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on Business Economics |
| By: | Mason, Robin; Välimäki, Juuso |
| Abstract: | We analyse a simple model of dynamic moral hazard in which there is a clear and tractable trade-off; between static and dynamic incentives. In our model, a principal wants an agent to complete a project. The agent undertakes unobservable effort, which affects in each period the probability that the project is completed. The principal pays only on completion of the project. We characterise the contracts that the principal sets, with and without commitment. We show that with full commitment, the contract involves the agent’s value and wage declining over time, in order to give the agent incentives to exert effort. |
| Keywords: | continuous time; moral hazard; Principal-agent model; project completion |
| JEL: | C73 D82 J31 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6857&r=bec |
| By: | Francois-Éric Racicot (Département des sciences administratives, Université du Québec (Outaouais), LRSP et Chaire d'information financière et organisationnelle); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle) |
| Keywords: | Asset Pricing Models, specification errors, Hausman test, GMM, optimal instruments. |
| JEL: | C13 C19 C49 G12 G31 |
| Date: | 2008–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:012008&r=bec |
| By: | Heyman, Fredrik; Svaleryd, Helena; Vlachos, Jonas |
| Abstract: | Theories of taste-based discrimination predict that competitive pressures will drive discriminatory behaviour out of the market. Using detailed matched employer-employee data, we analyze how firm takeovers and product market competition are related to the gender composition of the firm’s workforce and the gender wage gap. Using a difference-in-difference framework and dealing with several endogeneity concerns, we find that the share of female employees increases as a result of an ownership change, in particular when product market competition is weak. Further, increased competition reduces the gender wage gap, especially among highly educated employees. While the estimated wage effect is quite small, the results support the main theoretical predictions. |
| Keywords: | Competition; Discrimination; Takeovers; Wages |
| JEL: | J2 J31 J7 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6879&r=bec |
| By: | Renée B. Adams; Hamid Mehran |
| Abstract: | The subprime crisis highlights how little we know about the governance of banks. This paper addresses a long-standing gap in the literature by analyzing board governance using a sample of banking firm data that spans forty years. We examine the relationship between board structure (size and composition) and bank performance, as well as some determinants of board structure. We document that mergers and acquisitions activity influences bank board composition, and we provide new evidence that organizational structure is significantly related to bank board size. We argue that these factors may explain why banking firms with larger boards do not underperform their peers in terms of Tobin's Q. Our findings suggest caution in applying regulations motivated by research on the governance of nonfinancial firms to banking firms. Since organizational structure is not specific to banks, our results suggest that it may be an important determinant for the boards of nonfinancial firms with complex organizational structures such as business groups. |
| Keywords: | Bank management ; Bank mergers ; Corporate governance ; Bank directors ; Competition |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:330&r=bec |
| By: | Ping Zhou |
| Abstract: | This report presents two of our investigations: one is to obtain an accurate forecast for the corporate bankruptcy; the other is to obtain a physical default intensity. Both investigations were based on the hazard model, using only firm-specific accounting variables as predictors. Different methods, such as the list-wise deleting, closest- value imputation and multiple imputation, were applied to tackling the problem of missing values. Our empirical studies showed that the multiple imputation performed the best amongst these methods and led to a forecasting model with economically reasonable predictors and corresponding estimates. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp614&r=bec |
| By: | Colantone, I.; Coucke, K.; Sleuwaegen, L. (Vlerick Leuven Gent Management School) |
| Abstract: | The effects of increasing import competition on output displacement and exit of heterogeneousdomestic firms are investigated within the context of an oligopolistic rivalry model.The displacement effect is found to be stronger for large "output flexible" firms, while small"cost flexible" ones are less affected by increasing import pressure. Extending the model to allow for product heterogeneity between domestic and foreign firms, we also find that product differentiation lowers the displacement effect. The theoretical findings are supported at the empirical level by the analysis of firm exit dynamics for 12 manufacturing sectors in 8 European countries, from 1997 to 2003. In particular, we find that the exit of large firms is sensitive to the shock of increasing import penetration from low-wage countries. Small firms in the same industries are instead only affected by marginal trade integration with respect to neighbouring EU countries and other relatively wealthy trading partners. Hence this paper shows, for the first time, that firms of different size might be affected differently by diverse sources of import competition. Implications on firms’ strategic planning and public policy are discussed. |
