nep-bec New Economics Papers
on Business Economics
Issue of 2008‒05‒31
24 papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare By Jae-won Jung; Jean Mercenier
  2. Asymmetric Cartels - a Theory of Ring Leaders By Ganslandt, Mattias; Persson, Lars; Vasconcelos, Helder
  3. Firm Level Volatility-Return Analysis using Dynamic Panels By L. Vanessa Smith; Takashi Yamagata
  4. Growth Processes of Italian Manufacturing Firms By Alex Coad; Rekha Rao
  5. Technological change and employer-provided training: Evidence from German establishments By Ardiana N. Gashi; Geoff Pugh; Nick Adnett
  6. Sticky wages. Evidence from quarterly microeconomic data. By Thomas Heckel; Hervé Le Bihan; Jérémi Montornès
  7. Firm Growth and Productivity Growth: Evidence from a Panel VAR By Alex Coad; Tom Broekel
  8. À la recherche du lien perdu entre caractéristiques des dirigeants et performance de la firme : gouvernance et latitude managériale By Gérard Charreaux
  9. The Effect of CSR on Stock Performance: New Evidence for the USA and Europe By Urs von Arx; Andreas Ziegler
  10. The effect of quantitative and qualitative training on labour demand in Belgium: a monopolistic competition approach By Benoît Mahy; Mélanie Volral
  11. Bertrand Competition in Markets with Network Effects and Switching Costs By Irina Suleymanova; Christian Wey
  12. Do financial conglomerates create or destroy value? Evidence for the EU By Iman van Lelyveld en Klaas Knot
  13. Explaining International Differences in Entrepreneurship: The Role of Individual Characteristics and Regulatory Constraints By Silvia Ardagna; Annamaria Lusardi
  14. Intra-Sectoral Structural Change and Aggregate Productivity Development. A Robust Stochastic Nonparametric Frontier Function Approach By Jens J. Krüger
  15. Yield curve, time varying term premia, and business cycle fluctuations By Modena, Matteo
  16. Liquidity and Market Crashes By Jennifer Huang; Jiang Wang
  17. On Equivalence Results in Business Cycle Accounting By NUTAHARA Kengo; INABA Masaru
  18. Interviews and Adverse Selection By Jens Josephson; Joel Shapiro
  19. Beauty and intelligence may or may not- be related By Kevin Denny
  20. The Entrepreneurial Culture: Guiding Principles of the Self-Employed By Florian Noseleit
  21. Liquidity Stress-Tester: A macro model for stress-testing banks' liquidity risk By Jan Willem van den End
  22. Downsizing as a sorting device. Are low-productive workers more likely to leave downsizing firms? By Morten Henningsen and Torbjørn Hægeland
  23. Oil and the Macroeconomy: A Structural VAR Analysis with Sign Restrictions By Lippi, Francesco; Nobili, Andrea
  24. On the Link Between On-the-Job Training and Earnings Dispersion By Said Hanchane; Jacques Silber

  1. By: Jae-won Jung (THEMA, Université de Cergy-Pontoise.); Jean Mercenier (ERMES, Université Panthéon-Assas (Paris 2))
    Abstract: We adapt Yeaple's (2005) heterogeneous agents framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. Globalization results from a lowering of the set-up costs incurred when engaging in offshore activities. We highlight how firms'technology transformations due to global- ization will induce skill upgrading in the North, increase aggregate productivity, av- erage wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive mild conditions under which all consumers-including lower-skilled workers-will nevertheless gain from the surge of offshore outsourcing. A parameter- ized version of the model roughly calibrated on U.S. data is then numerically explored and confirms our positive welfare predictions.
    Keywords: Offshore outsourcing; Globalization; Skill upgrading, Technology upgrading; Firm heterogeneity
    JEL: F16
    Date: 2008
  2. By: Ganslandt, Mattias; Persson, Lars; Vasconcelos, Helder
    Abstract: Many convicted cartels have a leader which is substantially larger than its rivals. In a setting where firms face indivisible costs of collusion, we show that: (i) firms may have an incentive to merge so as to create asymmetric market structures since this enables the merged firm to cover the indivisible cost associated with cartel leadership; and (ii) forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion. Thus, these results have implications for the practice of the current EU and US merger policies.
