nep-bec New Economics Papers
on Business Economics
Issue of 2008‒01‒19
thirteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. The Business Cycle Implications of Reciprocity in Labor Relations By Jean-Pierre DANTHINE; André KURMANN
  2. Gains and Pains from Contract Research: A Transaction and Firm-level Perspective By Christoph Grimpe; Ulrich Kaiser
  3. Problemistic Search and International Entrepreneurship By Wennberg, Karl; Holmquist, Carin
  4. Innovations from SMEs or Large Firms? Sector Structure and Dynamics By Wilfred Dolfsma; Gerben van der Panne
  5. Technology Capital and the U.S. Current Account By Ellen R McGrattan; Edward C Prescott
  6. Skill-Biased Effects of Service Offshoring in Western Europe. By Rosario Crinò
  7. The Impact of Market Structure, Contestability and Institutional Environment on Banking Competition By Jacob A. Bikker; Laura Spierdijk; Paul Finnie
  8. Price Discrimination Bans on Dominant Firms By Bouckaert, J.M.C.; Degryse, H.A.; Dijk, T. van
  9. The Use of Knowledge Management by Innovators - Empirical Evidence for Germany By Uwe Cantner; Kristin Joel; Tobias Schmidt
  10. Acquisition Values and Optimal Financial (In)Flexibility By Hege, Ulrich; Hennessy, Christopher
  11. Optimal investment policy with fixed adjustment costs and complete irreversibility By Nicolas Roys
  12. Moore's Law, Increasing Complexity, and the Limits of Organization: The Modern Significance of Japanese Chipmakers' DRAM Business By CHUMA Hiroyuki; HASHIMOTO Norikazu
  13. Goodwill, excess returns, and determinants of value creation and overpayment By Maaike Lycklama a Nijeholt; Yolanda Grift

  1. By: Jean-Pierre DANTHINE; André KURMANN
    Abstract: We develop a reciprocity-based model of wage determination and incorporate it into a modern dynamic general equilibrium framework. We estimate the model and find that, among potential determinants of wage policy, rent-sharing (between workers and firms) and a measure of wage entitlement are critical to fit the dynamic responses of hours, wages and inflation to various exogenous shocks. Aggregate employment conditions (measuring workers' outside option), on the other hand, are found to play only a negligible role in wage setting. These results are broadly consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the main determinant of wage setting. Overall, the empirical fit of the estimated model is at least as good as the fit of models postulating nominal wage contracts. In particular, the reciprocity model is more successful in generating the sharp and significant fall of inflation and nominal wage growth in response to a neutral technology shock.
    Keywords: efficiency wages; reciprocity; estimated DSGE models
    JEL: E24 E31 E32 E52 J50
    Date: 2007–11
  2. By: Christoph Grimpe (Centre for European Economic Research (ZEW), Mannheim); Ulrich Kaiser (University of Southern Denmark)
    Abstract: Determining the research and development (R&D) boundaries of the firm as the choice between internal, collaborative and external technology acquisition has since long been a major challenge for firms to secure a continuous stream of innovative products or processes. While research on R&D cooperation or strategic alliances is abundant, little is known about the outsourcing of R&D activities to contract research organizations and its implications for innovation performance. This paper investigates the driving forces of external technology sourcing through contract research based on arguments from transaction cost theory and the resource-based view of the firm. Using a large and comprehensive data set of innovating firms from Germany our findings suggest that technological uncertainty, contractual experience and openness to external knowledge sources motivate the choice for engaging in contract research activities. Moreover, we show that internal and external R&D sourcing are complements: the marginal contribution of internal (external) R&D is the larger the more firms spend on external (internal) R&D.
    Keywords: contract research, innovation; transaction cost theory; firm capabilities
    JEL: O32 C24
    Date: 2008–01
  3. By: Wennberg, Karl (Dept. of Business Administration, Stockholm School of Economics); Holmquist, Carin (Dept. of Business Administration, Stockholm School of Economics)
    Abstract: This paper explains the internationalization process of small firms using the theory of performance relative to aspiration levels. The study complements prior theory by explaining why and how small firms are triggered to engage in internationalization despite not reaching maturity in their home market. We outline a model where firms’ internationalization is triggered by problemistic search, following periods of below-aspiration performance. The model is tested on 860 Swedish firms followed during an economic downturn. Results indicate that internationalization activities follow a boundedly rational process characterized by search behavior which is triggered by performance feedback. The study complements prior theories of internationalization and offers a first empirical demonstration of the viability of aspiration-level performance theory in international entrepreneurship research.
