nep-bec New Economics Papers
on Business Economics
Issue of 2008‒08‒21
twenty-one papers chosen by
Christian Calmes
University of Quebec in Ottawa

  1. Creating a Bigger Pie? The Effects of Employee Ownership, Profit Sharing, and Stock Options on Workplace Performance By Joseph R. Blasi; Richard B. Freeman; Chris Mackin; Douglas L. Kruse
  2. Do Workers Gain by Sharing? Employee Outcomes under Employee Ownership, Profit Sharing, and Broad-based Stock Options By Douglas Kruse; Richard Freeman; Joseph Blasi
  3. Governance Processes, Employee Voice and Performance Outcomes in the Construction of Heathrow Terminal 5 By Simon Deakin; Aristea Koukiadaki
  4. Hiring Cheerleaders: Board Appointments of "Independent" Directors By Lauren Cohen; Andrea Frazzini; Christopher Malloy
  5. What's News in Business Cycles By Stephanie Schmitt-Grohe; Martin Uribe
  6. Unionization, Stochastic Dominance, and Compression of the Wage Distribution: Evidence from Germany By Michael C. Burda; Bernd Fitzenberger; Alexander Lembcke; Thorsten Vogel
  7. The Ambiguous Effect of Minimum Wages on Workers and Total Hours By Eric Strobl; Frank Walsh
  8. Offshoring and Productivity: Evidence from Japanese Firm-level Data By ITO Banri; WAKASUGI Ryuhei; TOMIURA Eiichi
  9. The Influence of Stock Market Listing on Human Resource Managment: Evidence for France and Britain By Neil Conway; Simon Deakin; Suzzanne J. Konzelmann; Héloïse Petit; Antoine Rebérioux; Frank Wilkinson
  10. The Degradation of Distorted Performance Measures By Randolph Sloof; Mirjam van Praag
  11. Do Financial Constraints Matter for Foreign Market Entry? – A Firm-Level Examination By Joel Stiebale
  12. Why Do Foreign Firms Leave U.S. Equity Markets? An Analysis of Deregistrations Under SEC Exchange Act Rule 12h-6 By Craig Doidge; G. Andrew Karolyi; René M. Stulz
  13. Efficient Search on the Job and the Business Cycle By Guido Menzio; Shouyong Shi
  14. Diffusion Processes and Inter-firm Cooperation: An Extended Nelson-Winter Model By Brunner, Daniuel; Voigt, Tim
  15. Technology sourcing by large incumbents through acquisition of small firms By Marcus Wagner
  16. Quality Management and Job Quality: How the ISO 9001 Standard for Quality Management Systems Affects Employees and Employers By David I. Levine; Michael W. Toffel
  17. Does Innovation Stimulate Employment? A Firm-Level Analysis Using Comparable Micro-Data from Four European Countries By Rupert Harrison; Jordi Jaumandreu; Jacques Mairesse; Bettina Peters
  18. Pay enough, don’t pay too much or don’t pay at all? An empirical study of the non-monotonic impact of incentives on job satisfaction By Pouliakas, Konstantinos
  19. The Effect of Mixed Leagues on Aggregated Investments and Competitive Balance By Helmut Dietl; Markus Lang; Stephan Werner
  20. Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalization By René M. Stulz
  21. Executive women at work By Murray, Peter A.; Parr, Nick; Syed, Jawad

  1. By: Joseph R. Blasi; Richard B. Freeman; Chris Mackin; Douglas L. Kruse
    Abstract: This paper uses data from NBER surveys of over 40,000 employees in hundreds of facilities in 14 firms and from employees on the 2002 and 2006 General Social Surveys to explore how shared compensation affects turnover, absenteeism, loyalty, worker effort, and other outcomes affecting workplace performance. The empirical analysis shows that shared capitalism has beneficial effects on all outcomes save for absenteeism and that it has its strongest effects on turnover, loyalty, and worker effort when it is combined with: a) high-performance work policies (employee involvement, training, and job security), b) low levels of supervision, and c) fixed wages that are at or above market level. Most workers report that cash incentives, stock options, ESOP stock, and ESPP participation motivate them to work harder. The interaction of the effects of shared capitalism with other corporate policies suggests that the various shared capitalist and other policies may operate through a latent variable, "corporate culture".