| Keywords: | oligopolistic competition, low-wage country import competition, firm exit |
| JEL: | F12 F14 L11 L25 L60 |
| Date: | 2008–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2008-06&r=bec |
| By: | C. BAUMEISTER; G. PEERSMAN |
| Abstract: | Using a Time-Varying Parameters Bayesian Vector Autoregression model, we investigate how the dynamic effects of oil supply shocks on the US economy have changed over time. In contrast to previous studies, we identify oil supply shocks with sign restrictions which are derived from a simple supply and demand model of the global oil market. First, we find a remarkable structural change in the oil market itself, i.e. a typical oil supply shock is characterized by a much smaller impact on world oil production and a greater effect on the real price of crude oil over time. A steepening of the oil demand curve is the only possible explanation for this stylized fact. Accordingly, similar physical disturbances in oil production now have a significantly higher leverage effect on oil prices resulting in a stronger impact on real GDP and consumer prices. Second, we document that the contribution of oil supply shocks to fluctuations in the real price of oil has decreased considerably over time, implying that current oil price fluctuations are more demand driven. Third, oil supply disturbances seem to have played a significant but non-exclusive role in the 1974/75 and early 1990s recessions but were of minor importance in the 1980/81 and millennium slowdowns. Finally, while oil supply shocks explain little of the "Great Inflation", their relative importance for CPI inflation variability has somewhat increased over time. |
| Keywords: | Oil prices, vector auto regressions, time-varying coefficients |
| JEL: | E31 E32 Q43 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:08/515&r=bec |
| By: | Fengxia Dong (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); David A. Hennessy (Center for Agricultural and Rural Development (CARD)); Helen H. Jensen (Center for Agricultural and Rural Development (CARD); Midwest Agribusiness Trade Research and Information Center (MATRIC)) |
| Abstract: | Finisher hog production in North America has seen a shift toward larger production units and contract-organized production since around 1990. Given the efficiency gains and conversion costs associated with contract production, growers may have to choose between long-term commitment through investments and atrophy with intent to exit in the intermediate term. A model is developed to show that growers with any of three efficiency attributes (lower innate hazard of exit, variable costs, or fixed contract adoption costs) are not only more likely to contract but will also produce more and expend more on lowering business survival risks. Using the 2004 U.S. Agricultural Resource Management Survey for hogs, a recursive bivariate probit model is estimated in which exit is affected directly and also indirectly through the contract decision. It is confirmed that contracting producers are less likely to exit. Greater specialization and regional effects are important in increasing the probability of contracting. More education, having non-farm income, and older production facilities are significant factors in increasing the expected rate of exit. The findings suggest further exits by non-contract producers. |
| Keywords: | agricultural industrialization, hog production, occupation choice, production contracts, recursive bivariate probit, relationship-specific investments, sector dynamics. |
| JEL: | D23 Q12 J26 J43 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ias:cpaper:08-wp469&r=bec |
| By: | Maria Elena Bontempi; Jacques Mairesse |
| Abstract: | The paper examines the size and productivity of total intangible capital relative to total tangible capital for a large panel of Italian Manufacturing firms. In the analysis, we decompose total intangibles in two different ways: in intangibles expensed in firms' current accounts (as usually considered in empirical studies) versus intangible capitalized in firms' balance sheets (usually not considered); and in "intellectual capital" (i.e. R&D expenditures, and patenting and related costs) versus "customer capital" (i.e., advertising expenditure, and trademarks and related costs). We systematically assess the robustness of our results by using different specifications of the production functions implying different elasticities of substitution between tangible and intangible capital, and comparing different panel data estimates. Our results underscore that firms' accounting information on intangible investments is genuinely informative, showing that intangible capital and its different components are at least as productive as tangible capital. |
| JEL: | C23 C52 D24 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14108&r=bec |
| By: | Fabrice Defever; Farid Toubal |
| Abstract: | We investigate the role of a firm's total factor productivity in its decision to import from theiraffiliates rather than from independent input suppliers. We propose a slightly modifiedversion of the Antràs and Helpman (2004) model. We assume higher fixed costs underoutsourcing and a firm-specific production function. We use detailed French firm-level datathat provides a geographical breakdown of French firms' import at product level and theirsourcing modes in 1999. We find strong empirical support for the theoretical predictions ofthe model. In particular, high-productivity firms that have a production process intensive insuppliers' inputs source their inputs through independent foreign suppliers. |
| Keywords: | Productivity, Incomplete Contracts, Intra-firm Trade, Outsourcing |