    Keywords: Entrepreneurship; International Entry; Behavioral Theory of the Firm
    Date: 2007–07–05
  4. By: Wilfred Dolfsma; Gerben van der Panne
    Abstract: In this paper we investigate which elements in both an industry’s structure and in an industry’s dynamics affect innovativeness. We use the most appropriate measure for innovativeness –new product announcements- to find specifically that dominance of large firms consistently affect industry innovativeness negatively. Other industry structure characteristics are surprisingly consistent across different model specifications. Our findings for indicators of industry dynamics are noteworthy for instance as they contrast with the ILC predication that firm entry will boost innovativeness.
    Keywords: Innovation, small vs large firms, industry structure, industry dynamics, Industry Life Cycle
    JEL: L1 O1 O3
    Date: 2007–12
  5. By: Ellen R McGrattan; Edward C Prescott
    Date: 2008–01–09
  6. By: Rosario Crinò (CESPRI - Bocconi University, Milan, Italy.)
    Abstract: This paper studies the e¤ects of service offshoring on the skill composition of labor demand in Western Europe, using comparable data for nine economies during the 1990s. A short-run translog cost function allows derivation of demand elasticities for three labor inputs. Potential endogeneity and measurement error in service offshoring are accounted for by using instruments based on EBRD indexes of telecommunication reform in Eastern Europe. Results show that service offshoring is skill-biased, because it raises relative labor demand for high skilled workers.
    Keywords: Service Offshoring, Labor Demand, Instrumental Variable Estimation.
    JEL: F16 J23 J31
    Date: 2007–10
  7. By: Jacob A. Bikker; Laura Spierdijk; Paul Finnie
    Abstract: Using a measure of competition based on the Panzar-Rosse model, this paper explains bank competition across 76 countries on the basis of various determinants. Studies explaining banking competition are rare and typically insuffciently robust as they are based on a limited number of countries only. Traditionally, market structure indicators, such as the number of banks and banking concentration, have been considered the major determinants of competition in the banking sector. However, we find that these variables have no significant impact on market power. Instead, we show that a country's institutional framework is a key factor in explaining banking competition. Extensive regulation, particularly antitrust policies, improves the competitive environment. The foreign investment climate, a proxy of contestability, also plays an important role. The fewer restrictions on foreign investments exist, the more competitive the banking sector becomes. In addition, activity restrictions make large banks less competitive and collusion markups are procyclical. Finally, competition is substantially weaker in countries with a socialist past, such as Central- and Eastern Europe.
    Keywords: banking competition, market structure, concentration, contestability, interindustry competition
    JEL: D4 G21 L11 L13
    Date: 2007–12
  8. By: Bouckaert, J.M.C.; Degryse, H.A.; Dijk, T. van (Tilburg University, Center for Economic Research)
    Abstract: Competition authorities and regulatory agencies sometimes impose pricing restrictions on firms with substantial market power ? the ?dominant? firms. We analyze the welfare effects of a ban on behaviour-based price discrimination in a two-period setting where the market displays a competitive and a sheltered segment. A ban on ?higher-prices-to-shelteredconsumers? decreases prices in the sheltered segment, relaxes competition in the competitive segment, increases the rival?s profits, and may harm the dominant firm?s profits. We show that a ban on ?higher-prices-to-sheltered-consumers? increases the dominant firm?s share of the first-period market. A ban on ?lower-prices-to-rival?s-customers? decreases prices in the competitive segment, lowers the rival?s profits, and augments the consumer surplus. In particular, while second-period competition is relaxed by a ban on ?lower-prices-to-rival?scustomers?, first-period competition is intensified substantially, which leads to lower prices ?on-average? over the two periods. Our findings indicate that a dynamic two-period analysis may lead to conclusions opposite to those drawn from a static one-period analysis.
    Keywords: dominant firms;price discrimination;competition policy;regulation.