    JEL: J33 J54 L23 L25
    Date: 2008–08
  2. By: Douglas Kruse; Richard Freeman; Joseph Blasi
    Abstract: This paper examines how shared capitalism compensation systems - those that link employee pay to company performance - affect diverse employee outcomes. It uses two data sets: the national GSS survey that provides a broad representative view of the extent of the programs; and the NBER Shared Capitalism Project surveys of workers in 14 companies that use shared capitalism programs extensively. We find that greater involvement in the programs is generally linked to greater participation in decisions, higher quality supervision and treatment of employees, more training, higher pay and benefits, greater job security, and higher job satisfaction. We also find positive interactions of shared capitalism with high-performance policies in predicting participation in decisions and overall job satisfaction, and negative interactions of shared capitalism with close supervision in affecting almost all of the outcomes. Overall the results support the idea that workers can gain by sharing, but whether this happens is contingent on other workplace policies.
    JEL: J33 J54 L23
    Date: 2008–08
  3. By: Simon Deakin; Aristea Koukiadaki
    Abstract: The Major Projects Agreement (MPA) is a framework agreement designed to improve performance in large mechanical and electrical engineering projects. It is built on integrated team working and includes the trade union as a partner in strategic, organizational and employment decisions. The agreement was recently implemented in the construction of Heathrow Terminal 5 (T5). The use of the MPA at T5 illustrates how the promotion of a framework that legitimizes a role for unions in continuing dialogue with employers can positively affect organizational outcomes in large construction projects. While serving as a reminder that mechanisms exist within UK corporate governance for the representation and articulation of the interests of non-shareholder constituencies, T5 may be a unique case: the currently uncertain future of the MPA is indicative of wider constraints on the adoption of the partnership model in Britain.
    Keywords: corporate governance, labour-management relations, partnership, stakeholder theory
    JEL: J52 K12 K31 L14
    Date: 2008–06
  4. By: Lauren Cohen; Andrea Frazzini; Christopher Malloy
    Abstract: We test the hypothesis that firms appoint independent directors who are overly sympathetic to management, while still technically independent according to regulatory definitions. We explore a subset of independent directors for whom we have detailed, micro-level data on their views regarding the firm prior to being appointed to the board: sell-side analysts who end up serving on the board of companies they previously covered. We find striking evidence that boards appoint overly optimistic analysts who exhibit little skill in evaluating the firm itself, other firms within the firm's industry, or even other firms in general. The magnitude of the optimistic bias is large: 82.0% of appointed recommendations are strong-buy/buy recommendations, compared to 56.9% for all other analyst recommendations. We find that appointed analysts' optimism is stronger at precisely those times when firms' benefits are larger, and that appointed analysts appear to be more closely tied to appointing firms than the title "independent" director would suggest. Our results challenge the widely held view that appointments of independent directors necessarily add objectivity to the board of a firm.
    JEL: G28 G34 J24 J44
    Date: 2008–08
  5. By: Stephanie Schmitt-Grohe; Martin Uribe
    Abstract: In this paper, we perform a structural Bayesian estimation of the contribution of anticipated shocks to business cycles in the postwar United States. Our theoretical framework is a real-business-cycle model augmented with four real rigidities: investment adjustment costs, variable capacity utilization, habit formation in consumption, and habit formation in leisure. Business cycles are assumed to be driven by permanent and stationary neutral productivity shocks, permanent investment-specific shocks, and government spending shocks. Each of these shocks is buffeted by four types of structural innovations: unanticipated innovations and innovations anticipated one, two, and three quarters in advance. We find that anticipated shocks account for more than two thirds of predicted aggregate fluctuations. This result is robust to estimating a variant of the model featuring a parametric wealth elasticity of labor supply.
    JEL: C11 C51 E13 E32
    Date: 2008–08
  6. By: Michael C. Burda; Bernd Fitzenberger; Alexander Lembcke; Thorsten Vogel
    Abstract: This paper establishes theoretical and empirical linkages between union wage setting and the structure of the wage distribution. Theoretically, we identify conditions under which a right-to-manage model implies compression of the wage distribution in the union sector relative to the nonunion sector as well as first-order stochastic dominance. These implications are investigated using quantile regressions on the 2001 GSES, a large German linked employer–employee data set which contains explicit information on coverage by collective agreements. The empirical results confirm that, in case of industry-wide collective agreements, log union wage effects decline in quantiles, implying union wage compression. This finding, however, cannot be corroborated for wages determined at the firm level. Stochastic dominance is confirmed, as predicted by the theoretical model, for both types of collective agreements.
