nep-bec New Economics Papers
on Business Economics
Issue of 2009‒01‒03
23 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. How Does Shared Capitalism Affect Economic Performance in the UK? By Alex Bryson; Richard B. Freeman
  2. The Determinants of Merger Waves: An International Perspective By Gugler, Klaus; Mueller, Dennis C.; Weichselbaumer, Michael
  3. Worker Self-Selection and the Profits from Cooperation By Kosfeld, Michael; von Siemens, Ferdinand
  4. The Role of Profit Sharing in a Dual Labour Market with Flexible Outsourcing By Koskela, Erkki; König, Jan
  5. Sectoral differences in wage freezes and wage cuts: evidence from a new firm survey By Radowski, Daniel; Bonin, Holger
  6. Global sourcing under imperfect capital markets By Juan Carluccio; Thibault Fally
  7. Productivity: What Is It? How Is It Measured? What Has Canada's Performance Been? By Baldwin, John R.; Gu, Wulong
  8. Project Financing Versus Corporate Financing Under Asymmetric Information By Miglo, A.
  9. Innovation and Productivity in SMEs: Empirical Evidence for Italy By Bronwyn H. Hall; Francesca Lotti; Jacques Mairesse
  10. Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan By Du Caju, Philip; Gautier, Erwan; Momferatou, Daphne; Ward-Warmedinger, Melanie E.
  11. Consumption Velocity in a Cash Costly-Credit Model By Scheffel, Eric
  12. Network Structure of Japanese Firms Hierarchy and Degree Correlation: Analysis from 800,000 Firms By Konno, Tomohiko
  13. Labor adjustments in privatized firms: a Statis approach By Adelaide Maria Figueiredo; Fernanda Otília Figueiredo; Natália Pimenta Monteiro
  14. The Impact of Wage Bargaining Regime on Firm-Level Competitiveness and Wage Inequality: The Case of Ireland By McGuinness, Seamus; Kelly, Elish; O'Connell, Philip J.
  15. Financial shocks and the US business cycle By Charles Nolan; Christoph Thoenissen
  16. Real Wages over the Business Cycle: OECD Evidence from the Time and Frequency Domains By Messina, Julián; Strozzi, Chiara; Turunen, Jarkko
  17. When Should a Firm Expand Its Business? The Signaling Implications of Business Expansion. By Ana Espinola-Arredondo; Esther Gal-Or; Felix Munoz-Garcia
  18. The Role of International Shocks in Australia's Business Cycle By Philip Liu
  19. Schumpeterian Foundations of Real Business Cycles By Galo Nuño Barrau
  20. Long-run Inequality and Annual Instability of Men's and Women's Earnings in Canada By Beach, Charles M.; Finnie, Ross; Gray, David
  21. Trade Liberalization and Organizational Change By Paola Conconi; Patrick Legros; Andrew F. Newman
  22. Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ? By Christian Calmès; Raymond Théoret
  23. Financial Structure and Product Qualities. By Stylianos Perrakis; Christos Constantatos; Jean Lefoll

  1. By: Alex Bryson; Richard B. Freeman
    Abstract: This paper uses nationally representative linked workplace-employee data from the British2004 Workplace Employment Relations Survey to examine the operation of shared capitalistforms of pay - profit-sharing and group pay for performance, employee share ownership, andstock options—and their link to productivity. It shows that shared capitalism has grown inthe UK, as it has in the US; that different forms of shared capitalist pay complement eachother and other labour practices in the sense that firms use them together more than theywould if they chose modes of pay and work practices independently; and that workplacesswitch among schemes frequently, which suggests that they have trouble optimizing and thetransactions cost of switching are relatively low. Among the single schemes, shareownership has the clearest positive association with productivity, but its impact is largestwhen firms combine it with other forms of shared capitalist pay and modes of organization.