    JEL: D11
    Date: 2008
  9. By: Uwe Cantner (Friedrich Schiller Universität Jena); Kristin Joel (Friedrich Schiller Universität Jena); Tobias Schmidt (Deutsche Bundesbank, Economic Research Centre)
    Abstract: In this paper we investigate factors that influence a firm's decision to implement knowledge management practices. Our focus is on knowledge management practices implemented to increase collaboration between actors within a firm on innovation activities. Using information on over 1,500 innovative German firms from the Mannheim Innovationpanel of 2003, we find that an innovation strategy targeted at consumers and continuous R+D activities is positively related to KM usage. In addition, more general firm characteristics like size and the industry of a firm do influence the decision to use knowledge management as well.
    Keywords: knowledge management, innovation, Mannheim Innovation Panel
    JEL: D23 O31 O32
    Date: 2008–01–11
  10. By: Hege, Ulrich; Hennessy, Christopher
    Abstract: In this paper, the authors analyze optimal financial structure for an incumbent and potential entrant accounting for feedback effects in secondary asset markets.
    Keywords: Financial Flexibility; Market Entry; Acquisition; Exit Values; Predation; Financial Contracting; Product Market Competition
    JEL: G32 G34
    Date: 2007–10–01
  11. By: Nicolas Roys (Institute for Fiscal Studies)
    Abstract: <p><p>We develop and solve analytically an investment model with fixed adjust-ment costs and complete irreversibility that reproduces observed investment dynamics at the micro-level. We impose a minimal set of restrictions on technology and uncertainty. Most of the results duplicate or generalize earlier findings that have been established either by simulations or under contrefactual assumptions.</p></p>
    JEL: C61 D21 E2
    Date: 2007–11
  12. By: CHUMA Hiroyuki; HASHIMOTO Norikazu
    Abstract: The purpose of this paper is to identify the organizational constraints on science innovations in the midst of the increasing complexity of technology and markets and to search for measures to overcome them. For this purpose, we scrutinize the rise and fall of Japanese chipmakers in their commodity DRAM business during the last three decades, during which time all of them have been deeply wounded. We take up this business case mainly because the Japanese semiconductor industry seems to be a forerunner of various science-based industries facing rapid globalization and could provide instructive examples for them in an age of speed-to-market. We think that the rise and fall of Japanese chipmakers in their commodity DRAM business has been deeply influenced by three kinds of ever-growing complexities: the growing market-complexity triggered by the collapse of commodity DRAM prices in 1996, the growing (manufacturing) system-complexity boosted by the advent of 200mm fabrication plants (fabs) in the early 1990s, and the growing process-complexity in fabrication technologies necessitated by 64Mb commodity DRAMs. We explain how and why, compared with U.S. and Korean competitors, Japanese chipmakers could not respond to these growing complexities in a systematic and well-organized manner.
    Date: 2008–01
  13. By: Maaike Lycklama a Nijeholt; Yolanda Grift
    Abstract: In this article we have investigated whether the determinants of excess returns (especially of target excess returns) are valid for purchased goodwill as well. Among them are acquirer’s and target’s Tobin’s q, and debt assets ratio, that explain value creation of acquisitions, and relative size, source of financing of the acquisition, number of bidders, and relatedness of businesses of acquiror and target, that explain overpayment or overvaluation of acquisitions. The study is confined to mergers and acquisitions between US publicly quoted companies announced and effective in between January 2002 and December 2005. Databases used are SDC Platinum, CRSP and Compustat industrial annual file. Goodwill amounts are derived from acquirer’s 10-K forms in Edgar database of SEC. Results show that in line with our expectations, the correlation coefficient for target excess return amounts and goodwill is positive, whereas it is negative for acquirer and combined excess returns. Further it turns out that goodwill is significant positively influenced by acquisitions of high Tobin’s q targets by either low or high Tobin’s q acquirers, compared to acquisitions of low Tobin’s q targets by low Tobin’s q acquirers. Also the method of payment matters: payments other than cash or stock negatively influence goodwill. Moreover, a higher leverage of the target positively influences purchased goodwill. Although some of the determinants of excess return have a significant influence on goodwill, the pattern is sometimes different. Therefore, further research needs to take into account both the nature of goodwill and its unique determinants.
    Keywords: Goodwill, overpayment, value creation
    JEL: G34 M41
    Date: 2007–12

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