nep-bec New Economics Papers
on Business Economics
Issue of 2008‒10‒13
nineteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Growth Processes of Italian Manufacturing Firms By Alex Coad; Rekha Rao; Federico Tamagni
  2. Firm Training and Wage Rigidity By Wolfgang Lechthaler
  3. Wage Rigidity and Job Creation By Haefke, Christian; Sonntag, Marcus; van Rens, Thijs
  4. How Working Time Reduction Affects Employment and Earnings By Raposo, Pedro; van Ours, Jan C.
  5. Gender Differences in Business Performance: Evidence from the Characteristics of Business Owners Survey By Fairlie, Robert W.; Robb, Alicia M.
  6. Multinational Firms and Heterogeneous Workers By Mario Larch; Wolfgang Lechthaler
  7. Modern Management: Good for the Environment or just Hot Air? By Nicholas Bloom; Christos Genakos; Ralf Martin; Raffaella Sadun
  8. The Impact of Financial Structure on Firms' Financial Constraints: A Cross-Country Analysis By Christopher F. Baum; Dorothea Schaefer; Oleksandr Talavera
  9. Identifying Adjustment Costs of Net and Gross Employment Changes By Ejarque, Joao; Nilsen, Øivind Anti
  10. Human Capital Externalities with Monopsonistic Competition By Kaas, Leo
  11. Accounting for Productivity Growth When Technical Change is Biased By James Bessen
  12. Do Corporate Taxes Reduce Productivity and Investment at the Firm Level?: Cross-country Evidence from the Amadeus Dataset By Cyrille Schwellnus; Jens Arnold
  13. Organizational Innovations and Labor Productivity in a Panel of Italian Manufacturing Firms. By Federico Biagi; Maria Laura Parisi; Lucia Vergano
  14. Minimum Quality Standards and Equilibrium Selection with Asymmetric Firms. By Olivier Bonroy; Christos Constantatos
  15. Productivity growth and technological change in Europe and the U.S. By Diego Martínez; Jesús Rodríguez-López; José L. Torres
  16. A theoretical analysis of the relationship between social capital and corporate social responsibility: concepts and definitions By Lorenzo Sacconi; Giacomo Degli Antoni
  17. Tournaments and Managerial Incentives in China's Listed Firms: New Evidence By Kato, Takao; Long, Cheryl
  18. The Intranational Business Cycle: Evidence from Japan By Michael Artis; Toshihiro Okubo
  19. Against Intellectual Monopoly By Michele Boldrin; David K Levine

  1. By: Alex Coad; Rekha Rao; Federico Tamagni
    Abstract: We propose a multidimensional empirical analysis of the growth processes of firms, focusing on the coevolution of employment growth, sales growth, growth of profits and labour productivity growth. Based on firm level data about Italian manufacturing firms, 1989-1997, we apply a reduced-form vector autoregression model to analyze the lead-lag associations between the different dimension of firm growth. Findings suggest that employment growth precedes sales growth and growth of profits, and that sales growth is also associated with subsequent profits growth. There appears to be little feedback of either sales or profits on employment growth, however, and there is no clear association of employment, sales or profits growth with subsequent changes in labour productivity. Productivity growth, in turn, is more strongly associated with subsequent growth of profits than it does with subsequent growth of either employment or sales. Growth of profits, therefore, tends to represent the absorbing dimension of the overall processes of firm growth. Quantile regressions reveal asymmetries between growth processes for growing and shrinking firms.
