substitutes. Delegation, however, reduces coordination when people disagree on the right course of action. The paper shows that - with differing priors - the firm needs to rely more on authority (as opposed to incentives) to solve coordination problems, relative to the case with private benefits. An interesting side-result here is that the principal will actively enforce her decisions only at intermediate levels of the need for coordination. The combination of the two main results implies a trade-off between motivation and coordination, both on a firm level and across firms. I derive the motivation-coordination possibility frontier and show the equilibrium distribution of effort versus coordination. I finally argue that strong culture, in the sense of homogeneity, is one (costly) way to relax the trade-off.
    Keywords: delegation, motivation, coordination, authority, differing priors, heterogeneous priors,
    Date: 2007–04–27
  13. By: Brandon Julio; Woojin Kim; Michael Weisbach
    Abstract: Publicly-traded debt securities differ on a number of dimensions, including quality, maturity, seniority, security, and convertibility. Finance research has provided a number of theories as to why firms should issue debt with different features; yet, there is very little empirical work testing these theories. We consider a sample of 14,867 debt issues in the U.S. between 1971 and 2004. Our goal is to test the implications of these theories, and, more generally, to establish a set of stylized facts regarding the circumstances under which firms issue different types of debt. <br><br>Our results suggest that there are three main types of factors that affect the structure of debt issues: First, firm-specific factors such as leverage, growth opportunities and cash holdings are related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide factors, in particular the state of the macroeconomy, affect the quality distribution of securities offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide factors, project specific factors appear to influence the types of securities that are issued. Consistent with commonly stated 'maturity-matching' arguments, long-term, nonconvertible bonds are more likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more likely to finance investment in R&D.
    JEL: G30 G32
    Date: 2007–12
  14. By: Hugo Hopenhayn; Arantxa Jarque
    Abstract: We study a multiperiod principal-agent problem with moral hazard in which effort is persistent: the agent is required to exert effort only in the initial period of the contract, and this effort determines the conditional distribution of output in the following periods. We provide a characterization of the optimal dynamic compensation scheme. As in a static moral hazard problem, consumption - regardless of time period - is ranked according to likelihood ratios of output histories. As in most dynamic models with asymmetric information, the inverse of the marginal utility of consumption satisfies the martingale property derived in Rogerson (1985). Under the assumption of i.i.d. output we show that (i) incentives are concentrated in the later periods of the contract, implying an increase of the variance of compensation over time; (ii) the cost of implementing high effort decreases when there is an increase in either the duration or the intensity of persistence (i.e., how long and how strongly effort affectsthe distribution of output, respectively); and (iii) under infinite duration the cost gets arbitrarily close to that of the first best.
    Keywords: Microeconomics
    Date: 2007
  15. By: Janet Mitchell (National Bank of Belgium, Financial Stability Department; CEPR); Patrick Van Roy (National Bank of Belgium, Financial Stability Department; Université Libre de Bruxelles)
    Abstract: We address a number of comparative issues relating to the performance of failure prediction models for small, private firms. We use two models provided by vendors, a model developed by the National Bank of Belgium, and the Altman Z-score model to investigate model power, the extent of disagreement between models in the ranking of firms, and the design of internal rating systems. We also examine the potential gains from combining the output of multiple models. We find that the power of all four models in predicting bankruptcies is very good at the one-year horizon, even though not all of the models were developed using bankruptcy data and the models use different statistical methodologies. Disagreements in firm rankings are nevertheless significant across models, and model choice will have an impact on loan pricing and origination decisions. We find that it is possible to realize important gains from combining models with similar power. In addition, we show that it can also be beneficial to combine a weaker model with a stronger one if disagreements across models with respect to failing firms are high enough. Finally, the number of classes in an internal rating system appears to be more important than the distribution of borrowers across classes
    Keywords: Basel II, failure prediction, internal ratings, model power, rating systems, ROC analysis.
    JEL: D40 G21 G24 G28 G33
    Date: 2007–12
  16. By: Claude, DASPREMONT (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Rodolphe, DOS SANTOS FERREIRA; Jacques, THEPOT
    Abstract: Competitive aggressiveness is analyzed in a simple spatial oligopolistic competition model, where each one of two firms supplies two connected markets segments, one captive the other contested. To begin with, firms are simply assumed to maximize profit subject to two constraints, one related to competitiveness, the other to market feasibility. The competitive aggressiveness of each firm, measured by the relative implicit price of the former constraint, is then endogenous and may be taken as a parameter to characterize the set of equilibria. A further step consists in supposing that competitive aggressiveness is controlled by each firm through its manager hiring decision, in a preliminary stage of a delegation game. When competition is exogenously intensified, through higher product substitutability or through larger relative size of the contested market segment, competitive aggressiveness is decreased at the subgame perfect equiibrium. This decrease partially compensates for the negative effect on profitability of more intense competition
    Date: 2007–12–06

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