nep-bec New Economics Papers
on Business Economics
Issue of 2008‒10‒21
seventeen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Free Cash-Flow, Issuance Costs and Shock Price Volatility By DÉCAMPS, Jean-Paul; MARIOTTI, Thomas; ROCHET, Jean-Charles; VILLENEUVE, Stéphane
  2. Optimal Collusion under Cost Asymmetry By Miklos-Thal, Jeanine
  3. The Optimality of Simple Contracts: Moral Hazard and Loss Aversion By Fabian Herweg; Daniel Müller; Philipp Weinschenk
  4. Vertical specialization and international business cycle synchronization By Costas Arkolakis; Ananth Ramanarayanan
  5. Relative Performance Pay, Bonuses, and Job-Promotion Tournaments By Matthias Kräkel
  6. Are Firm Innovativeness and Firm Age Relevant for the Supply of Vocational Training? – A Study Based on Swiss Micro Data By Spyros Arvanitis
  7. Who Decides about Change and Restructuring in Organizations? By Kieron Meagher; Andrew Wait
  8. Swedish Listed Family Firms and Entrepreneurial Spirit By Bjuggren, Per-Olof; Palmberg, Johanna
  9. Learning-by-Exporting Revisited - the role of intensity and persistence By Andersson, Martin; Lööf, Hans
  10. Training Propensity of Start-ups in Switzerland - A Study Based on Data for the Start-up Cohort 1996-97 By Spyros Arvanitis; Tobias Stucki
  11. Negotiating remedies : revealing the merger efficiency gains By Cosnita, A.; Tropeano, J.P.
  12. Exchange Rate, Employment and Hours: What Firm-Level Data Say By Pozzolo, Alberto Franco; Nucci, Francesco
  13. Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets By Avi Goldfarb; Mo Xiao;
  14. Risk of Firm Closure and Wages in Brazil: Compensating Wage Dierentials or Bargaining Concessions? By Luiz A. Esteves
  15. Are There Waves in Merger Activity After All? By Dennis L. Gärtner; Daniel Halbheer
  16. CEO compensations in a stakeholders' regime : an empirical investigation with French listed companies By Cazavan-Jeny, Anne; Margaine, Julien; Missonier-Piera, Franck
  17. Train to gain – The benefits of employee-financed training in Germany By Harald U. Pfeifer

  1. By: DÉCAMPS, Jean-Paul; MARIOTTI, Thomas; ROCHET, Jean-Charles; VILLENEUVE, Stéphane
    JEL: G12 G35
    Date: 2008–09
  2. By: Miklos-Thal, Jeanine
    Abstract: Cost asymmetry is generally thought to hinder collusion because a more efficient firm has both more to gain from a deviation and less to fear from retaliation than less efficient firms. Our paper reexamines this conventional wisdom and characterizes optimal collusion without any prior restriction on the class of strategies. We first stress that firms can credibly agree on retaliation schemes that maximally punish even the most efficient firm. This implies that whenever collusion is sustainable under cost symmetry, some collusion is also sustainable under cost asymmetry; efficient collusion, however, remains more di¢ cult to sustain when costs are asymmetric. Finally, we show that, in the presence of side payments, cost asymmetry generally facilitates collusion.
    Keywords: horizontal collusion; cost asymmetry; optimal punishments; side payments
    JEL: L13 L41 C72
    Date: 2008
  3. By: Fabian Herweg; Daniel Müller; Philipp Weinschenk
    Abstract: This paper extends the standard principal-agent model with moral hazard to allow for agents having reference- dependent preferences according to Köszegi and Rabin (2006, 2007). The main finding is that loss aversion leads to fairly simple contracts. In particular, when shifting the focus from standard risk aversion to loss aversion, the optimal contract is a simple bonus contract, i.e. when the agent's performance exceeds a certain threshold he receives a fixed bonus payment. Moreover, if the agent is sufficiently loss averse, it is shown that the first-order approach is not necessarily valid. If this is the case the principal may be unable to fine-tune incentives. Strategic ignorance of information by the principal, however, allows to overcome these problems and may even reduce the cost of implementation.