    Keywords: Union wage effect, stochastic dominance, wage compression, quantile regressions, Machado-Mata decomposition
    JEL: J31 J51 J52
    Date: 2008–08
  7. By: Eric Strobl (Ecole Polytechnique Paris); Frank Walsh (University College Dublin)
    Abstract: We model a standard competitive labour market where firms choose combinations of workers and hours per worker to produce output. If one assumes that the scale of production has no impact on hours per worker, then the change in the number of workers and hours per worker resulting from a minimum wage are inversely related. We also demonstrate that total hours worked at the firm may rise if there are small fixed costs to hiring workers.
    Keywords: Minimum wages, hours, employment
    JEL: J22 J38
    Date: 2007–08–27
  8. By: ITO Banri; WAKASUGI Ryuhei; TOMIURA Eiichi
    Abstract: It is noteworthy that multinational firms are beginning to offshore a wide range of operations. Theoretical studies have showed that offshoring contributes to a higher productivity. This paper aims to provide evidence of the effect of offshoring on productivity, on the basis of original 2006 survey data of offshore sourcing of Japanese firms. Our estimation shows that the offshoring of tasks for production of intermediates goods and final assembly, as well as the offshoring of tasks for R&D and information services, positively affects productivity growth, while the outsourcing of other service tasks has no significant impact on productivity. It also shows that firms outsourcing to the United States or Europe have realized high production efficiency, followed by firms outsourcing to Asia, in comparison with non-offshoring firms.
    Date: 2008–08
  9. By: Neil Conway; Simon Deakin; Suzzanne J. Konzelmann; Héloïse Petit; Antoine Rebérioux; Frank Wilkinson
    Abstract: We use data from REPONSE 2004 and WERS 2004 to analyse whether approaches to HRM differ according to whether an establishment is part of a company with a stock exchange listing. In both countries we find that listing is positively associated with teamworking and performance-related pay, while in France, but not in Britain, it is also linked to worker autonomy and training. Our findings are inconsistent with the claim that shareholder pressure operates as a constraint on the adoption of high-performance workplace practices. The pattern is similar in the two countries, but with a slightly stronger tendency for listing to be associated with high-performance workplace practices in France.
    Keywords: corporate governance, human resource management, employment relations
    JEL: G32 G38 K22 K31 J53 J88
    Date: 2008–06
  10. By: Randolph Sloof (University of Amsterdam, and IZA); Mirjam van Praag (University of Amsterdam, IZA, and Max Planck Institute of Economics)
    Abstract: Baker (2002) has demonstrated theoretically that the quality of performance measures used in compensation contracts hinges on two characteristics: noise and distortion. These criteria, though, will only be useful in practice as long as the noise and distortion of a performance measure can be measured. Courty and Marschke (2007) have recently developed an elegant empirical test to detect distortion, based on the degradation of a performance measure subsequent to increasing its weight in the remuneration contract. We apply their test to assess the distortion of the often used class of performance measures that are based on ‘Residual Income’ (RI), such as ‘Economic Value Added’ (EVA). Residual income is widely used to measure and reward the performance of management boards. We use a difference-in-difference approach to account for (a) changes in economic circumstances in the period studied and (b) the self-selection of firms into the treatment and the control groups. Our results show that RI has degraded and is, therefore, a distortionary performance measure that can be gamed.
    Keywords: Residual income; EVA; degradation; distortion; performance measurement; management compensation; incentive compensation
    JEL: D21 G35 J33 L21 M41 M52
    Date: 2008–08–12
  11. By: Joel Stiebale
    Abstract: Recent theoretical and empirical contributions stress the importance of financial development for international trade. This paper investigates whether financial constraints matter for foreign market entry at the firm level using dynamic panel data techniques.The empirical framework is applied to a panel of French manufacturing firms over the years 1998–2005. Although financial indicators are significantly correlated with export status and export share, there is no evidence that financial constraints have a direct impact on foreign market participation or sales in foreign markets once observed and unobserved firm heterogeneity is controlled for. This result also holds for subgroups of firms that are more likely to face financial constraints and industries that are more dependent on financial factors.
    Keywords: Exports, financial constraints, sunk costs
    JEL: F14 D92 C23
    Date: 2008–07
  12. By: Craig Doidge; G. Andrew Karolyi; René M. Stulz
    Abstract: On March 21, 2007, the Securities and Exchange Commission (SEC) adopted Exchange Act Rule 12h-6 which makes it easier for foreign private issuers to deregister and terminate the reporting obligations associated with a listing on a major U.S. exchange. We examine the characteristics of 59 firms that immediately announced they would deregister under the new rules, their potential motivations for doing so, as well as the economic consequences of their decisions. We find that these firms experienced significantly slower growth and lower stock returns than other U.S. exchange-listed foreign firms in the years preceding the decision. There is weak evidence that firms experience negative stock returns when they announce deregistration and stronger evidence that the stock-price reaction is worse for firms with higher growth. When we examine stock-price reactions around events associated with the passage of the Sarbanes-Oxley Act (SOX), we find negative average stock-price reactions with some specifications but not others. Further, there is no evidence that deregistering firms were affected more negatively by SOX than foreign-listed firms that did not deregister. Our evidence supports the hypothesis that foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and that, when those opportunities disappear, a listing becomes less valuable to corporate insiders so that firms are more likely to deregister and go home.