    Keywords: Household Consumption Expenditure, Budget Shares, Sum of Log-Normal Distributions
    Date: 2008–10–02
  2. By: Wolfgang Lechthaler
    Abstract: Although wage rigidity is among the most prominent subjects in modern economics, its effects on wage compression and firm training have thus far not been considered. This paper is trying to bridge this gap by using a simple two period model which can still by analyzed analytically. I am able to show that wage rigidity increases wage compression. However, contrary to previous work this is not sufficient to increase firms' training investments. The reason lies in the endogeneity of separations, which become more frequent
    Keywords: Human Capital, Wage Rigidity, Training
    JEL: J24 J31 M53
    Date: 2008–10
  3. By: Haefke, Christian (IHS - Institute for Advanced Studies, Vienna); Sonntag, Marcus (University of Bonn); van Rens, Thijs (Universitat Pompeu Fabra)
    Abstract: Standard macroeconomic models underpredict the volatility of unemployment fluctuations. A common solution is to assume wages are rigid. We explore whether this explanation is consistent with the data. We show that the wage of newly hired workers, unlike the aggregate wage, is volatile and responds one-to-one to changes in labor productivity. In order to replicate these findings in a search model, it must be that wages are rigid in ongoing jobs but flexible at the start of new jobs. This form of wage rigidity does not affect job creation and thus cannot explain the unemployment volatility puzzle.
    Keywords: wage rigidity, search and matching model, business cycle
    JEL: E24 E32 J31 J41 J64
    Date: 2008–09
  4. By: Raposo, Pedro (Tilburg University); van Ours, Jan C. (Tilburg University)
    Abstract: December 1, 1996 Portugal introduced a new law on working hours which gradually reduced the standard workweek from 44 hours to 40 hours. We study how this mandatory working hours reduction affected employment and earnings of workers involved. We find for workers who were affected by the new law that working hours decreased, while hourly wages increased, keeping monthly earnings approximately constant. We also find that the working hours reduction did not lead to an increased job loss of workers directly affected. Finally, we find that workers who themselves were not directly affected were influenced by the working hours reduction indirectly. If they worked in a firm with many workers working more than 40 hours before the change in law was introduced.
    Keywords: workweek reduction, policy reform, employment dynamics, earnings
    JEL: J22 J31 J63 J81
    Date: 2008–09
  5. By: Fairlie, Robert W. (University of California, Santa Cruz); Robb, Alicia M. (University of California, Santa Cruz)
    Abstract: Using confidential microdata from the U.S. Census Bureau, we investigate the performance of female-owned businesses making comparisons to male-owned businesses. Using regression estimates and a decomposition technique, we explore the role that human capital, especially through prior work experience, and financial capital play in contributing to why female-owned businesses have lower survival rates, profits, employment and sales. We find that female-owned businesses are less successful than male-owned businesses because they have less startup capital, and business human capital acquired through prior work experience in a similar business and prior work experience in family business. We also find some evidence that female-owned businesses work fewer hours and may have different preferences for the goals of their business.
    Keywords: female entrepreneurship, business outcomes
    JEL: J15 L26
    Date: 2008–09
  6. By: Mario Larch; Wolfgang Lechthaler
    Abstract: In the presence of increasing specialization of workers it becomes more and more difficult for firms to find the most suitable workers. In such an environment a multinational corporation has an advantage because it can exchange workers between plants in different countries. In this way it can draw on a larger labor market pool, reducing the mismatch of its workforce. This paper analyzes the consequences of this advantage for production, employment and, most prominently, wages. We are able to disentangle the effects of worker heterogeneity and firm heterogeneity on wages and show that the latter is important to explain why multinationals typically pay higher wages
    Keywords: Heterogeneous labor; Multinational, firms; Intra-wage distribution; Heterogeneous firms
    JEL: F23 F12 J41
    Date: 2008–10
  7. By: Nicholas Bloom; Christos Genakos; Ralf Martin; Raffaella Sadun
    Abstract: We use an innovative methodology to measure management practices in over 300 manufacturing firms in the UK. We then match this management data to production and energy usage information for establishments owned by these firms. We find that establishments in better managed firms are significantly less energy intensive. They use less energy per unit of output, and also in relation to other factor inputs. This is quantitatively substantial: going from the 25th to the 75th percentile of management practices is associated with a 17.4% reduction in energy intensity. This negative relationship is robust to a variety of controls for industry, location, technology and other factor inputs. Better managed firms are also significantly more productive. One interpretation of these results is that well managed firms are adopting modern lean manufacturing practices, which allows them to increase productivity by using energy more efficiently. This suggests that improving the management practices of manufacturing firms may help to reduce greenhouse gas emissions.