    Keywords: Agency Model; Moral Hazard; Reference-Dependent Preferences; Loss Aversion
    JEL: D8 M1 M5
    Date: 2008–09
  4. By: Costas Arkolakis; Ananth Ramanarayanan
    Abstract: We explore the impact of vertical specialization--trade in goods across multiple stages of production--on the relationship between trade and international business cycle synchronization. We develop a model in which the degree of vertical specialization is endogenously determined by comparative advantage across heterogeneous goods and varies with trade barriers between countries. We show analytically that fluctuations in measured productivity in our model are not linked across countries through trade, despite the greater transmission of technology shocks implied by higher degrees of vertical specialization. In numerical simulations, we find this transmission is insufficient in generating substantial dependence of business cycle synchronization on trade intensity.
    Keywords: Business cycles ; International trade
    Date: 2008
  5. By: Matthias Kräkel
    Abstract: Several empirical studies have challenged tournament theory by pointing out that (1) there is considerable pay variation within hierarchy levels, (2) promotion premiums only in part explain hierarchical wage differences and (3) external recruitment is observable on nearly any hierarchy level. We explain these empirical puzzles by combining job-promotion tournaments with higher-level bonus payments in a two-tier hierarchy. Moreover, we show that under certain conditions the firm implements first-best effort on tier 2 although workers earn strictly positive rents. The reason is that the firm can use second-tier rents for creating incentives on tier 1. If workers are heterogeneous, the firm strictly improves the selection quality of a job-promotion tournament by employing a hybrid incentive scheme that includes bonus payments.
    Keywords: bonuses; external recruitment; job promotion; limited liability; tournaments
    JEL: D82 D86 J33
    Date: 2008–09
  6. By: Spyros Arvanitis (KOF, Swiss Economic Institute)
    Abstract: In this study we investigated the determinants (a) of the propensity of Swiss firms to train apprentices and (b) of the intensity of apprentice training as measured by the employment share of apprentices. Innovation, firm age and competition conditions on the product market are possible determining factors that are especially emphasized in this investigation. In a further step, we analyzed the impact of apprentice training on labour productivity when apprentice training is considered as an additional production factor in the framework of a production function. We found that the skill composition of the employment, innovation activities, firm age, labour costs, capital intensity, and competitive pressures all play a positive or negative role, even if not at the same extent, in determining the propensity and/or intensity of apprentice training. A further finding was that training propensity and/or training intensity correlate negatively with labour productivity.
    Keywords: start-ups, training, innovation, firm age
    JEL: J24 O30
    Date: 2008–09
  7. By: Kieron Meagher; Andrew Wait
    Abstract: We model the determinants of who makes decisions, the principal or an agent, when there are multiple decisions. Decision making takes effort and time; and, once implemented, the expected loss from a particular decision (or project) increases with the length of time since the last decision was made. The model shows delegation is more likely as: (i) controllable uncertainty increases; (ii) uncontrollable uncertainty decreases; (iii) the number of plants in the firm decreases; (iv) the complexity of the decision increases; and (v) the importance of the decision increases. The theoretical predictions are consistent with our novel empirical results on the delegation of major organizational change decisions using workplace data. Our unique data allows us to identify who made a decision to implement a significant change, as well as key internal and external factors highlighted as potentially important in our theory. Empirically, delegation is more likely in organizations that: face a competitive product market; export; have predictable product demand; have a larger workplace; and that have fewer other workplaces in the same organization producing a similar output. We find business strategy is not related to the allocation of decision making authority; delegation, however, is associated with the use of human resource techniques such as the provision of bonuses to employees.
    Keywords: decision making authority, decentralization, delegation, competition, exports, uncertainty, principal and agent
    JEL: D23 L23 L29
    Date: 2008–09
  8. By: Bjuggren, Per-Olof (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Palmberg, Johanna (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper investigates the entrepreneurial spirit in Swedish listed family firms. We associate family firms with entrepreneurship in the sense that there is an identifiable person that takes the uninsurable risk in the sense of Knight. This paper analysis two questions: Do entrepreneurial family firms have a higher rate of growth and do they invest in a more profit maximizing fashion than other listed firms? The analysis shows that entrepreneurial family firms in general are smaller in terms of market value and investments than non-family firms. Moreover, the entrepreneurial family firms are the ones that makes the most efficient investments.
