nep-bec New Economics Papers
on Business Economics
Issue of 2008‒06‒21
23 papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Networks for change: How networks influence organizational change By Manuel Portugal Ferreira
  2. The Relationship between Technology, Innovation, and Firm Performance: Empirical Evidence on E-Business in Europe By Koellinger, Ph.D
  3. Do firms' owners delegate both short-run and long-run decisions to their managers in equilibrium? By Evangelos Mitrokostas; Emmanuel Petrakis
  4. Employee Types and Endogenous Organizational Design By Antoni Cunyat; Randolph Sloof
  5. How Delegation Improves Commitment By Grischa Perino
  6. Works councils and organizational performance. The role of top managers' and works councils' attitudes in bad vis-a-vis good times By Annette van den Berg; Yolanda Grift; Arjen van Witteloostuijn
  7. Secret Contracts for Efficient Partnerships By Ichiro Obara; David Rahman
  8. Agency, strategic entrepreneurship and the performance of private equity backed buyouts By Meuleman,M.; Amess, K.; Wright, M.; Scholes, L.
  9. The Effect of the Sarbanes-Oxley Act on CEO Pay for Luck By Teodora Paligorova
  10. Horizontal Mergers and Acquisitions with Endogenous Efficiency Gains By Christos Cabolis; Constantine Manasakis; Emmanuel Petrakis
  11. Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model By Ruediger Bachmann; Ricardo J. Caballero; Eduardo Engel
  12. The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger By Clougherty, Joseph A; Duso, Tomaso
  13. Inventory Cycles By Katsuyuki Shibayama
  14. Optimal ownership in joint ventures with contributions of asymmetric partners By Marinucci, Marco
  15. Spatial Concentration and Firm-Level Productivity in France By Martin, Philippe; Mayer, Thierry; Mayneris, Florian
  16. Impact of Japanese Mergers on Shareholder Wealth: An Analysis of Bidder and Target Companies By Mehrotra, V.; Schaik, D. van; Spronk, J.; Steenbeek, O.W.
  17. To Bind or Not to Bind Collectively? Decomposition of Bargained Wage Differences Using Counterfactual Distributions By Wolf Dieter Heinbach; Markus Spindler
  18. Corporate Venture Capital, Strategic Alliances, and the Governance of Newly Public Firms By Vladimir I. Ivanov; Ronald W. Masulis
  19. Overconfidence and Moral Hazard By Leonidas Enrique de la Rosa
  20. The Missing Link Between Financial Constraints and Productivity By Marialuz Moreno Badia; Veerle Slootmaekers
  21. Sustaining Collusion in Growing Markets By Vasconcelos, Helder
  22. Entrepreneurial Exit in Real and Imagined Markets By Erik Stam; Roy Thurik; Peter van der Zwan
  23. Bertrand Competition with Non-rigid Capacity Constraints By Prabal, Roy Chowdhury

  1. By: Manuel Portugal Ferreira (Instituto Politécnico de Leiria)
    Abstract: This paper contributes to the literature on organizational change by examining organizations as social entities embedded in inter-organizational networks. In contrast to extant research that focuses on macro environment and internal factors to explain organizational change we put forth the social network surrounding the firm as a major driver of any change process. In specific we examine organization change as driven by the organizations? positions and relations in an interorganizational network. Our conceptual framework demonstrates that inter-organizational networks are important mid-level environmental factors that complement the macro-environment and internal organizational factors for the study of organizational changes. We conclude with a discussion on normative implications for organizations and avenues for future research.
    Keywords: organizational change, social networks
    JEL: M0 M1
    Date: 2008–06–09
  2. By: Koellinger, Ph.D (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: This article analyzes the relationship between the usage of Internet-based technologies, different types of innovation, and performance at the firm level. Data for the empirical investigation originates from a sample of 7,302 European enterprises. The empirical results show that Internet-based technologies were an important enabler of innovation in the year 2003. It was found that all studied types of innovation, including Internet-enabled and non-Internet-enabled product or process innovations, are positively associated with turnover and employment growth. Firms that rely on Internet-enabled innovations are at least as likely to grow as firms that rely on non-Internet-enabled innovations. Finally, it was found that innovative activity is not necessarily associated with higher profitability. Possible reasons for this and implications are discussed.