| JEL: | F23 F14 L22 L23 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0842&r=bec |
| By: | Claudia M. Buch; Gayle L. DeLong |
| Abstract: | This paper surveys recent literature on international mergers and acquisitions in banking. We focus on three main questions. First, what are the determinants of cross-border mergers of commercial banks? Second, do cross-border mergers affect the efficiency of banks? Third, what are the risk effects of international bank mergers? We begin with a brief summary of the stylized facts, and we conclude with implications for policymakers. |
| Keywords: | mergers and acquisition, international banking, survey |
| JEL: | F23 G21 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:38&r=bec |
| By: | Christopher F. Baum (Boston College; DIW Berlin); Mustafa Caglayan (University of Sheffield); Oleksandr Talavera (Aberdeen Business School, Robert Gordon University) |
| Abstract: | We investigate the impact of debt on a panel of U.S. manufacturing firms' capital investment behavior as the underlying firm-specific and macroeconomic uncertainty changes. Our estimates show that the influence of leverage on capital investment may be stimulating or mitigating depending on the effects of uncertainty. |
| Keywords: | capital investment, leverage, uncertainty |
| JEL: | E22 G31 D81 |
| Date: | 2008–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:686&r=bec |
| By: | Patrick A. Pintus; Yi Wen |
| Abstract: | This paper resuscitates the credit-cycle theory of Kiyotaki and Moore (1997) in a two-agent RBC model with conventional preferences and standard neoclassical technologies. It is shown that small transitory shocks to credit demand (or supply) can generate large, highly persistent, dampened cycles in aggregate output. Key to our results is the interaction between credit constraints and habit formation. Credit constraints based on collateralized assets mainly amplify the impact of shocks while habit formation in consumption demand mainly propagates it. Hump-shaped boom-bust cycles do not arise in the model under standard parameter values if either one of the two elements is missing. |
| Keywords: | Credit |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-014&r=bec |
| By: | Adelina Gschwandtner; Jesus Crespo Cuaresma |
| Abstract: | The present paper analyzes the determinants of profit persistence using a newly developed methodology that allows for the persistence parameter to vary with time. It therefore addresses a significant limitation of previous persistence models, which have assumed unrealistically that persistence is fixed over relatively long period of 20 years upwards. The concentration and the size of the industry are found to have a significant positive impact on profit persistence. However, at firm level, market share and risk have surprisingly a negative impact on profit persistence. |
| JEL: | L00 C22 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:0806&r=bec |
| By: | Sven Blank; Claudia M. Buch |
| Abstract: | International bank portfolios constitute a large component of international country portfolios. Yet, their response to macroeconomic conditions and their impact on the international transmission of business cycles developments remains largely unexplored. We use a novel dataset on banks’ international portfolios to answer three questions. First, what are the long-run determinants of banks’ international portfolios? Second, how do banks’ international portfolios adjust to short-run macroeconomic developments? Third, does the speed of adjustment change with the degree of financial integration? We provide evidence of significant long-run cointegration relationships between cross-border assets and liabilities of banks and key macroeconomic variables. Both, the long-run determinants of banks’ international portfolios as well as the short-run dynamics show a significant degree of heterogeneity across countries and, to some extent, over time. Gravitytype variables help explaining differences in the speed of adjustment to new equilibria. |
| Keywords: | international bank portfolios, macroeconomic developments, transmission channels |
| JEL: | F32 F42 F34 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:29&r=bec |
| By: | Luc Laeven; Ross Levine |
| Abstract: | This paper conducts the first empirical assessment of theories concerning relationships among risk taking by banks, their ownership structures, and national bank regulations. We focus on conflicts between bank managers and owners over risk, and show that bank risk taking varies positively with the comparative power of shareholders within the corporate governance structure of each bank. Moreover, we show that the relation between bank risk and capital regulations, deposit insurance policies, and restrictions on bank activities depends critically on each bank's ownership structure, such that the actual sign of the marginal effect of regulation on risk varies with ownership concentration. These findings have important policy implications as they imply that the same regulation will have different effects on bank risk taking depending on the bank's corporate governance structure. |
| JEL: | G18 G2 G3 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14113&r=bec |
| By: | Amiti, Mary; Davis, Donald R |
| Abstract: | How does trade liberalization affect wages? This is the first paper to consider in theory and data how the impact of final and intermediate input tariff cuts on workers’ wages varies with the global engagement of their firm. Our model predicts that a fall in output tariffs lowers wages at import-competing firms, but boosts wages at exporting firms. Similarly, a fall in input tariffs raises wages at import-using firms relative to those at firms that only source locally. Using highly detailed Indonesian manufacturing census data for the period 1991 to 2000, we find considerable support for the model’s predictions. |