    JEL: L26 L6 M11 M12 Q40 Q41
    Date: 2008–10
  8. By: Christopher F. Baum (Boston College; DIW Berlin); Dorothea Schaefer (DIW Berlin); Oleksandr Talavera (DIW Berlin)
    Abstract: We estimate firms' cash flow sensitivity of cash to empirically test how the financial system's structure and activity level influence their financial constraints. For this purpose we merge Almeida et al. (2004), a path-breaking new design for evaluating a firm's financial constraints, with Levine (2002), who paved the way for comparative analysis of financial systems around the world. We conjecture that a country's financial system, both in terms of its structure and its level of development, influences the cash flow sensitivity of cash of constrained firms but leaves unconstrained firms unaffected. We test our hypothesis with a large international sample of 80,000 firm-years from 1989 to 2006. Our findings reveal that both the structure of the financial system and its level of development matter. Bank-based financial systems provide the constrained firms with easier access to external financing.
    Keywords: financial constraints, financial system, cash flow sensitivity of cash
    JEL: G32 G30
    Date: 2008–10–08
  9. By: Ejarque, Joao (University of Essex); Nilsen, Øivind Anti (Norwegian School of Economics and Business Administration)
    Abstract: A relatively unexplored question in dynamic labour demand regards the source of adjustment costs, whether they depend on net or gross changes in employment. We estimate a structural model of dynamic labour demand where the firm faces adjustment costs related to gross and net changes in its workforce. We focus on matching quarterly moments of hiring and of net changes in employment from a panel of establishments. The main component of adjustment costs in our panel is quadratic adjustment costs to gross changes in employment. We also estimate that adjustment costs have a large economic cost, roughly cutting the value of our establishments in half.
    Keywords: employment, adjustment costs, establishment level data, structural estimation
    JEL: C33 C41 E24 J23
    Date: 2008–09
  10. By: Kaas, Leo (University of Konstanz)
    Abstract: This paper provides a novel microeconomic foundation for pecuniary human capital externalities in a labor market model of monopsonistic competition. Multiple equilibria arise because of a strategic complementarity in investment decisions.
    Keywords: externalities, human capital, multiple equilibria
    JEL: D43 J24
    Date: 2008–09
  11. By: James Bessen (Research on Innovation, Boston University School of Law)
    Abstract: Solow (1957) decomposed labor productivity growth into two components that are independent under Hicks neutrality: input growth and the residual, representing technical change. However, when technical change is Hicks biased, input growth is no longer independent of technical change, leading to ambiguous interpretation. Using Solow’s model, I decompose output per worker into globally independent sources. Adding a simple calculation to Solow’s framework, I show that technical bias directly contributes to labor productivity growth above what is captured in the Solow residual. This contribution is sometimes large, leading to rates of total technical change that substantially exceed the Solow residual.
    Date: 2008
  12. By: Cyrille Schwellnus; Jens Arnold
    Abstract: This paper uses a stratified sample of firms across OECD economies over the period 1996-2004 to analyse the effects of corporate taxes on productivity and investment. Applying a differences-in-differences estimation strategy which exploits differential effects of corporate taxes on firms with different profitability, it is found that corporate taxes have a negative effect on productivity at the firm level. The effect is negative across firms of different size and age classes except for the small and young, which may be attributable to the relatively low profitability of small and young firms. The negative effect of corporate taxes is particularly pronounced for firms that are catching up with the technological frontier. In the investment analysis, the results suggest that corporate taxes reduce investment through an increase in the user cost of capital. This may partly explain the negative productivity effects of corporate taxes if new capital goods embody technological change. <P>Les impôts sur le revenu des sociétés réduisent-ils la productivité et l’investissement des firmes? <BR>Ce papier utilise un échantillon stratifié de firmes issues des pays de l’OCDE sur la période 1996-2004 pour analyser les effets de l’imposition des sociétés sur la productivité et l’investissement. En appliquant une stratégie d’estimation par différences-en-différences qui exploite des effets différentiels de l’imposition sur des firmes avec de différents niveaux de profitabilité, il s’avère que les impôts sur le revenu des sociétés ont un effet négatif sur la productivité des firmes. L’effet est négatif pour les firmes de toutes classes d’emploi et d’âge excepte pour les firmes à la fois petites et jeunes, ce qui peut être attribuable à la profitabilité relativement faible des firmes à la fois petites et jeunes. L’effet négatif de l’imposition est particulièrement fort pour les firmes qui sont en train de s’approcher à la frontière technologique. L’analyse de l’investissement indique que l’imposition des sociétés réduit l’investissement par une augmentation du coût du capital. Ceci expliquerait une partie des effets négatifs sur la productivité si les nouveaux biens de capital incorporent le progrès technologique.