    Keywords: information technology;e-business;innovation;firm performance;profitability
    Date: 2008–05–26
  3. By: Evangelos Mitrokostas (Department of Economics, University of Crete); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: The present paper explores the scope of strategic delegation, to the firms' R&D investments and market competition in a Cournot Oligopoly. The firms' owners' have two alternative strategies: either the Full Delegation (FD) one, in which firms' owners delegate both short-run and long-run decisions to their managers, or the Partial Delegation (PD) one, in which firms' owners delegate only short-run decisions to their managers. We investigate which delegation strategy will emerge in equilibrium, under the assumption that there is no credible commitment between the firms' owners over the strategy they will select. We find that the Universal Partial Delegation is never an equilibrium configuration. If the initial unit cost is relatively high (low), the Universal Full Delegation (Coexistence) configuration is the only endogenously emerging equilibrium. However, the above results are sensitive to the existence of the commitment assumption.
    Keywords: Strategic Delegation, Oligopoly, R&D Investments, Equilibrium Delegation Schemes.
    JEL: C20 C72 L22 O33
    Date: 2008–06–17
  4. By: Antoni Cunyat (University of Valencia); Randolph Sloof (University of Amsterdam)
    Abstract: When managers are sufficiently guided by social preferences, incentive provision through an organizational mode based on informal implicit contracts may provide a cost-effective alternative to a more formal mode based on explicit contracts and monitoring. This paper reports the results from a laboratory experiment designed to test whether organizations make <I>full</I> effective use of the available preference types within their work force when drafting their organizational design. Our main finding is that they do not do so; although the importance of social preferences is recognized by those choosing the organizational mode, the significant impact managers' preferences have on the behavior of workers in the organization seems to be overlooked.
    Keywords: Organizational design; social preference types; experiments
    JEL: C91 J40 M50
    Date: 2008–02–20
  5. By: Grischa Perino (University of Heidelberg, Department of Economics)
    Abstract: We often use delegation as a commitment device if a government faces problems of timeinconsistency. McCallum (1995, AER P&P) challenged this practice, claiming that delegation merely relocates the commitment problem but does not solve it. In a model where delegation and specific policies are subject to the same commitment technology it is shown that McCallum’s conjecture holds if optimal ex-ante policies are fixed. However, with a flexibility-credibility trade-off delegation is both desirable and improves credibility. While delegation does not increase commitment per se it makes it more attractive and increases investments in credibility. Delegation can therefore serve as a valid commitment device.
    Keywords: Time-inconsistency, commitment, delegation
    JEL: D02 D23 D73 H11
    Date: 2008–06
  6. By: Annette van den Berg; Yolanda Grift; Arjen van Witteloostuijn
    Abstract: This study seeks to offer a contribution to the works council . organizational performance literature by adding, to date, largely unexplored potential contingencies: the attitudes of Dutch top managers and works councils as to the functioning of the latter, in bad vis-a-vis good times. The overall conclusion from our probit analyses is that the way in which management and works councils interact, and hence the way in which codetermination is implemented, makes all the difference to the firm.s economic position. Our most compelling finding relates to the role of management: a positive attitude of managers toward the works council is positively associated with organizational performance, both in the private and the public sector. In the private sector, this result is even reinforced in times of reorganization.
    Keywords: mutual relationship and collaboration between works councils and management, organizational performance
    JEL: J53 M54
    Date: 2008–06
  7. By: Ichiro Obara; David Rahman
    Date: 2008–06–12
  8. By: Meuleman,M.; Amess, K.; Wright, M.; Scholes, L. (Vlerick Leuven Gent Management School)
    Abstract: Agency theory has focused on buyouts as a governance and control device to increase profitability, organizational efficiency and limited attention to growth. A strategic entrepreneurship view of buyouts incorporates upside incentives for value creation associated with growth as well as efficiency gains. In this paper, we develop the complementarity between agency theory and strategic entrepreneurship perspectives to examine the performance implications for different types of buyouts. Further, we study how the involvement of private equity firms is related to the performance of the post-buyout firm. These issues are examined for a sample of 238 private equity backed buyouts in the UK between 1993 and 2003. Implications for theory and practice are suggested.