    Keywords: Cartels; Collusion; Cost Asymmetries; Merger Policy; Ring Leader
    JEL: D43 L41
    Date: 2008–05
  3. By: L. Vanessa Smith; Takashi Yamagata
    Abstract: This paper examines "leverage" and volatility feedback effects at the firm level by considering both market effects and firm level effects, using 242 individual firm stock data in the US market. We adopt a panel vector autoregressive framework which allows us to control simultaneously for common business cycle effects, unobserved cross correlation effects in return and volatility via industry effects, and heterogeneity across firms. Our results suggest that volatility feedback effects at the firm level are present due to both market effects and firm effects, though the market volatility feedback effect is stronger than the corresponding firm level effect. We also find that the leverage effect at the firm level is persistent, significant and negative, while the effect of market return on firm volatility is persistent, significant and positive. The presence of these effects is further explored through the responses of the model's variables to market-wide return and volatility shocks.
    Keywords: Volatility Feedback; Stock Return; Leverage Effects; Panel Vector Autoregression
    Date: 2008–05
  4. By: Alex Coad (Max Planck Institute of Economics, Jena, Germany); Rekha Rao (Tanaka Business School, Imperial College London)
    Abstract: We apply a reduced-form vector autoregression model to analyze the growth processes of Italian manufacturing firms, 1989-1997. We focus in particular on lead-lag associations describing the coevolution of employment growth, sales growth, growth of profits and labour productivity growth. Employment growth precedes sales growth and growth of profits, and in turn sales growth is also associated with subsequent profits growth. There appears to be little feedback of either sales or profits on employment growth, however. There is no clear association of employment growth with subsequent changes in labour productivity, although at the second lag there is a small negative association. Productivity growth, however, is positively associated with subsequent growth of employment and sales. Quantile autoregressions find asymmetries between growth processes for growing and shrinking firms.
    Keywords: Firm Growth, Panel VAR, Employment Growth, Industrial Dynamics, Productivity Growth
    JEL: L25 L20
    Date: 2008–05–06
  5. By: Ardiana N. Gashi (Riinvest University and Riinvest Institute, Prishtina, Kosova); Geoff Pugh (Staffordshire University Business School, Stoke-on-Trent, UK); Nick Adnett (Staffordshire University Business School, Stoke-on-Trent, UK)
    Abstract: There is a wide range of theoretical and empirical analyses suggesting that technological change has increased the demand for skills. Since training is a mechanism to upgrade workers’ skills, it would be expected that technical progress strengthens the importance of training on account of the requirement for skills to complement new technology. However, the relationship between technical progress and firms’ (employer-funded) continuous training has been little investigated. In our research we address the theoretical gap by building upon existing models from the skillbiased technological change and training literatures. This theoretical platform supports a maintained hypothesis of a positive relationship between training and technological change, which we investigate empirically for Germany using data from the IAB establishment panel. Our empirical findings indicate that in Germany a greater share of workers undergo further/continuing training in establishments subject to technological change. An important issue we raise in our empirical analysis is the possibility of endogeneity/simultaneity between training and technological change.
    Keywords: further training, technological change, skills
    Date: 2008–05
  6. By: Thomas Heckel (BNP Paribas Asset Management, 5 avenue Kleber, 75016 Paris, France.); Hervé Le Bihan (Banque de France, Direction de la Recherche, DGEI-DIR-Rec.n 41-1391, 31 rue Croix-des-petits-champs, 75049 Paris Cedex 01, France.); Jérémi Montornès (Banque de France, Direction de la Recherche, 31 rue Croix-des-petits-champs, 75049 Paris Cedex 01, France.)