    Keywords: Entrepreneurship; Corporate Governance; Family Firms; Investments; Firm Performance
    JEL: C23 G30 L25 L26
    Date: 2008–10–13
  9. By: Andersson, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Two not mutually exclusive hypotheses can explain the empirically established export premium: self-selection of more productive firms into export markets and learning-by-exporting. We reassess the learning-by-exporting hypothesis and maintain that the scope for learning is related to the persistence and the intensity of a firm’s exporting activity. Using a rich panel of Swedish manufacturing firms, we show that there is a causality going from exports to productivity only for persistent exporters with high export-intensity. No such relationship is found for either temporary exporters or persistent exporters with low export-intensity. Learning-by-exporting in the form of a causality going from exports to productivity only pertains to firms that persistently export a large fraction of their sales on a global scale. Results are robust to the inclusion of several firm characteristics such as imports, physical capital, firm size, skilled labour, capital structure, corporate ownership structure, and industry classification.
    Keywords: export productivity premium; learning-by-exporting; productivity dynamics; panel data; dynamic models; temporary and persistent exporters
    JEL: C16 F14 L25 O33
    Date: 2008–10–13
  10. By: Spyros Arvanitis (KOF, Swiss Economic Institute); Tobias Stucki (KOF, Swiss Economic Institute)
    Abstract: This study is based on data of a cohort of Swiss firms that were founded in 1996/97. In the year 2000 data were collected by means of a postal survey among those firms, which still existed by that time. In 2003 and 2006 two further surveys were conducted among the participants of the respective last study. In this study we analyzed, firstly, the determinants of the propensity to train apprentices of new firms and how they change with increasing firm age. Secondly, we investigated how a firm’s training propensity correlated with its labour productivity. To this end, we specified an equation for training propensity and an equation for labour productivity, which included as an additional production factor the endogenized propensity to train apprentices.
    Keywords: start-ups, training, innovation, firm age
    JEL: J24 O30
    Date: 2008–09
  11. By: Cosnita, A.; Tropeano, J.P.
    Abstract: This paper contributes to the economic analysis of merger control by taking into account the efficiency gains for the design of structural merger remedies when the competition authorities do not observe the magnitude of efficiency gains. We show that whenever divestitures are necessary, the Competition Authority will need to extract from the merging partners their private information on the merger’s efficiency gains. For this we propose a revelation mechanism combining divestitures with two additional tools, the regulation of the divestitures sale price and a merger fee. We show that an optimal combination of both instruments is effective: the most efficient merged firms are claimed to pay a merger fee while the less efficient divest asets at an upwards distorted sale price.
    JEL: L41 D82 K21
    Date: 2008
  12. By: Pozzolo, Alberto Franco; Nucci, Francesco
    Abstract: Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on the firm's exposure to foreign sales and its reliance on imported inputs. Further, we show that, for given international orientation, the response to exchange rate fluctuations is magnified when firms exhibit a lower monopoly power and when they face foreign pressure in the domestic market through import penetration. The degree of substitutability between imported and other inputs and the distribution of workers by type introduce additional degrees of specificity in the employment sensitivity to exchange rate swings. Further, wage adjustments are also shown to provide a channel through which firms react to currency shocks. Finally, gross job flows within the firm are found to depend on exchange rate fluctuations, although the effect on job creation is predominant.
    Keywords: Employment, Exchange Rate, Firm's Foreign Exposure
    JEL: E24 F16 F31
    Date: 2008–10–13
  13. By: Avi Goldfarb (Rotman School of Management, University of Toronto); Mo Xiao (Eller College of Management, University of Arizona);
    Abstract: This paper examines how manager and firm characteristics relate to entry decisions in US local telephone markets. To do so, it develops a structural econometric model that allows managers to be heterogeneous in their ability to correctly conjecture competitor behavior. The model adapts Camerer, Ho, and Chong’s (2004) Cognitive Hierarchy model to a real-world setting. We observe the industry in 1998, shortly after the Telecommunications Act of 1996 opened up the market. We find that older firms with older, more experienced managers have higher estimated levels of strategic ability. Managers with degrees in economics or business, and managers with graduate degrees, also have higher estimated levels of strategic ability. We find no evidence that university quality is related to ability. We repeat this exercise using data from 2000, 2002, and 2004. While the core results do not change, the overall level of measured strategic ability increases substantially by 2004. The estimates of strategic ability are also correlated with survival: those firms with lower estimated levels of ability are more likely to exit the industry early.