| Keywords: | firm heterogeneity; input tariffs; output tariffs; trade liberalization; wages |
| JEL: | F10 F12 F13 F14 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6872&r=bec |
| By: | Vítor Castro (Universidade do Minho - NIPE) |
| Abstract: | One widespread idea in the business cycles literature is taht the older is an expansion or contraction, the more likely it is to end. This paper tries to provide further empirical support for this idea of positive duration dependence and, at the same time, control for the effects of other factors like leading indicators, the duration of the previous phase, investment, price of oil and external influences on the duration of expansions and contractions. This study employs a discrete-time duration model to analyse the impact of those variables on the likelihood of an expansion and contraction ending for a group of industrial countries over the last fifty years. The evidence provided in this paper suggests that the duration of expansions and contractions is not only dependent on their actual age: the duration of expansions is also positively dependent on the behaviour of the variables in the OECD composite leading indicator and on private investment, and negatively affected by the price of oil and by the occurence of a peak in the US business cycle; the duration of a contraction is negatively affected by its actual age and by the duration of the previous expansion. |
| Keywords: | Business cycles; Expansions; Contractions; Duration dependence; Duration models |
| JEL: | C41 E32 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:18/2008&r=bec |
| By: | R. Jason Faberman |
| Abstract: | This paper uses new data on job creation and job destruction to find evidence of a link between the jobless recoveries of the last two recessions and the recent decline in aggregate volatility known as the Great Moderation. The author finds that the last two recessions are characterized by jobless recoveries that came about through contrasting margins of employment adjustment—a relatively slow decline in job destruction in 1991-92 and persistently low job creation in 2002-03. In manufacturing, he finds that these patterns followed a secular decline in the magnitude of job flows and an abrupt decline in their volatility. A structural VAR analysis suggests that these patterns are driven by a decline in the volatilities of the underlying structural shocks in addition to a shift in the response of job flows to these shocks. The shift in structural responses is broadly consistent with the change in job flow patterns observed during the jobless recoveries. |
| Keywords: | Job analysis ; Employment ; Unemployment |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-11&r=bec |
| By: | Tim Bollerslev; Hao Zhou (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | We find that the difference between implied and realized variation, or the variance risk premium, is able to explain more than fifteen percent of the ex-post time series variation in quarterly excess returns on the market portfolio over the 1990 to 2005 sample period, with high (low) premia predicting high (low) future returns. The magnitude of the return predictability of the variance risk premium easily dominates that afforded by standard predictor variables like the P/E ratio, the dividend yield, the default spread, and the consumption-wealth ratio (CAY). Moreover, combining the variance risk premium with the P/E ratio results in an R2 for the quarterly returns of more than twenty-five percent. The results depend crucially on the use of “model-free”, as opposed to standard Black-Scholes, implied variances, and realized variances constructed from high-frequency intraday, as opposed to daily, data. Our findings suggest that temporal variation in both risk-aversion and volatility-risk play an important role in determining stock market returns. |
| Keywords: | Return Predictability, Implied Variance, Realized Variance, Equity Risk Premium, Variance Risk Premium, Time-Varying Risk Aversion |
| JEL: | G12 G14 |
| Date: | 2007–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2007-17&r=bec |
| By: | Ippei Fujiwara (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: ippei.fujiwara @boj.or.jp)); Yuki Teranishi (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuuki.teranishi @boj.or.jp)) |
| Abstract: | In this paper, we investigate the relationship between real exchange rate dynamics and financial market imperfections. For this purpose, we first construct a New Open Economy Macroeconomics (NOEM) model that incorporates international staggered loan contracts as a simple form of the financial market imperfections. Recent empirical studies show that such staggered loan contracts are prevalent in the US, UK, and Japan and direct shocks to the bank lending interest rate (risk premium shocks) are major drivers of business cycle dynamics. Simulation results only with such a financial market friction and a risk premium shock can generate persistent, volatile, and realistic hump-shaped responses of real exchange rates, which have been thought very difficult to reproduce in standard NOEM models. This implies that these financial market developments can possibly be a major source of real exchange rate fluctuations. |
| Keywords: | Financial Market Imperfections, Real Exchange Rates, Staggered Loan Contracts |
| JEL: | F31 E41 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:08-e-11&r=bec |