    Abstract: This paper documents nominal wage stickiness using an original quarterly firm-level dataset. We use the ACEMO survey, which reports the base wage for up to 12 employee categories in French .rms over the period 1998 to 2005, and obtain the following main results. First, the quarterly frequency of wage change is around 35 percent. Second, there is some downward rigidity in the base wage. Third, wage changes are mainly synchronized within firms but to a large extent staggered across firms. Fourth, standard Calvo or Taylor schemes fail to match micro wage adjustment patterns, but fixed duration 'Taylor-like'wage contracts are observed for a minority of firms. Based on a two-thresholds sample selection model, we perform an econometric analysis of wage changes. Our results suggest that the timing of wage adjustments is not state-dependent, and are consistent with existence of predetermined of wage changes. They also suggest that both backward- and forward-looking behavior is relevant in wage setting. JEL Classification: E24, J3.
    Keywords: Wage stickiness, wage predetermination.
    Date: 2008–05
  7. By: Alex Coad (Max Planck Institute of Economics, Jena, Germany; Centre d'Economie de la Sorbonne, Equipe MATISSE, Univ. Paris 1 - CNRS); Tom Broekel (Max Planck Institute of Economics, Jena, Germany)
    Abstract: This paper offers new insights into the processes of ï¬rm growth by applying a reduced-form vector autoregression (VAR) model to longitudinal panel data on French manufacturing ï¬rms. 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 productivity 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: 2007–12–18
  8. By: Gérard Charreaux (Université de Bourgogne)
    Abstract: (VF)La théorie des échelons supérieurs de Hambrick et Mason et la théorie de la gouvernance financière postulent toutes deux que les dirigeants ont une influence déterminante sur la performance avec, cependant, une différence très importante concernant l’influence de la latitude managériale. Pour la première, la latitude managériale a une influence potentiellement positive sur la performance en permettant aux capacités cognitives des dirigeants de s’exprimer, pour la seconde, une influence négative, dans la mesure où elle peut conduire à des décisions contraires aux intérêts des actionnaires. L’objectif de cet article est, d’une part, de comparer le contenu et le rôle de la notion de latitude managériale dans ces deux cadres théoriques, d’autre part, de proposer à la lumière des développements cognitifs et comportementaux de la théorie de la gouvernance, un méta modèle qui permettrait de proposer une approche intégratrice de la latitude à même d’offrir une meilleure compréhension du lien entre caractéristiques du dirigeant, système de gouvernance et performance de la firme. (VA)Upper Echelons Theory and financial governance theory both postulate that CEOs have a determining influence on the performance with, however, a very significant difference concerning the influence of managerial discretion. For the first one, managerial discretion has a potentially positive influence on performance by enabling the managers’ cognitive capacities to affect it, for the second one, a negative influence, insofar as it can lead to decisions conflicting with shareholders’ interests. The objective of this article is, on the one hand, to compare the contents and the role of the managerial discretion concept within these two theoretical frameworks, on the other hand, to propose, in the light of the cognitive and behavioral developments of corporate governance theory, a meta model based on an integrative approach of managerial discretion in order to offer a better understanding of the link between CEOs characteristics, corporate governance systems and performance.
    Keywords: latitude managériale;théorie des échelons supérieurs;théorie de la gouvernance financière;théorie cognitive de la gouvernance;théorie comportementale de la gouvernance;managerial discretion;Upper Echelons Theory; financial governance theory;cognitive governance theory;behavioral governance theory.
    JEL: G30 L19 M19
    Date: 2008–05
  9. By: Urs von Arx (CER-ETH, Swiss Federal Institute of Technology (ETH) Zurich, Center of Economic Research); Andreas Ziegler (University of Zurich, Center for Corporate Responsibility and Sustainability)
    Abstract: This paper provides new empirical evidence for the effect of corporate social responsibility (CSR) on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 appear to be more robust in the USA and, in addition, to be nonlinear. Our analysis furthermore points to biased parameter estimations if incorrectly specified econometric models are applied: The seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs vanishes if the explanation of stock performance is based on the Fama-French threefactor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.
