nep-bec New Economics Papers
on Business Economics
Issue of 2008‒11‒18
24 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Self-Enforcing Stochastic Monitoring and the Separation of Debt and Equity Claims By Harold L. Cole
  2. Outsourcing when Investments are Specific and Complementary By Alla Lileeva; Johannes Van Biesebroeck
  3. The Strategic Determinants of Tardy Entry: Is Timeliness Next to Godliness? By Berchicci, L.; King, A.A.; Tucci, C.L.
  4. Do Corporate Taxes Reduce Productivity and Investment at the Firm Level? Cross-Country Evidence from the Amadeus Dataset By Jens Arnold; Cyrille Schwellnus
  5. Opening the Black Box: Structural Factor Models with Large Cross-Sections By Mario Forni; Domenico Giannone; Marco Lippi; Lucrezia Reichlin
  6. In what sense do firms evolve? By Bart Nooteboom
  7. Firm Heterogeneity and Choice of Ownership Structure: An Empirical Analysis of German FDI in India By Holger Görg; Verena Lauber; Birgit Meyer; Peter Nunnenkamp
  8. Capital Structure and Debt Structure By Joshua D. Rauh; Amir Sufi
  9. Why the European Securities Market is Not Fully Integrated By Alberto Giovannini
  10. Determinants of domestic and cross-border bank acquisitions in the European Union By Ignacio Hernando; María J. Nieto; Larry Wall
  11. Current Account Adjustment and Financial Integration By Pascal Towbin
  12. The dynamics of combining self-employment and employment By Delmar, Frédéric; Folta, Timothy; Wennberg, Karl
  13. International Taxation and Multinational Firm Location Decisions By Salvador Barrios; Harry Huizinga; Luc Laeven; Gaëtan Nicodème
  14. Domestic R&D Employment Effects of Offshoring R&D Tasks: Some Empirical Evidence from Finland By Jyrki Ali-Yrkkö; Matthias Deschryvere
  15. Riskiness, Risk Aversion, and Risk Sharing: Cooperation in a Dynamic Insurance Game By Sarolta Laczó
  16. Exchange Options Under Jump-Diffusion Dynamics By Gerald H. L. Cheang; Carl Chiarella
  17. Ownership, Dividends, R&D and Retained Earnings - are institutional owners short-term oriented? By Wiberg, Daniel
  18. Progress or Devastation? The Effects of Ethanol Plant Location on Local Land Use By Turnquist, Alan; Fortenbery, T. Randall; Foltz, Jeremy
  19. Estimating the wage penalty for maternal leave By Buligescu Bianca; Crombrugghe Denis de; Mentesoglu Gülcin; Montizaan Raymond
  20. RESTAURANT PRICES AND THE MINIMUM WAGE By Fougere, Denis; Gautier, Erwan; Le Bihan, Herve
  21. Oil price Dynamics and Speculation. A Multivariate Financial Approach By Giulio Cifarelli; Giovanna Paladino
  22. Are Minimum Quality Standards Acting as Nontariff Trade Barriers? By Saitone, Tina L.
  23. The Child Penalty - What about Job Amenities? By Christina Felfe
  24. Globalization and innovation in emerging markets By Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell

  1. By: Harold L. Cole
    Abstract: This paper studies the incentive issues associated with self-enforcing stochastic monitoring in a model of investment and production. The efficient contract features a debt-like payment with a threshold in terms of the reported output in which all of the reported output is taken up to the threshold if monitoring doesn't occur and all of the output is taken if monitoring does occur. An output report above the threshold leads to zero probability of monitoring and just the threshold amount being paid out. The efficiency gap between the self-enforcing contract and the commitment constraint is minimized when the monitors hold no part of the residual claim on the firm, which we associate with equity. Misreporting by the manager is an important component of the efficient contract.
    JEL: G3
    Date: 2008–11
  2. By: Alla Lileeva; Johannes Van Biesebroeck
    Abstract: Using the universe of large Canadian manufacturing firms in 1988 and 1996, we investigate to what extent outsourcing decision can be explained by a simple property rights model. The unique availability of disaggregate information on outputs as well as inputs permits the construction of a very detailed measure of vertical integration. We also construct five different measures of technological intensity to proxy for investments that are likely to be specific to a buyer-seller relationship. A theoretical model that allows for varying degrees of investment specificity and for complementarities---an externality between buyer and supplier investments---guides the analysis. Our main findings are that (i) greater specificity makes outsourcing less likely; (ii) complementarities between the investments of the buyer and the seller are also associated with less outsourcing; (iii) property rights predictions on the link between investment intensities and optimal ownership are only supported for transactions with low complementarities. High specificity and a low risk of appropriation strengthen the predictions in the model and in the data.