    Date: 2008–06–03
  9. By: Teodora Paligorova
    Abstract: According to the rent-extraction hypothesis, weak corporate governance allows entrenched CEOs to capture the pay-setting process and benefit from events outside of their control -- get paid for luck. In this paper, I find that the independence requirement imposed on boards of directors by the Sarbanes-Oxley Act of 2002 (SOX), together with the governance regulations subsequently introduced by stock exchanges, affects CEO pay structure. In firms whose corporate boards were originally less independent, and thus more affected by these provisions, CEO pay for performance strengthened while pay for luck decreased after adopting SOX. In contrast, those firms that exhibited strong board independence prior to SOX showed little evidence of pay for luck and little change in pay for performance following the adoption of SOX. The results are consistent with the rent-extraction hypothesis, and they are robust to alternative explanations such as asymmetric benchmarks, oligopoly, and managerial talent.
    Keywords: Labour markets
    JEL: G38 J33 M52
    Date: 2008
  10. By: Christos Cabolis (ALBA Graduate Business School); Constantine Manasakis (Department of Economics, University of Crete, Greece); Emmanuel Petrakis (Department of Economics, University of Crete, Greece)
    Abstract: We examine how the strategic long-run decisions, such as cost-reducing R&D investments, prior to the decision for integration; create endogenous efficiency gains that make a horizontal integration profitable. The "merger" and the "acquisition" are distinguished as different modes of horizontal integration, with respect to both incentives and equilibrium outcomes. We show that firms' incentives for integration depend on the magnitude of the cost efficiencies that R&D investments give rise to and the rule of sharing of the integrated entity's profits across participants. The welfare effects of horizontal integrations are also discussed.
    Keywords: Horizontal mergers and acquisitions; Processes Innovations; Endogenous efficiency gains.
    JEL: C72 G34 O31
    Date: 2008–06–18
  11. By: Ruediger Bachmann (Yale University); Ricardo J. Caballero (MIT); Eduardo Engel (Cowles Foundation, Yale University)
    Abstract: The sensitivity of U.S. aggregate investment to shocks is procyclical: the initial response increases by approximately 50% from the trough to the peak of the business cycle. This feature of the data follows naturally froma DSGE model with lumpy microeconomic capital adjustment. Beyond explaining this specific time variation, our model and evidence provide a counterexample to the claim that microeconomic investment lumpiness is inconsequential for macroeconomic analysis.
    Keywords: Ss model, RBC model, Time-varying impulse response function, History dependence, Conditional heteroscedasticity, Aggregate shocks, Sectoral shocks, Idiosyncratic shocks, Adjustment costs
    JEL: E10 E22 E30 E32 E62
    Date: 2008–06
  12. By: Clougherty, Joseph A; Duso, Tomaso
    Abstract: It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, ‘future acquisition probability’ does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.
    Keywords: Acquisitions; Event-Study; Mergers; Rivals
    JEL: G14 G34 L22 M20
    Date: 2008–06
  13. By: Katsuyuki Shibayama
    Abstract: This paper investigates a rational dynamic stochastic general equilibrium model with a stockout constraint and a production chain. Our model shows that both stockout avoidance and cost shock mechanisms replicate stylised inventory facts -- production is more volatile than sales and inventory investment is procyclical. In addition, production smoothing also works at very high frequencies. Note that the cost shock and production smoothing mechanisms are naturally embedded in our micro-founded general equilibrium framework. Moreover, as a by-product, the production chain causes the slow adjustment of inventories in aggregate. Consequently, our model generates (a) high labour volatility and (b) low correlation between labour productivity and output; the standard RBC cannot produce these two empirical findings. Finally, our model yields inventory cycles.