    Keywords: Corporate social responsibility, Environmental performance, Financial performance, Asset pricing models.
    JEL: Q56 M14 G12 Q01
    Date: 2008–05
  10. By: Benoît Mahy (Centre de Recherche Warocqué, Université de Mons-Hainaut, Belgium); Mélanie Volral (Centre de Recherche Warocqué, Université de Mons-Hainaut, Belgium)
    Abstract: The objective of this paper is to model and estimate the impact of labour training financed by the firm on labour demand in Belgium, introducing training potential productivity and cost effects. To model this influence, we assume profit maximizing firms producing under a short run monopolistic competition regime. We emphasize that training variables, both qualitative and quantitative, can either increase labour demand through their positive effect on labour physical productivity net from the dropping price required to sell additional production, and that they can decrease labour demand through induced increasing direct labour costs and wages. GMM estimations on a panel of 269 firms observed during the period 1998-2004 show non significant impacts of training variables on labour demand, the productivity and cost effects seeming to offset each other. These results allow us to suggest two scenarios in terms of firms and workers behaviour and that subsidiary training could favour employment under the two assumptions that firms don’t transform training in an increased productivity – wage mark-up, but convert additional productivity in employment, and workers don’t claim for higher wages as a result of additional productivity.
    Keywords: Training, Labour Demand,Human capital, Labour Productivity, Panel Data
    JEL: C23 J23 J24 M53
    Date: 2008–05
  11. By: Irina Suleymanova; Christian Wey
    Abstract: We analyze market dynamics under Bertrand duopoly competition in industries with network effects and consumer switching costs. Consumers form installed bases, repeatedly buy the products, and differ with respect to their switching costs. Depending on the ratio of switching costs to network effects, our model generates convergence to monopoly as well as market sharing as equilibrium outcomes. Convergence can be monotone or alternating in both scenarios. A critical mass effect, where consumers are trapped into one technology for sure only occurs for intermediate values of switching costs, whereas for large switching costs market sharing is the unique equilibrium and for small switching costs both monopoly and market sharing equilibria emerge. We also analyze stationary and stable equilibria, where we show that a monopoly outcome is almost inevitable, if switching costs or network effects increase over time. Finally, we examine firms' incentives to make their products compatible and to create additional switching costs.
    Keywords: Network effects, switching costs, Bertrand competition, market dynamics
    JEL: L13 D43 L41
    Date: 2008
  12. By: Iman van Lelyveld en Klaas Knot
    Abstract: There is an ongoing debate whether firm focus creates or destroys shareholder value. Earlierliterature has shown significant diversification discounts: firms that engage in multiple activitiesare valued less. Various factors are important in the size of the discount, for example crosssubsidizationand agency problems. The extant literature, however, generally focuses on nonfinancialfirms or traditional banking (cf Laeven and Levine (2007) and Schmid and Walter(2006)). Our paper focuses specifically on the valuation of bank-insurance conglomerates. We findno universal diversification discount but significant variability. Size, complexity and risk seem tobe important determinants.
    Keywords: financial conglomerates; firm valuation
    JEL: G2 G3 L2
    Date: 2008–05
  13. By: Silvia Ardagna; Annamaria Lusardi
    Abstract: We use a micro dataset that collects information across individuals, countries, and time to investigate the determinants of entrepreneurial activity in thirty-seven developed and developing nations. We focus both on individual characteristics and on countries' regulatory differences. We show that individual characteristics, such as gender, age, and status in the workforce are important determinants of entrepreneurship, and we also highlight the relevance of social networks, self-assessed skills, and attitudes toward risk. Moreover, we find that regulation plays a critical role, particularly for those individuals who become entrepreneurs to pursue a business opportunity. The individual characteristics that are impacted most by regulation are those measuring working status, social network, business skills, and attitudes toward risk
    JEL: M13
    Date: 2008–05
  14. By: Jens J. Krüger (Friedrich-Schiller-University Jena, Department of Economics)
    Abstract: This paper investigates the sources of total factor productivity growth in the German manu- facturing sector, 1981-1998. Decomposition formulae for aggregate productivity growth are used to identify the effects of structural change and entry-exit on aggregate productivity growth. Documented is a substantial rise of productivity growth after the German reunifica- tion. The bulk of this rise can be attributed to structural change and entry-exit. Two methodo- logical refinements are implemented, the first is the application of a robust stochastic non- parametric approach to frontier function analysis and the second is the calculation of boot- strap confidence intervals for the components of the productivity decompositions.
