nep-bec New Economics Papers
on Business Economics
Issue of 2008‒02‒09
fourteen papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. The Effects of Human Resource Management Practices on Firm Performance - Preliminary Evidence from Finland By Derek C. Jones; Panu Kalmi; Takao Kato; Mikko Mäkinen
  2. Managerial Hedging and Portfolio Monitoring By Piero Gottardi; Alberto Bisin; Adriano Rampini
  3. Competition, Cooperation, and Corporate Culture By Michael Kosfeld; Ferdinand von Siemens
  4. Returns to Tenure or Seniority? By Buhai, Sebastian; Portela, Miguel; Teulings, Coen; van Vuuren, Aico
  5. Bilateral Information Sharing in Oligopoly By Sergio Currarini; Francesco Feri
  6. How (not) to measure competition By Jan Boone; Jan van Ours; Henry van der Wiel
  7. Interrelatedness, Dynamic Factor Adjustment Patterns and Firm Heterogeneity in Austrian Manufacturing By Sandra Martina Leitner
  8. Female Presence on Corporate Boards: A Multi-Country Study of Environmental Context By Siri Terjesen; Val Singh
  9. Vertical Integration and Technology: Theory and Evidence By Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
  10. Employment Growth of New Firms By Erik Stam; Petra Gibcus; Jennifer Telussa; Elizabeth Garnsey
  11. Financial Globalization, International Business Cycles, and Consumption Risk Sharing By Michael J. Artis; Mathias Hoffmann
  12. Contracts for Experts with Opposing Interests By Tymofiy Mylovanov; Andriy Zapechelnyuk
  13. Balancing performance measures when agents behave competitively in an environment with technological interdependencies By Sandner, Kai
  14. How do firms adjust their wage bill in Belgium ? A decomposition along the intensive and extensive margins By Catherine Fuss

  1. By: Derek C. Jones; Panu Kalmi; Takao Kato; Mikko Mäkinen
    Abstract: ABSTRACT : This paper presents the first empirical evidence on the nature and effects of human resource practices (HRM) in the Finnish manufacturing sector. In the analysis, we use the novel survey on HRM practices, based on a representative random sample from the population of the Finnish manufacturing firms who had 50 or more employees in 2005. In the sample, we have firm-level information on several HRM and employee participation practices of 398 firms, which is 38% of the firms in the population and almost 50% of the survey respondents. To study how HRM practices affect the level of firm productivity, we first combined the HRM survey data with financial statement data and then estimated cross-sectional and panel data estimators for the Cobb-Douglas production functions. We find that both the incidence of employee participation practices and the incidence of HRM tools have increased in the manufacturing sector from 2002 to 2005. The empirical findings support the view of a positive association with the HRM practices and the level of firm productivity. Perhaps more importantly, however, we find that not all forms of employee financial and decision-making participation practices have favorable productivity effects : consultative committee and profit sharing scheme has a positive effect, but other practices do not have statistically significant effects.
    Keywords: new workplace practices, HRM, employee participation, productivity
    JEL: M54 J53 L23
    Date: 2008–01–30
  2. By: Piero Gottardi (Dipartimento di Scienze Economiche, Università di Venezia); Alberto Bisin (Department of Economics, New York University); Adriano Rampini (Fuqua School of Business, Duke University)
    Abstract: Incentive compensation induces correlation between the portfolio of managers and the cash flow of the firms they manage. This correlation exposes managers to risk and hence gives them an incentive to hedge against the poor performance of their firms. We study the agency problem between shareholders and a manager when the manager can hedge his compensation using financial markets and shareholders can monitor the manager’s portfolio in order to keep him from hedging, but monitoring is costly. We find that the optimal incentive compensation and governance provisions have the following properties: (i) the manager’s portfolio is monitored only when the firm performs poorly, (ii) the manager’s compensation is more sensitive to firm performance when the cost of monitoring is higher or when hedging markets are more developed, and (iii) conditional on the firm’s performance, the manager’s compensation is lower when his portfolio is monitored, even if no hedging is revealed by monitoring. Moreover, the model suggests that the optimal level of portfolio monitoring is higher for managers of firms whose performance can be hedged more easily, such as larger firms and firms in more developed financial markets.
    Keywords: Executive Compensation, Incentives, Monitoring, Corporate Governance
    JEL: G30 D82
    Date: 2007
  3. By: Michael Kosfeld; Ferdinand von Siemens
    Abstract: Teamwork and cooperation between workers can be of substantial value to a firm, yet the level of worker cooperation often varies between individual firms. We show that these differences can be the result of labor market competition if workers have heterogeneous preferences and preferences are private information. In our model there are two types of workers: selfish workers who only respond to monetary incentives, and conditionally cooperative workers who might voluntarily provide team work if their co-workers do the same. We show that there is no pooling in equilibrium, and that workers self-select into firms that differ in their incentives as well as their resulting level of team work. Our model can explain why firms develop different corporate cultures in an ex-ante symmetric environment. Moreover, the results show that, contrary to first intuition, labor market competition does not destroy but may indeed foster within-firm cooperation.