    Keywords: inventories; inventory cycles; stockout constraint; production chain; over-damped oscillations; dyanamic stochastic general equilibrium model
    JEL: E32 C68
    Date: 2008–02
  14. By: Marinucci, Marco
    Abstract: This paper faces two questions concerning Joint Ventures (JV) agreements. First, we study how the partners contribution affect the creation and the profit sharing of a JV when partners' effort is not observable. Then, we see whether such agreements are easier to enforce when the decision on JV profit sharing among partners is either delegated to the independent JV management (Management Sharing) or jointly taken by partners (Coordinated Sharing). We find that the firm whose effort has a higher impact on the JV's profits should have a larger profit shares. Moreover, a Management sharing ensures, at least in some cases, a wider range of self-enforceable JV agreements.
    Keywords: D43; L13; L14; L22
    JEL: L14 L13 D43 L22
    Date: 2008–04
  15. By: Martin, Philippe; Mayer, Thierry; Mayneris, Florian
    Abstract: This paper analyzes empirically the effect of spatial agglomeration of activities on the productivity of firms using French individual firm data from 1996 to 2004. This allows us to control for endogeneity biases that the estimation of agglomeration economies typically encounters. French firms benefit from localization economies, but not from urbanization economies nor from competition effects. The benefits generated by increased sectoral clustering, though positive and highly significant are modest and geographically very limited. The gains from clusters are also quite well internalized by firms in their location choice: we find very little difference between the geography that would maximize productivity gains and the geography actually observed.
    Keywords: clusters; localization economies; productivity; spatial concentration
    JEL: C23 R10 R11 R12
    Date: 2008–06
  16. By: Mehrotra, V.; Schaik, D. van; Spronk, J.; Steenbeek, O.W. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The market for corporate control in the second largest economy in the world behaves very different from that in the U.S. Using a sample of 91 mergers in the period 1982-2003 we document several distinctive features of this market in Japan. First, we show that in stark contrast to the pro-cyclical U.S. merger waves, mergers in Japan tend to be counter-cyclical, both with respect to the general economy as well as with respect to stock market valuations. Second, and again in contrast to the U.S. experience, we find that a significant fraction of Japanese mergers are orchestrated by the main banks; in such cases, mergers are not between two weak companies, but at least one of the merging companies is financially strong. Other distinctive features of Japanese mergers are the positive pre-announcement returns accruing to both bidders and targets, with bidders capturing approximately half the gains that accrue to target firms. We also find differential shareholder wealth effects in the bubble period (1982-1989), the early 1990s, and the post-financial regulation regime (1997-2003). Overall our results point to a market for corporate control that is distinctly less shareholder-centered than that in the U.S. and one where creditors play an important, perhaps dominant, role.
    Keywords: Japanse mergers;corporate control;mergers;take-over
    Date: 2008–06–02
  17. By: Wolf Dieter Heinbach; Markus Spindler
    Abstract: Collective bargaining agreements still play an important role in the German wage setting system. Both existing theoretical and empirical studies find that collective bargaining leads to higher wages compared to individually agreed ones. However, the impact of collective bargaining on the wage level may be very different along the wage distribution. As unions aim at compressing the wage distribution, one might expect that for covered workers' wages in the lower part of the distribution workers' individual characteristics may be less important than the coverage by a collective contract. In contrast, the relative importance of workers' individual characteristics may rise in the upper part of the wage distribution, whereas the overall wage difference might decline. Using the newly available German Structure of Earnings Survey (GSES) 1995 and 2001, a cross-sectional linked employer-employee-dataset from German official statistics, this study analyses the difference between collectively and individually agreed wages using a Machado/Mata (2005) decomposition type technique.