    Keywords: productivity decomposition, structural change, manufacturing
    JEL: D24 O12 L60
    Date: 2008–05–06
  15. By: Modena, Matteo
    Abstract: Using data for U.S. and Canada, we find evidence of the time-varying nature of risk premia, which are obtained as difference between long term interest rates and their expected values. We then apply Kalman filtering to extract the conditional variance of term premia prediction errors; our results highlight that this variable is informative beyond term premia and spreads, and it significantly improves upon prediction capability of standard models. In particular, the conditional variance of term premia, reflecting the high volatility of financial markets, anticipates movements in the output growth. Empirical evidence supports the inverse correlation between term premia and business cycle fluctuations. Data suggest that a deterioration of financial markets conditions, as captured by the increased volatility of term premia, anticipates a decline in the output growth. Therefore, term premia conditional volatility has an adverse effect on the economy.
    Keywords: Term Structure; Term Premia; Kalman Filtering; Industrial Production Growth
    JEL: E32 E44 C01
    Date: 2008–05
  16. By: Jennifer Huang; Jiang Wang
    Abstract: In this paper, we develop an equilibrium model for stock market liquidity and its impact on asset prices when constant market presence is costly. We show that even when agents' trading needs are perfectly matched, costly market presence prevents them from synchronizing their trades and hence gives rise to endogenous order imbalances and the need for liquidity. Moreover, the endogenous liquidity need, when it occurs, is characterized by excessive selling of significant magnitudes. Such liquidity-driven selling leads to market crashes in the absence of any aggregate shocks. Finally, we show that illiquidity in the market leads to high expected returns, negative and asymmetric return serial correlation, and a positive relation between trading volume and future returns. We also propose new measures of liquidity based on its asymmetric impact on prices and demonstrate a negative relation between these measures and expected stock returns.
    JEL: E43 E44 G11 G12
    Date: 2008–05
  17. By: NUTAHARA Kengo; INABA Masaru
    Abstract: Equivalence results in business cycle accounting imply that the prototype model with time-varying wedges can achieve the same allocation generated by a large class of frictional detailed models. Conventionally, the process of wedges is specified to be the first order vector autoregressive. In this paper, we characterize the class of models covered by the prototype model under the conventional specification and find that it is much smaller than that believed in previous literature. We also provide an alternative specification in order to let the prototype model cover a much larger class.
    Date: 2008–05
  18. By: Jens Josephson; Joel Shapiro
    Abstract: Interviewing in professional labor markets is a costly process for firms. Moreover, poor screening can have a persistent negative impact on firms’ bottom lines and candidates’ careers. In a simple dynamic model where firms can pay a cost to interview applicants who have private information about their own ability, potentially large inefficiencies arise from information-based unemployment, where able workers are rejected by firms because of their lack of offers in previous interviews. This effect may make the market less efficient than random matching. We show that the first best can be achieved using either a mechanism with transfers or one without transfers.
    Keywords: Decentralized Labor Markets, Professional Labor Markets, Asymmetric Information, Interview costs, Matching
    JEL: D82 J21 J44
    Date: 2008–05
  19. By: Kevin Denny (School of Economics & Geary Institute, University College Dublin)
    Abstract: In a recent paper, Kanazawa and Kovar (2004) assert that given certain empirical regularities about assortative mating and the heritability of intelligence and beauty, that it logically follows that more intelligent people are more beautiful. It is argued here that this “theorem” is false and that the evidence does not support it.