    Keywords: Competition, conditional cooperation, asymmetric information, self-selection, corporate culture
    JEL: D23 D82 L23 M54
    Date: 2007–07
  4. By: Buhai, Sebastian (Tinbergen Institute); Portela, Miguel (University of Minho); Teulings, Coen (CPB Netherlands Bureau for Economic Policy Analysis); van Vuuren, Aico (Free University of Amsterdam)
    Abstract: This study documents two empirical regularities, using data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm (Last In, First Out; LIFO). Second, workers' wages rise with seniority (= a worker's tenure relative to the tenure of her colleagues). We seek to explain these regularities by developing a dynamic model of the firm with stochastic product demand and hiring cost (= irreversible specific investments). There is wage bargaining between a worker and its firm. Separations (quits or layoffs) obey the LIFO rule and bargaining is efficient (a zero surplus at the moment of separation). The LIFO rule provides a stronger bargaining position for senior workers, leading to a return to seniority in wages. Efficiency in hiring requires the workers' bargaining power to be in line with their share in the cost of specific investment. Then, the LIFO rule is a way to protect their property right on the specific investment. We consider the effects of Employment Protection Legislation and risk aversion.
    Keywords: irreversible investment, efficient bargaining, seniority, LIFO, matched employer-employee data, EPL
    JEL: I21 Z13 J24
    Date: 2008–01
  5. By: Sergio Currarini (Department of Economics, University Of Venice Cà Foscari and School for Advanced Studies in Venice); Francesco Feri (University of Innsbruck)
    Abstract: We study the problem of information sharing in oligopoly, when sharing decisions are taken before the realization of private signals. Using the general model developed by Raith (1996), we show that if firms are allowed to make bilateral exclusive sharing agreements, then some degree of information sharing is consistent with equilibrium, and is a constant feature of equilibrium when the number of firms is not too small. Our result is to be contrasted with the traditional conclusion that no information is shared in common values situations with strategic substitutes - such as Cournot competition with demand shocks - when firms can only make industry-wide sharing contracts (e.g., a trade association).
    Keywords: Networks, Information sharing, oligopoly, networks, Bayesian equilibrium
    JEL: D43 D82 D85 L13
    Date: 2007
  6. By: Jan Boone; Jan van Ours; Henry van der Wiel
    Abstract: We discuss and apply a new measure of competition: the elasticity of a firm’s profits with respect to its cost level. A higher value of this profit elasticity (PE) signals more intense competition. Using firm level data we compare PE with the most popular competition measures such as the price cost margin (PCM). We show that PE and PCM are highly correlated on average. However, PCM tends to misrepresent the development of competition over time in markets with few firms and high concentration, i.e. in markets with high relevance for competition policy and regulation. So, just when it is needed the most PCM fails whereas PE does not. From this, we conclude that PE is a more reliable measure of competition.
    Keywords: competition; profit elasticity; measures of competition; concentration; price cost margin; profits
    JEL: D43 L13
    Date: 2007–12
  7. By: Sandra Martina Leitner (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: The aim of this paper is twofold: one, it analyzes the dynamic factor adjustment patterns and performance changes of firms in response to periods of rapid adjustment of capital, labor, production and non-production labor; and, two, it sheds light on the role of firm characteristics on the probability of any input spike occurring. Firm-group information incorporated in the Austrian Industry Statistics Survey provides the empirical platform for the analysis. The analysis shows that all input factors considered represent strategic complements and, in the light of skill-technology complements, it proves the absence of any skill bias to the adoption of leadingedge technologies embodied in new machinery and equipment. Furthermore, there is evidence of significant temporary disruptive effects of input spikes on labor productivity and profitability. Non-negligible firm heterogeneity also prevails in Austrian Manufacturing with larger firm-groups and firm-groups facing lower average personnel costs being more likely to experience any input spike. And the strongly regulated labor market in Austria appears to favor non-production workers.
    Date: 2008–01
  8. By: Siri Terjesen (Queensland University of Technology and Max Planck Institute of Economics, Jena); Val Singh (Cranfield University)
    Abstract: A growing body of ethics research investigates gender diversity and governance on corporate boards, at individual and firm levels, in single country studies. In this study, we explore the environmental context of female representation on corporate boards of directors, using data from forty-three countries. We suggest that women’s representation on corporate boards may be shaped by the larger environment, including the social, political and economic structures of individual countries. We use logit regression to conduct our analysis. Our results indicate that countries with higher representation of women on boards are more likely to have women in senior management and more equal ratios of male to female pay. However, we find that countries with a longer tradition of women’s political representation are less likely to have high levels of female board representation.
    Keywords: Corporate Boards, Environmental Context, Female Directors, Gender, Multi-country, Pay Gap, Political Representation
    JEL: F23 M10 M12 M14 M51
    Date: 2008–01–30
  9. By: Daron Acemoglu; Philippe Aghion; Rachel Griffith; Fabrizio Zilibotti
    Abstract: This paper investigates the determinants of vertical integration. We first derive a number of predictions regarding the relationship between technology intensity and vertical integration from a simple incomplete contracts model. Then, we investigate these predictions using plant-level data for the UK manufacturing sector. Most importantly, and consistent with theory, we find that the technology intensities of downstream (producer) and upstream (supplier) industries have opposite effects on the likelihood of vertical integration. Also consistent with theory, both these effects are stronger when the supplying industry accounts for a large fraction of the producer’s costs. These results are generally robust and hold with alternative measures of technology intensity, with alternative estimation strategies, and with or without controlling for a number of firm and industry-level characteristics.