    Keywords: collective bargaining; wage structure; wage decomposition; quantile regression
    JEL: J31 J51 C13
    Date: 2007–12
  18. By: Vladimir I. Ivanov; Ronald W. Masulis
    Abstract: We examine the effect of investments by corporate venture capitalists (CVCs) on the governance structures of venture backed IPOs. One of the main differences between CVCs and traditional venture capitalists (TVCs) is that the former often invest for strategic reasons and enter into various types of strategic alliances with their portfolio firms that last well beyond the IPO. We argue that the presence of such strategic alliances will have a significant impact on the governance structure of CVC backed firms when they go public and in the following years. Using a sample of venture backed IPOs, we evaluate several hypotheses concerning the role of CVCs in the corporate governance of newly public firms. We find that strategic CVC backed IPOs have weaker CEOs and more outsiders on the board and on the compensation committee than a carefully selected sample of matching firms. In addition, the probability of forced CEOs turnover is higher for strategic CVC backed IPOs, while at the same time these firms use staggered boards more frequently. In contrast, the governance structures of purely financial CVC backed IPO firms and their matching firms do not exhibit any significant differences.
    Date: 2008–05
  19. By: Leonidas Enrique de la Rosa (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: In this paper, I study the effects of overconfidence on incentive contracts in a moral-hazard framework in which principal and agent knowingly hold asymmetric beliefs regarding the prob- ability of success of their enterprise. Agent overconfidence can have conflicting effects on the equilibrium contract. On the one hand, an overconfident agent disproportionately values success- contingent payments, and thus prefers higher-powered incentives. On the other hand, if the agent is overconfident in particular about the extent to which his actions affect the likelihood of success, lower-powered incentives are sufficient to induce any given effort level. If the agent is overall moderately overconfident, the latter effect dominates; because the agent bears less risk in this case, he actually benefits from his overconfidence. If the agent is significantly overcon- fident, the former effect dominates; the agent is then exposed to an excessive amount of risk, which is harmful to him. An increase in overconfidence - either about the base probability of success or the extent to which effort affects it - makes it more likely that high levels of effort are implemented in equilibrium.
    Keywords: overconfidence, heterogeneous beliefs, moral hazard
    JEL: A12 D81 D82
    Date: 2007–07–10
  20. By: Marialuz Moreno Badia; Veerle Slootmaekers
    Abstract: This paper provides new evidence on the link between finance and firm-level productivity focusing on the case of Estonia. We contribute to the literature in two important respects: (1) we look explicitly at the role of financial constraints; and (2) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors with the exception of R&D, where the dampening effect of financial constraints on productivity is remarkably large. These results are robust to a variety of sensitivity tests.
    Keywords: financing constraints, productivity, SMEs
    JEL: D24 G32 O16 P27
    Date: 2008
  21. By: Vasconcelos, Helder
    Abstract: The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable 'grim trigger strategies' available. It is shown that even in situations where perfect collusion can be sustained after entry, coping with a potential entrant in a market which is growing over time may completely undermine any pre-entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry.
    Keywords: Collusion; Demand Growth; Entry
    JEL: D43 L13 L41
    Date: 2008–06
  22. By: Erik Stam (University of Cambridge); Roy Thurik (Erasmus University Rotterdam); Peter van der Zwan (Erasmus University Rotterdam)
    Abstract: Entrepreneurs exit their business due to selection mechanisms experienced in the market place. Next to this well known ex-post decision to exit, entrepreneurs select ex-ante whether they are willing to pursue an entrepreneurial career at all, or to give up these entrepreneurial intentions. This paper compares the role of personal and ecological factors as determinants of these two types of selection: exit in real and in imagined markets. Entrepreneurs in imagined markets are more likely to exit in strong welfare state regimes, while real entrepreneurs are more likely to exit when they have low levels of human capital and when they are located in metropolitan areas.
    Keywords: entrepreneurship; nascent entrepreneurs; entrepreneurial exit; market selection
    JEL: J23 L26
    Date: 2008–03–27
  23. By: Prabal, Roy Chowdhury
    Abstract: We examine a model of Bertrand competition with non-rigid capacity constraints, so that by incurring an additional cost, firms can produce beyond capacity. We find that there is an interval of prices such that a price can be sustained as a pure strategy Nash equilibrium if and only if it lies in this interval. We then examine the properties of this set as (a) the number of firms becomes large and (b) the capacity cost increases.
    JEL: D5 L2
    Date: 2008–06

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