    JEL: F30 G15 G34
    Date: 2008–08
  13. By: Guido Menzio (Department of Economics, University of Pennsylvania); Shouyong Shi (Department of Economics, University of Toronto)
    Abstract: We build a directed search model of the labor market in which workers’ transitions between unemployment, employment, and across employers are endogenous. We prove the existence, uniqueness and efficiency of a recursive equilibrium with the property that the distribution of workers across employment states does not affect the agents’ values and strategies. Because of this property, we are able to compute the equilibrium outside the non-stochastic steady-state. We use a calibrated version of the model to measure the effect of productivity shocks on the US labor market. We find that productivity shocks generate procyclical fluctuations in the rate at which unemployed workers become employed and countercyclical fluctuations in the rate at which employed workers become unemployed. Moreover, we find that productivity shocks generate large countercyclical fluctuations in the number of vacancies opened for unemployed workers and even larger procyclical fluctuations in the number of vacancies created for employed workers. Overall, productivity shocks alone can account for 80 percent of unemployment volatility, 30 percent of vacancy volatility and for the nearly perfect negative correlation between unemployment and vacancies.
    Keywords: Directed Search, On the Job Search, Business Cycles
    JEL: E24 E32 J64
    Date: 2008–08–11
  14. By: Brunner, Daniuel; Voigt, Tim
    Abstract: The simulation studies presented by Nelsen and Winter (1982) examine the modelling of industry dynamics. These studies are a prominent and unique approach visualizing innovation and imitation processes. Assuming the standard model envisages firms acting individually, this paper treats the question concerning how the dynamic of the market changes in the case of inter-firm cooperation. Thereby we refer to one of our case studies (Brunner / Voigt 2008) and reconstruct interactions between the cooperation participants. On the one hand, we extend the Nelson-Winter-model by a factor market where the cooperation is able to bundle its demand. On the other hand, the model is enlarged by interactions of the cooperation actors in terms of innovation and imitation processes. A fundamental result of the simulation studies is that the cooperation participants improve their market position due to the cooperation. In particular, this study shows how the cooperation supports and simultaneously accelerates the dissemination of innovation.
    Keywords: Nelson-Winter; diffusion proccesses; knowledge communication; simulation study
    JEL: O33 D4 M13
    Date: 2008–08
  15. By: Marcus Wagner
    Abstract: Innovation activities in high technology industries provide considerable challenges for technology and innovation management. In particular, since these industries have a long history of radical innovations taking place through distinct industry cycles of higher and lower demand, firms frequently consider the option to use acquisitions as a means for technology sourcing. The paper investigates this behaviour for three high technology industries, namely semiconductor manufacturing, biotechnology and electronic design automation which is a specific sub-segment of the semiconductor industry. It analyses the association of firm characteristics with different aspects of acquisition behaviour with a particular focus being put on innovation-related firm characteristics. The paper confirms a substitutive relationship between acquisitions and own research activities as well as between own and acquired firm patenting, but also finds that firm size, financial conditions and geographical origin of the firm matter for acquisition behaviour.
    Keywords: Acquisition, innovation, high technology, quantitative methods, research, R&D
    JEL: L10 L86 M20
    Date: 2008
  16. By: David I. Levine (Haas School of Business, University of California,); Michael W. Toffel (Harvard Business School, Technology and Operations Management Unit)
    Abstract: Several studies have examined how the ISO 9001 Quality Management System standard affects organizational outcomes such as profits. This is the first large-scale study to examine its effects on employee outcomes such as employment, earnings, and health and safety. We analyzed a matched sample of nearly 1,000 companies in California. ISO 9001 adopters subsequently had far lower organizational death rates than a matched control group of non-adopters. Among surviving employers, ISO adopters realized higher rates of growth of sales, employment, payroll, and average annual earnings. Injury rates also declined slightly at ISO 9001 adopters, although total injury costs did not. These results have implications for organizational theory, managers, and public policy.