    Date: 2008–02–04
  20. By: Florian Noseleit (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: What makes entrepreneurs different? Using a cross-country dataset, this paper explores essential parts of the value system of entrepreneurs in Western European countries by comparing value items of the self-employed to that of the non-self-employed. The self- employed rate values higher that aim toward openness to change and self-enhancement. In turn, values related to conservation are considered less important.
    Keywords: Entrepreneurship, self-employment, values, culture, motivations, psychology
    JEL: L26 M13 Z1
    Date: 2008–05–02
  21. By: Jan Willem van den End
    Abstract: This paper presents a macro stress-testing model for market and funding liquidity risks of banks, which have been main drivers of the recent financial crisis. The model takes into account the first and second round (feedback) effects of shocks, induced by behavioural reactions of heterogeneous banks, and idiosyncratic reputation effects. The impact on liquidity risk is simulated by a Monte Carlo approach. This generates distributions of liquidity buffers for each scenario round, including the probability of a liquidity shortfall. An application to Dutch banks illustrates that the second round effects have more impact than the first round effects and hit all types of banks, indicative of systemic risk. This lends support policy initiatives to enhance banks' liquidity buffers and liquidity risk management, which could also contribute to prevent financial stability risks.
    Keywords: banking; financial stability; stress-tests; liquidity risk
    JEL: C15 E44 G21 G32
    Date: 2008–05
  22. By: Morten Henningsen and Torbjørn Hægeland (Statistics Norway)
    Abstract: Employers cannot always displace workers at their own discretion. In many countries, Employment Protection Legislation (EPL) includes restrictions on laying off workers. This paper studies whether employers use downsizing events, where the rules for dismissal differ from the rules that apply for individual dismissal, to displace workers selectively. We investigate empirically whether workers with low expected productivity relative to co-workers face particularly high exit risks when establishments downsize. Our evidence is consistent with establishments using downsizings as a sorting device to terminate the employment of the least profitable workers who are protected against dismissal under normal times of operation. However, only a minor share of the displacements in downsizings may be attributed to opportunistic sorting by employers, suggesting that EPL may not be an important obstacle to firms’ firing of individual workers.
    Keywords: Downsizing; sickness absence; employment protection
    JEL: I18 J63 J65
    Date: 2008–05
  23. By: Lippi, Francesco; Nobili, Andrea
    Abstract: We consider an economy where the oil price, industrial production, and other macroeconomic variables fluctuate in response to a variety of fundamental shocks. We estimate the effects of different structural shocks using robust sign restrictions suggested by theory using US data for the 1973-2007 period. The estimates show that identifying the shock underlying the oil price change is important to predict the sign and the magnitude of its correlates with the US production. The results offer a natural explanation for the smaller correlation between oil prices and US production in the recent years compared to the seventies.
    Keywords: Business cycle; Oil prices; Sign Restrictions; Structural VAR
    JEL: C32 E3 F4
    Date: 2008–05
  24. By: Said Hanchane (Institut d’Economie Publique (IDEP), Marseille, and Laboratoire d’Economie et de Sociologie du Travail (LEST), Aix-en-Provence); Jacques Silber (Department of Economics, Bar-Ilan University, Israel, and Institut d’Economie Publique (IDEP), Marseille)
    Abstract: This paper is a first attempt to devise a methodology that allows estimating the exact impact of training on the dispersion of wages. It uses an approach originally proposed by Fields (2003) but extends it to the breakdown of inequality by population subgroups as well as to the case where the earnings function that is at the base of the analysis has to be adjusted for selectivity bias. The empirical illustration is based on a survey conducted in France at the end of the twentieth century.
    Keywords: earnings’ dispersion, France, labour market segmentation, on-the-job training, overlapping, selectivity bias, unobserved heterogeneity
    JEL: J24
    Date: 2007–09

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.