    JEL: D21 D24 E22 E62 H25 H32
    Date: 2008–09–30
  13. By: Federico Biagi; Maria Laura Parisi; Lucia Vergano
    Abstract: We study determinants of the probability of introducing an organizational innovation using three large cross sections of Italian manufacturing firms in the period 1995-2003. We analyze the effect and complementarity of other types of investments, like ICT, R&D, human and physical capital and the adoption of product or process innovations. Furthermore, we estimate the effect of introducing organizational innovations and indirectly technical innovations on the growth rate of labor productivity for the unbalanced panel of firms. Disembodied technological change is well represented by OIs, while product innovations seem to heve an effect on the efficiency of capital inputs only (capital stock-embodied technical change). Process innovations do not have a statistical impact as an indirect input-efficiency driving force, in our data.
    Date: 2008
  14. By: Olivier Bonroy (GAEL, INRA—Pierre Mendes France University); Christos Constantatos (Department of Economics, University of Macedonia)
    Abstract: In a vertically differentiated market with cost asymmetries, the risk dominance criterion selects the equilibrium where the high quality is produced by the efficient firm. We show that a sufficiently high MinimumQuality Standard reverses equilibrium selection. Hence, MQS may be used in order to increase a domestic firm’s profit at the expense of a more efficient foreign rival. This produces higher domestic and lower world welfare. Since the protectionist impact of MQS comes through equilibrium targeting rather than directly affecting equilibrium outcomes, it cannot be easily detected.
    Keywords: Vertical product differentiation, Minimum quality standards, Equilibrium selection, Protectionism.
    JEL: L13 L5 F13
    Date: 2008–10
  15. By: Diego Martínez (Universidad Pablo de Olavide); Jesús Rodríguez-López (Universidad Pablo de Olavide); José L. Torres (Universidad de Málaga)
    Abstract: This paper presents an evaluation on the technological sources of labor productivity growth across European countries and the US economy for the period 1980-2004. Assets of capital are divided into those related to the information and communication technologies (ICT), and non-ICT assets. Technological progress is divided into neutral change and investment specific change. Previous exercises have aimed at ICT as a serious contributor to the upsurge of US productivity from 1995 on. Contribution to productivity growth from each type of technological progress for the US and EU-15 countries is computed using two different approaches: a growth accounting and a general equilibrium. The US and Denmark are the countries with the larger contribution from ICT-technological progress. Overall, we find that Europe is well behind the US in terms of the effects of ICT technological change.