    JEL: D23 L14
    Date: 2008–11
  3. By: Berchicci, L.; King, A.A.; Tucci, C.L. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Previous research has considered extensively the causes and effects of market entry order and timing. It has neglected, however, the timeliness of such entry — the degree to which a firm delivered a new product on the date it had set for its release. In this article, we begin to fill the need for such research by evaluating some strategic explanations for why a firm might miss a scheduled entry date. We then test whether such “tardy entry†influences sales performance in the new market.
    Keywords: entry timing;new products;disk drive industry;reputation;managerial disfunction
    Date: 2008–11–04
  4. By: Jens Arnold; Cyrille Schwellnus
    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.
    Keywords: Productivity; growth; corporate income tax; firm level data; fiscal policy
    JEL: D21 D24 E22 E62 H25 H32
    Date: 2008–09
  5. By: Mario Forni; Domenico Giannone; Marco Lippi; Lucrezia Reichlin
    Abstract: This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We argue that all identification schemes employed in SVAR analysis can be easily adapted in dynamic factor models. Moreover, the “problem of fundamentalness”, which is intractable in structural VARs, can be solved, provided that the impulse-response functions are sufficiently heterogeneous. We provide consistent estimators for the impulse-response functions, as well as (n, T) rates of convergence. An exercise with US macroeconomic data shows that our solution of the fundamentalness problem may have important empirical consequences.
    Keywords: Dynamic factor models, structural VARs, identification, fundamentalness
    JEL: E0 C1
    Date: 2008
  6. By: Bart Nooteboom
    Abstract: Does evolutionary theory help, for a theory of the firm, or, more widely, a theory of organization? In this paper I argue that it does, to some but also limited extent. Evolutionary theories of economies, and of culture, have acquired considerable following, but have also been subject to considerable criticism. Most criticism has been aimed at inappropriate biological analogies, but recently it has been claimed that a 'universal Darwinism', purged of all such mistaken analogy, is both useful and viable. Why should we try to preserve evolutionary theory, and will such theory stand up to sustained critical analysis? How useful is it for theory of the firm? Evolutionary theory appears to be the most adequate theory around for solving the problem of agency and structure, avoiding both an overly rational, managerial 'strategic choice' view of organizations and a 'contingency' view of organizations as fully determined by their environment. Whether universal Darwinism stands up to critical analysis remains to be seen. Here, the focus is on evolutionary theory of organization and of knowledge. Use is made of a constructivist 'embodied cognition' view of cognition and of elements of a cognitive theory of the firm.
    Keywords: Length 33 pages
    Date: 2008–11
  7. By: Holger Görg; Verena Lauber; Birgit Meyer; Peter Nunnenkamp
    Abstract: We contribute to the nascent literature on the heterogeneity of multinational enterprises (MNEs) and the relevance of firm characteristics for analyzing the determinants of outward foreign direct investment (FDI). The focus is on the role of firm-level heterogeneity when MNEs decide on the share of ownership in foreign affiliates. We combine two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates. The impact of firm characteristics on ownership shares is assessed in the context of OLS and fractional logit models, controlling for industry and location characteristics. We show that the effect of several characteristics differs between the establishment of new affiliates by German MNEs and their engagement in already existing Indian firms. Most notably, the productivity of the German parents matters only for ownership shares in new affiliates
    Keywords: multinational enterprises, firm characteristics, Indian locations, German FDI; ownership share; climate change, financial crises, the world trading system, oil supplies, immigration
    JEL: F23 L25
    Date: 2008–11
  8. By: Joshua D. Rauh; Amir Sufi
    Abstract: Using a novel data set that records individual debt issues on the balance sheet of a large random sample of rated public firms, we show that a recognition of debt heterogeneity leads to new insights into the determinants of corporate capital structure. We first demonstrate that traditional capital structure studies that ignore debt heterogeneity miss a substantial fraction of capital structure variation. We then show that relative to high credit quality firms, low credit quality firms are more likely to have a multi-tiered capital structure consisting of both secured bank debt with tight covenants and subordinated non-bank debt with loose covenants. Further, while high credit quality firms enjoy access to a variety of sources of discretionary flexible sources of finance, low credit quality firms rely on tightly monitored secured bank debt for liquidity. We discuss the extent to which these findings are consistent with existing theoretical models of debt structure in which firms simultaneously use multiple debt types to preserve manager and creditor incentives.