    Keywords: entry games, behavioral industrial organization, cognitive hierarchy, CLECs, local telephone competition
    JEL: L96 L20 C72
    Date: 2008–10
  14. By: Luiz A. Esteves (Universidade Federal do Paraná and Università di Siena)
    Abstract: The economic theory proposes two hypotheses for the relationship between wages and risk of job loss due to rm (or plant) closure. The rst hypothesis posits that workers at greater risk should be compensated by higher wages. This is known as the theory of compensating wage diferentials. The second hypothesis states that workers at rms with a greater risk of closure would be willing to exchange higher wages for longer-term stability in the job. This is known as the theory of bargaining concessions. There is a paucity of empirical studies on this issue, and the results have been inconsistent. The aim of this paper is to provide evidence for the Brazilian manufacturing industry. To accomplish that, diferent risk measures, diferent databases, and dierent econometric methods are used. All the tests performed in this study conrm the theory of compensating wage diferentials.
    Keywords: exit; bankruptcy; severance payments; insolvency; wage determination
    JEL: C31 C33 J30 G10 G33 L25 L60
    Date: 2008
  15. By: Dennis L. Gärtner (Socioeconomic Institute, University of Zurich); Daniel Halbheer (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper investigates the merger wave hypothesis for the US and the UK employing a Markov regime switching model. Using quarterly data covering the last thirty years, for the US, we identify the beginning of a merger wave in the mid 1990s but not the much-discussed 1980s merger wave. We argue that the latter finding can be ascribed to the refined methods of inference offered by the Gibbs sampling approach. As opposed to the US, mergers in the UK exhibit multiple waves, with activity surging in the early 1970s and the late 1980s.
    Keywords: MergerWaves; Markov Regime Switching Regression Model; Gibbs Sampling
    JEL: G34 C32 C11 C15
    Date: 2008
  16. By: Cazavan-Jeny, Anne (ESSEC Business School); Margaine, Julien (ESSEC Business School); Missonier-Piera, Franck (EM-Lyon Business School)
    Abstract: Ces dernières années, la publication du niveau de rémunération des dirigeants a soulevé d’intenses controverses. Un certain nombre d’études ont mis en évidence une relation positive entre le salaire des dirigeants et la performance de la société, aux Etats-Unis et en Grande- Bretagne. La rémunération des dirigeants est également proche de la structure du gouvernement d’entreprise. Or la structure française de gouvernement d’entreprise est différente de celle observée aux États-Unis ou en Grande-Bretagne. En France, la tradition voulait que l’on ne divulgue pas ou peu d’information sur le niveau de rémunération des dirigeants. Cependant depuis 2002, les sociétés cotées doivent indiquer dans leurs rapports annuels le montant des rémunérations des dirigeants et des membres du conseil d’administration. (loi NRE, 15 mai 2001). A partir d’un échantillon de 110 sociétés cotées françaises sur la période 2002-2004 (indice SBF 120), l’objet de cette recherche est d’apporter des éclairages sur la rémunération des dirigeants dans un pays connu pour être plutôt conservateur sur le sujet. Pour étudier les déterminants de la rémunération des dirigeants, nous avons utilisé trois mesures de cette rémunération : la partie fixe du salaire, le bonus annuel et la rémunération globale. Les premiers résultats montrent que les trois mesures de la rémunération des dirigeants peuvent être expliquées par la taille de la société, et la partie variable (bonus) par la performance boursière. Les résultats sur le risque sont plus mitigés et indiquent que le risque spécifique de la firme est négativement associé à la rémunération des dirigeants, ce qui confirme les résultats de Gray et Cannela (1997). Enfin, les variables de gouvernance ont un impact significatif sur le niveau de rémunération des dirigeants.
    Keywords: CEO compensation; Corporate governance; Performance
    JEL: G35 M41
    Date: 2008–07
  17. By: Harald U. Pfeifer (Federal Institute for Vocational Education and Training, Bonn)
    Abstract: Individual returns on continuing vocational training have been in the focus of many empirical and theoretical papers. Most of the works do not explicitly discuss returns to training that is financed fully or partly by the employee. This seems surprising since several publicly funded programs to increase training participation aim at a stronger employee involvement in the financing of continuing vocational training. This paper analyses the participation in and the determinants and effects of employee-financed training using German panel data. The question is addressed, which employees invest and which benefit from training. Results show that employee-investment in training yields only moderate wage returns and has no significant impact on the further career development, especially when compared to the effects of enterprise-financed training. On the other hand, employees financing their own training gain in terms of unemployment risk reduction and the improvement in the matching of individual skills and job requirements.
    Keywords: Human Capital; Skills; Occupational Choice; Labor Productivity
    JEL: J24
    Date: 2008–10

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