    Keywords: ISO 9001, quality management, standards, occupational health and safety, wages, labor, empirical, California
    Date: 2008–08
  17. By: Rupert Harrison; Jordi Jaumandreu; Jacques Mairesse; Bettina Peters
    Abstract: This paper studies the impact of process and product innovations introduced by firms on employment growth in these firms. A simple model that relates employment growth to process innovations and to the growth of sales separately due to innovative and unchanged products is developed and estimated using comparable firm-level data from France, Germany, Spain and the UK. Results show that displacement effects induced by productivity growth in the production of old products are large, while those associated with process innovations, which are likely to be compensated by price decreases, appear to be small. The effects related to product innovations are, however, strong enough to overcompensate these displacement effects.
    JEL: D2 J23 L1 O31 O33
    Date: 2008–08
  18. By: Pouliakas, Konstantinos
    Abstract: This paper attempts to test the non-monotonic effect of monetary incentives on job satisfaction. Specifically, 8 waves (1998-2005) of the British Household Panel Survey (BHPS) are used to investigate the ceteris paribus association between the intensity of bonus/profit-sharing payments and the utility derived from work. After controlling for individual heterogeneity biases, it is shown that relatively ‘small’ bonuses exert a significant negative effect on worker satisfaction. In contrast, job utility is found to rise only in response to ‘large’ bonus payments, primarily in skilled, non-unionized private sector jobs. The empirical evidence of the paper is therefore consistent with a ‘V-effect’ of incentives, suggesting that employers wishing to motivate their staff should indeed “pay enough or don’t pay at all”.
    Keywords: Incentives; intensity; job satisfaction; non-monotonic
    JEL: J28 C23 J33
    Date: 2008–08–14
  19. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Stephan Werner (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: A wide range of literature which discusses the impact of the chosen objective function on competitive balance and revenue sharing. Some authors argued that sports clubs (or the owners of the sports clubs) behave like profit maximizers. This assumption of profit maximization coincides with the standard microeconomic theory of firms. On the other hand, some researchers pronounced that European football clubs behave like utility maximizers having a utility function that incorporates variables other than (only) club profits. Also, this assumption is well-known in standard microeconomic theory, since households maximize their utility with respect to a given budget constrain. In this paper, we want give a formal framework for the so called mixed leagues, i.e. professional sports leagues, where some club owners maximize clubs’ profits and the rest of the clubs are interested in maximizing their winning probability. This paper fills the gap in the existing literature since mixed leagues have not (formally) discussed, and therefore, no policy implications exist.
    Keywords: Mixed League, objective function, competitive balance, aggregated investments
    JEL: M21 D02
    Date: 2008
  20. By: René M. Stulz
    Abstract: As barriers to international investment fall and technology improves, the cost advantages for a firm's securities to trade publicly in the country in which that firm is located and for that country to have a market for publicly traded securities distinct from the capital markets of other countries will progressively disappear. However, securities laws remain an important determinant of whether and where securities are issued, how they are valued, who owns them, and where they trade. The value of public firms depends on these laws, so that identical firms subject to different laws are likely to have different values. We show that mandatory disclosure through securities laws can decrease agency costs between corporate insiders and minority shareholders, but only provided the investors can act on the information disclosed and the laws cannot be weakened ex post too much through lobbying by corporate insiders. With financial globalization, national disclosure laws can have wide-ranging effects on a country's welfare, on firms and on investor portfolios, including the extent to which share holdings reveal a home bias. In equilibrium, if firms can choose the securities laws they are subject to when they go public, some firms will choose stronger securities laws than those of the country in which they are located and some firms will do the opposite. These effects of securities laws can be expected to become smaller if differences in national laws and their enforcement decrease and if the costs of private solutions to manage corporate agency conflicts that are substitutes for securities laws fall.
    JEL: F30 F36 G10 G15 G32
    Date: 2008–08
  21. By: Murray, Peter A.; Parr, Nick; Syed, Jawad
    Abstract: This paper tracks the representation of executive women at work. First, the paper discusses the significant deficit of female managers (ABS 2007a), and a marked decline of women professionals from their mid to late 30s. Significant differences in age and sex distributions are evident between different occupational groups, and discriminatory practices continue to play a role. We discuss the implications of these patterns. Second, the paper describes how labour management policies might address the more salient gender issues. Our findings suggest that while some common ‘old’ perceptions related to women apparently more suited to particular professions are slowly being reversed, better policies related to equal representation are required.
    Keywords: Gender; Executive women; Australia
    JEL: O15 J16
    Date: 2008

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