    JEL: G21 G30 G32 M41
    Date: 2008–11
  9. By: Alberto Giovannini
    Abstract: I describe the challenge of fully integrating securities markets in Europe by integrating the clearing and settlement functionalities. The initial condition is characterized by a multitude of standards, conventions, regulation and laws, which are inconsistent with a barrier-free post-trading environment. In addition, the current providers of post-trading services are mostly for-profit monopolies. The EU reform strategy is discussed in detail, and its performance so far is assessed. I argue that the special features of the post-trading industry may help understand the disappointing progress so far.
    JEL: F3 F36 F59 G15 G2
    Date: 2008–11
  10. By: Ignacio Hernando (Banco de España); María J. Nieto (Banco de España); Larry Wall (Federal Reserve Bank of Atlanta)
    Abstract: This paper analyzes the determinants of bank acquisitions both within and across countries in the EU-25 over the period 1997-2004. The findings of this paper are broadly in line with those of the academic literature on the subject, which are mainly based on the US experience. Our results suggest poorly managed EU-25 banks (high cost to income) are more likely to be acquired by other EU-25 banks, in the same country. Nevertheless, this underperformance of target banks does hold for cross border bank acquisitions only if compared to the median of the market. Larger banks are more likely to be acquired by other banks in the same country. The probability of being acquired by another bank in the same market is larger for banks that are quoted in the stock market, which is consistent with the disciplinary character of listing in the stock markets. Finally, banks operating in more concentrated markets are less likely to be acquired by other banks operating within the same country but are more likely to be acquired by banks in other EU-25 countries.
    Keywords: bank acquisitions, merger gains, probability of acquisition
    JEL: G21 G34
    Date: 2008–11
  11. By: Pascal Towbin (IUHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: The paper investigates whether higher financial integration leads in general to slower current account adjustments. The study estimates theoretically founded trade balance reaction functions for a panel of seventy countries from 1970-2004. The empirical analysis finds that adjustment in integrated economies is slower. Consistent with the presented theory the trade balance of integrated economies is more persistent, responds less strongly to net foreign assets, and is more sensitive to fluctuations in net output. A sufficiently strong response to net foreign assets is also a condition for external sustainability. Under high integration countries appear to stay close to the sustainability limit.
    Keywords: current account adjustment, reaction function, financial integration, capital mobility
    JEL: F32 F36 F41
    Date: 2008–11
  12. By: Delmar, Frédéric (Ecole de Management de Lyon); Folta, Timothy (Purdue University); Wennberg, Karl (Stockholm School of Economics)
    Abstract: This study examines the extent to which wage-earning workers are simultaneously self-employed, a phenomenon not thoroughly investigated in earlier studies. We use matched employee-employer databases to present a detailed investigation of self-employment patterns within the post industrial sectors in Sweden from 1990 to 2002. We find that persons that combine self-employment with waged work constitute a majority of the total number of self-employed, and that most people enter self-employment by engaging first in combinatory work, indicating that the decision to move to self-employment is more complex than characterized in earlier research.
    Keywords: Self-employment; income dynamics; entrepreneurship
    JEL: J24 J60
    Date: 2008–11–04
  13. By: Salvador Barrios (European Commission); Harry Huizinga (Tilburg University and CEPR); Luc Laeven (International Monetary Fund and CEPR); Gaëtan Nicodème (European Commission, CEB, CESifo and ECARES)
    Abstract: Using a large international firm-level data set, we estimate separate effects of host and parent country taxation on the location decisions of multinational firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. In fact, the impact of parent country taxation is estimated to be relatively large, possibly reflecting its international discriminatory nature. For the cross-section of multinational firms, we find that parent firms tend to be located in countries with a relatively low taxation of foreign-source income. Overall, our results show that parent-country taxation – despite the general possibility of deferral of taxation until income repatriation – is instrumental in shaping the structure of multinational enterprise.
    Keywords: corporate taxation, dividend withholding taxation, location decisions
    JEL: F23 G32 H25 R38
    Date: 2008
  14. By: Jyrki Ali-Yrkkö; Matthias Deschryvere
    Abstract: ABSTRACT : This study empirically explores whether R&D offshoring affects the domestic R&D employment at the firm level. Overall, the Finnish survey data suggest that the impact of R&D internationalization on domestic R&D employment depends on the mode of internationalization (in-house offshoring vs. offshore outsourcing vs. in-house expansion of R&D abroad). Moreover, manufacturing and service firms are found to be different when it comes to R&D internationalization and its domestic employment effects. In the manufacturing sector, especially in-house offshoring of R&D has a significant negative impact on the plan to increase R&D employment. But the relationship between the in-house expansion of R&D abroad and domestic R&D employment turns out to be complementary. In the service sector, it is in the first place offshore outsourcing of R&D that has a significant negative impact on the plan to increase R&D employment. A final result supports the view that R&D does not always follow production but that a strong location link between production and R&D does have a significant negative effect on the domestic R&D employment.