    Keywords: Productivity growth, Investment-specific technological change, Neutral technological change
    JEL: O4
    Date: 2008–10
  16. By: Lorenzo Sacconi; Giacomo Degli Antoni
    Abstract: The paper studies the relationship between social capital (SC) and Corporate Social Responsibility (CSR) by investigating the idea of a virtuous circle, between the level of SC and the implementation of CSR practices, that fosters socio-economic development by generating social inclusion and social networks based on trust and trustworthiness. Following the literature on SC that stresses its multidimensional character, both a cognitive and a structural idea of SC are considered. The first one essentially refers to the dispositional characters of agents that affect their propensity to behave in different ways. The latter refers to social networks connecting agents. With regard to the concept of CSR, a contractarian approach is adopted and CSR is considered as an extended model of corporate governance, based on the fiduciary duties owed to all the firm’s stakeholders. Among stakeholders, a original distinction between “strong” and “weak” stakeholders is introduced. The key element that allows to distinguish between strong and weak stakeholders concerns the consequences that the break in the relationship with the firm produces both on the stakeholder and on the firm. Both these two categories have made specific investments in the firm. However, strong stakeholders are precious for the firm because they bring in strategic assets. On the contrary, weak stakeholders do not bring strategic assets into the firm and firms have material incentives at defecting in the relationship with them. Considering the notions of cognitive and structural SC, a contractarian approach to CSR and the distinction between weak and strong stakeholders, the paper shows that: a) the level of cognitive SC plays a key role in inducing the firm to adopt and observe CSR practices that respect all the stakeholders; b) the decision of adopting formal instruments of CSR contributes to create cognitive SC that is endogenously determined in the model; c) the level of cognitive SC and the decision of adopting CSR practices creates structural SC in terms of a long term relationship between the firm and the weak and strong stakeholders.
    Keywords: Social capital, Corporate Social Responsibility, Social network, Ideal utility, Cooperation, Trust.
    Date: 2008
  17. By: Kato, Takao (Colgate University); Long, Cheryl (Colgate University)
    Abstract: The promotion tournament as a potentially important incentive mechanism for top management in transition economies has not been examined by the emerging literature on managerial incentives in transition economies. This paper is the first attempt to fill this important gap in the literature. The paper begins with modifying the previously-derived empirical predictions from the tournament theory to the context of transition economies in which state ownership still plays a significant role in publicly-traded firms. Specifically, we test the following two hypotheses. First, the winner's prize will need to increase in order to prevent each contestant from lowering his/her effort level in the face of expanding contestant pool. Such an optimal response of the winner's prize to the size of the contestant pool is more evident for China's listed firms that are less controlled by the state. Second, the winner's prize will also need to rise in order to prevent each contestant from reducing his/her effort level in the face of greater market volatility (or more noise in performance measure used to decide on the tournament winner). Using comprehensive financial and accounting data on China's listed firms from 1998 to 2002, augmented by unique data on executive compensation and ownership structure, we find evidence in support of both hypotheses. Finally, we also find evidence suggesting that an increase in the winner's prize will result in enhanced managerial effort and hence improved firm performance, and that the performance effect of the winner's prize is greater for China's listed firms that are less controlled by the state. As such this paper provides yet another piece of evidence that ownership restructuring may be needed for China to successfully transform its SOEs to efficient modernized corporations and reform its overall economy.
    Keywords: tournaments, managerial incentives, ownership structure, China, transition economies
    JEL: M51 P3
    Date: 2008–09
  18. By: Michael Artis (Institute for Political and Economic Governance, Manchester University); Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper studies the intranational business cycle - that is the set of regional (prefecture) business cycles - in Japan. One reason for choosing to examine the Japanese case is that long time series and relatively detailed data are available. A Hodrick-Prescott filter is applied to identify the cycles in annual data from 1955 to 1995 and bilateral cross-correlation coefficients are calculated for all the pairs of prefectures. Comparisons are made with similar sets of bilateral cross correlation coefficients calculated for the States of the US and for the member countries of a "synthetic Euro Area". The paper then turns to an econometric explanation of the cross-correlation coefficients (using Fisher's z-transform), in a panel data GMM estimation framework. An augmented gravity model provides the basic model for the investigation, whilst the richness of the data base also allows for additional models to be represented.
    Keywords: Intranational business cycle, Hodrick-Prescott filter, Optimal Currency Area, Gravity Model, Market potential, Heckscher Ohlin theorem
    JEL: E32 F41 R11
    Date: 2008–01
  19. By: Michele Boldrin; David K Levine
    Date: 2008–10–04

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