    Keywords: Hold-up, incomplete contracts, internal organization of the firm, investment, residual rights of control, R&D, technology, UK manufacturing, vertical integration.
    JEL: L22 L23 L24 L60
    Date: 2007–12
  10. By: Erik Stam (University of Cambridge, Netherlands Scientific Council for Government Policy, Utrecht University and Max Planck Institute of Economics, Jena); Petra Gibcus (EIM Business and Policy Research); Jennifer Telussa (EIM Business and Policy Research); Elizabeth Garnsey (University of Cambridge)
    Abstract: This paper analyses the association between dynamic capabilities and new firm growth, controlling for measures of firm resources, characteristics of the entrepreneur, and aspects of the environment. The central research question is: How strong is the relationship between dynamic capabilities and the growth of new firms? The paper opens with a review of empirical studies on employment growth in new firms and then moves on to a discussion on the role of dynamic capabilities in the explanation of new firm growth. After a description of the data and variables the results and implications of this study are discussed.
    Keywords: new firms, firm growth, innovation, dynamic capabilities
    JEL: D21 L23 L25 L26 M13 M21
    Date: 2008–01–30
  11. By: Michael J. Artis; Mathias Hoffmann
    Abstract: In spite of two decades of financial globalization, consumption-based indicators do not seem to signal more international risk sharing. We argue that consumption risk sharing among industrialised countries has actually increased - in particular since the 1990s - but that standard consumption-based measures of risk sharing - such as the volatility of consumption conditional on output or international consumption correlations - have been unable to detect this increase. The reason is that consumption has also been affected by the concurrent decline in the volatility of output growth in most industrialised countries since the 1980s. As a first important driver of this decline we identify a more gradual response of output to permanent idiosyncratic shocks. Since consumption reacts mainly to permanent shocks, it appears more volatile in relation to current changes in output. This effect seems to have offset the tendency of financial globalization to lower the volatility of consumption conditional on output. Secondly, because the variability of permanent global shocks has also fallen, international consumption correlations have also generally not increased as financial markets have become more integrated.
    Keywords: Consumption Risk Sharing, International Business Cycles, Great Moderation, Financial Integration and Capital Flows, Home Bias
    JEL: C23 E21 F36
    Date: 2007–12
  12. By: Tymofiy Mylovanov (University of Bonn); Andriy Zapechelnyuk (Kyiv School of Economics)
    Abstract: We study a setting with an uninformed decision maker who has to make a decision based on recommendations of two perfectly informed experts. The experts have opposing interests: one expert prefers the lowest feasible decision, whereas the other one prefers the highest feasible decision. We provide a tool to characterize optimal mechanisms in this environment, "constant-threat principle," which states that one can restrict attention to mechanisms in which the implemented decision after a disagreement among the experts is independent of their reports. We use this principle to characterize two classes of mechanisms: the cost-efficient mechanisms that implement the decision maker's most preferred alternative at the lowest cost and the optimal mechanisms that maximize the payoff of the decision maker net of payments to the experts.
    Keywords: Experts, constant-threat principle, optimal contracts, cost-efficient contracts
    JEL: D82 D86
    Date: 2008–01
  13. By: Sandner, Kai
    Abstract: This paper addresses the question, what metrics should be used for performance evaluation and in particular how they should be weighted and combined in the presence of technological interdependencies when the agents exhibit variedly strong developed rivalry. We find that the principal reacts to his agents' competitive preferences through a reallocation of incentive intensity. As a consequence, depending on the underlying sort of technological interdependency, various differences in the balancing of performance measures compared to the case of purely egoistical behavior arise and changes in the agents' basic types of compensation can occur. We further show that the principal does not want both of his agents to behave equally competitively. Instead, he can only profit when the agents are asymmetrical. Then the principal wants the more productive agent to exhibit rivalry while the other ideally should behave completely egoistically.
    Keywords: Social Preferences; Rivalry; Technological Interdependencies; Performance Measurement; Team Composition
    JEL: D23 D82 D86 M41 M52
    Date: 2008–02–04
  14. By: Catherine Fuss (National Bank of Belgium, Research Department; Université Libre de Bruxelles)
    Abstract: This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to net flows of employment. The analysis relies on an administrative employer-employee dataset of individual annual earnings matched with firms' annual accounts for Belgium over the period 1997-2001. Results point to asymmetric behaviour depending on economic conditions. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but still positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits. Higher exits may be due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points up the role of overtime hours, temporary unemployment and interim workers in adapting to short-run fluctuations.
    Keywords: wages, employment flows, matched employer-employee data
    JEL: J30 J60
    Date: 2008–01

This nep-bec issue is ©2008 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.