    Keywords: globalization, internationalization, outsourcing, offshoring, job loss, R&D, spillovers, research, relocation, domestic, home-country
    JEL: J6 J3
    Date: 2008–11–06
  15. By: Sarolta Laczó (Toulouse School of Economics (Gremaq))
    Abstract: This paper examines how cooperation in an insurance game depends on risk preferences and the riskiness of income. It considers a dynamic game where commitment is limited, and characterizes the level of cooperation as measured by the reciprocal of the discount factor above which perfect risk sharing is self-enforcing. When agents face no aggregate risk, there is more cooperation, if (i) the utility function is more concave, and if (ii) income is more risky considering a mean-preserving spread or an SSD deterioration. However, (ii) no longer holds when insurance can only be incomplete, because of the interplay of idiosyncratic and aggregate risk. In the case of exponential (isoelastic) utility, cooperation depends positively on both the coefficient of absolute (relative) risk aversion and the standard deviation (coefficient of variation), and is independent of mean income. This paper also relates the level of cooperation to informal insurance transfers and the smoothness of consumption when perfect risk sharing is not achieved.
    Keywords: informal insurance, limited commitment, risk preferences, riskiness, comparative statics, dynamic stochastic games
    JEL: C73 D80
    Date: 2008–10
  16. By: Gerald H. L. Cheang (Division of Banking and Finance, Nanyang Business School, Nanyang Technological University); Carl Chiarella (School of Finance and Economics, University of Technology, Sydney)
    Abstract: Margrabe provides a pricing formula for an exchange option where the distributions of both stock prices are log-normal with correlated Wiener components. Merton has provided a formula for the price of a European call option on a single stock where the stock price process contains a continuous Poisson jump component, in addition to a continuous log-normally distributed component. We use Merton?s analysis to extend Margrabe?s results to the case of exchange options where both stock price processes also contain compound Poisson jump components. A Radon-Nikod´ym derivative process that induces the change of measure from the market measure to an equivalent martingale measure is introduced. The choice of parameters in the Radon-Nikod´ym derivative allows us to price the option under different financial-economic scenarios. We also consider American style exchange options and provide a probabilistic intepretation of the early exercise premium.
    Keywords: American options; exchange options; compound Poisson processes; equivalent martingale measure
    JEL: G12 G13
    Date: 2008–10–01
  17. By: Wiberg, Daniel (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper investigates the link between institutional ownership and dividend policy. Utilizing a dividend payout model, which accounts for earnings trends and partial adjustments of dividends, a positive but marginally diminishing relation is found between institutional ownership and dividends. This result holds when ownership is retained through the use of control enhancing mechanisms such as vote-differentiation, instruments that induce investors to demand higher payout ratios. A positive effect with respect to earnings is also recognized.By studying a panel of 189 Swedish firms, the paper presents the first evidence for the relationship between dividend payout policy and ownership in a corporate governance system which is characterized by an extensive separation of ownership from control. Most studies on the relationship between ownership and dividends have been made on US or UK data, which do not account for this Continental-European governance attribute. The paper supplements the literature by examining a unique database of ultimate ownership which makes it possible to account for ownership continuously.
    Keywords: Payout policy; institutions; ownership; corporate governance; panel data
    JEL: G23 G30 G32 G35 O16
    Date: 2008–11–12
  18. By: Turnquist, Alan; Fortenbery, T. Randall; Foltz, Jeremy
    Keywords: Land Economics/Use,
    Date: 2008
  19. By: Buligescu Bianca; Crombrugghe Denis de; Mentesoglu Gülcin; Montizaan Raymond (ROA rm)
    Abstract: The focus of this paper is the size of the wage penalty due to maternal leave incurred by working mothers in Germany. Existing estimates suggest two-digit penalties of up to 30 percent, with very little rebound over time. We apply recent panel data methods designed to address problems of sample selectivity, unobserved heterogeneity and endogeneity to German Socio-Economic Panel (GSOEP) data. The selectivity issue arises because no wage is observed for employees who are on leave. Heterogeneity takes the form of unobserved individual effects correlated with explanatory variables. Endogeneity is due to the simultaneity of the wage and participation outcomes. Heckman’s classic treatment of selectivity requires extensions to deal with both heterogeneity and simultaneity. We present an extension for the case of a censored tobit participation model and use it to exploit the actual working hours data available in GSOEP. We also investigate the sensitivity of the results to the choice of method. Our estimates imply a wage penalty due to maternal leave which although substantial remains below previous estimates. Furthermore, we find that this penalty is less persistent than other studies suggest. Five years after the career interruption mothers seem to have caught up.
    Keywords: education, training and the labour market;
    Date: 2008
  20. By: Fougere, Denis; Gautier, Erwan; Le Bihan, Herve
    Abstract: We examine the effect of the minimum wage on restaurant prices. For that purpose, we estimate a price rigidity model by exploiting a unique data set of individual price quotes used to calculate the Consumer Price Index in France. We …find a positive and signifi…cant impact of the minimum wage on prices. We obtain that the effect of the minimum wage on prices is very protracted. The aggregate impact estimated with our model takes more than a year to fully pass through to retail prices.
    Keywords: Price stickiness, minimum wage, inflation, restaurant prices, Demand and Price Analysis, Industrial Organization,
    Date: 2008–10
  21. By: Giulio Cifarelli (Università degli Studi di Firenze, Dipartimento di Scienze Economiche); Giovanna Paladino (Intesa-Sanpaolo Economic Research Dept. and LUISS University, Economics Dept)
    Abstract: This paper assesses empirically whether speculation affects oil price dynamics. The growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations. Strategies of this kind foster feedback trading that may cause large departures of prices from their fundamental values. We investigate this hypothesis using a modified CAPM that follows Shiller (1984) and Sentana and Wadhwani (1992). At first, a univariate GARCH(1,1)-M is estimated assuming that the risk premium is a function of the conditional oil price volatility. The single factor model, however, is outperformed by the multifactor ICAPM (Merton, 1973) which takes into account a larger investment opportunity set. The analysis is then carried out using a trivariate CCC GARCH-M model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior. We find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affect both the CAPM and feedback trading components of the model. Despite the difficulties, we identify a significant role of speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices. A clear evidence that it is not a fundamentals-driven market. Thus, from a policy point of view - given the impact of volatile oil prices on global inflation and growth - actions that monitor more effectively speculative activities on commodity markets are to be welcomed.
    Keywords: oil price dynamics; feedback trading; speculation; multivariate GARCH-M
    JEL: G11 G12 G18 Q40
    Date: 2008
  22. By: Saitone, Tina L.
    Keywords: International Relations/Trade,
    Date: 2008
  23. By: Christina Felfe
    Abstract: Women with children tend to earn lower hourly wages than women without children - a shortfall known as the ‘child penalty’. While many studies provide evidence for this empirical fact and explore several hypotheses about its causes, the impact of motherhood on job dimensions other than wages has scarcely been investigated. In order to assess changes in women’s jobs around the time of first childbirth, I use data from the German Socio-Economic Panel and apply an event study analysis. The results show not only a significant change in women's hourly wages (-19%) once becoming mothers, but also in other non-pecuniary job characteristics, such as working hours (-15 hours), night work (-6%), work in the evening hours (-8%), stress (-10%), physical requirements (4%), hazards (-3%) and distance to the workplace (-1km). In order to assess the hypothesis that mothers might substitute wages for non-wage benefits, I additionally estimate a hedonic wage regression. The results suggest that mothers trade pecuniary for non-pecuniary job characteristics and hence, that part of the child penalty (8.2%) might be interpreted as a compensating wage differential.
    Keywords: Penalty, Compensating Wage Differentials, Sample Selection in Panel Data
    JEL: J31 J33
    Date: 2008–11
  24. By: Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell
    Abstract: Globalization brings opportunities and pressures for domestic firms in emerging markets to innovate and improve their competitive position. Using data on firms in 27 transition economies, we test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms' efforts to innovate (raise their capability) by upgrading their technology, improving the quality of their product or service, or acquiring certification. We find that competition has a negative effect on innovation, especially for firms further from the efficiency frontier, and we do not find support for an inverted U effect of competition on innovation. We show that the supply chain of multinational enterprises and international trade are important channels for domestic firms' innovation. We detect no evidence that firms in a more pro-business environment are more likely to display a positive or inverted U relationship between competition and innovation, or that they are more sensitive to foreign presence.
    JEL: F23 O16 P23
    Date: 2008–11

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