    Keywords: share ownership, payment systems, labour productivity
    JEL: J33 L23 L25
    Date: 2008–08
  2. By: Gugler, Klaus; Mueller, Dennis C.; Weichselbaumer, Michael
    Abstract: One of the most conspicuous features of mergers is that they come in waves that are correlated with increases in share prices and price/earnings ratios. We use a natural way to discriminate between pure stock market influences on firm decisions and other influences by examining merger patterns for both listed and unlisted firms. If "real" changes in the economy drive merger waves, as some neoclassical theories of mergers predict, both listed and unlisted firms should experience waves. We find significant differences between listed and unlisted firms as predicted by behavioral theories of merger waves.
    Keywords: Merger waves, listed versus non-listed firms, managerial discretion, overvaluation
    JEL: G3 L2
    Date: 2008
  3. By: Kosfeld, Michael (University of Frankfurt); von Siemens, Ferdinand (University of Amsterdam)
    Abstract: We investigate a competitive labor market with team production. Workers differ in their motivation to exert team effort and types are private information. We show that there can exist a separating equilibrium in which workers self-select into different firms and firms employing cooperative workers make strictly positive profits. Profit differences across firms persist because cooperation strictly increases output and worker separation requires firms employing cooperative workers to pay out weakly lower wages.
    Keywords: team work, self-selection
    JEL: D82 D86 M50
    Date: 2008–12
  4. By: Koskela, Erkki (University of Helsinki); König, Jan (Free University of Berlin)
    Abstract: We analyze the following questions associated with flexible outsourcing under partly imperfect dual domestic labour markets, where high skilled workers participate in firm's profit via profit sharing: How does the implementation of profit sharing influence flexible outsourcing? What is the relationship between outsourcing cost, profit sharing and wages? We show that profit sharing has a positive effect on low skilled wage and thus an outsourcing enhancing character. The wages of both types of labour are negatively correlated and lower outsourcing cost can increase the wage dispersion by decreasing the low skilled wage and raising the high skilled wage. The overall effect of profit sharing on high skilled wage is ambiguous due to a positive direct effect and a negative indirect effect via the low skilled wage.
    Keywords: profit sharing, dual labour market, flexible outsourcing, labour market imperfection, employee effort
    JEL: E23 E24 H22 J23 J51 J82
    Date: 2008–12
  5. By: Radowski, Daniel; Bonin, Holger
    Abstract: The paper provides evidence concerning incidence and sources of nominal wage rigidity in services and manufacturing, using a new and large employer survey on wage and price setting behaviour for Germany. We observe that wage freezes are more frequent in services than in manufacturing, whereas wage cuts are less frequent. The significant sector gaps do not vanish after controlling for relevant firm characteristics influencing the incidence of wage freezes and wage cuts, notably coverage by collective agreements and the degree of price competition on the product market. An analysis of firms’ view on the reasons preventing wage cuts suggests that specific fear of excess worker turnover could explain distinct wage setting behaviour in services.
    Keywords: Nominal Wage Rigidity, Efficiency Wages, Manufacturing and Services, Germany
    JEL: J31
    Date: 2008
  6. By: Juan Carluccio; Thibault Fally
    Abstract: We develop a simple model to study the interactions between a supplier's financial constraints and contract incompleteness in a vertical relationship. Production complexity increases the extent of contract incompleteness and the hold-up problem, which generates a cost when the supplier needs financial participation from the downstream firm. Vertical integration alleviates the impact of financial constraints but reduces the supplier's incentives. We apply the model to an analysis of multinational firms sourcing strategies and predict that (1) complex and specific inputs are more likely to be sourced from financially developed countries and (2) multinationals are more likely to integrate suppliers located in countries with poor financial institutions, especially when trade involves complex goods. We examine and validate these predictions using firm-level trade data on multinational firms with operations in France. We provide evidence that financial development generates a comparative advantage in the supply of complex goods. Moreover, we find higher shares of intra-firm imports of complex inputs from countries with a lower level of financial development. The findings are robust to different measures of complexity and specificity, and are not driven by industry differences in fixed costs or traditional measures of external financial dependence. Quantitatively, we find that financial development is as important as contract enforcement in alleviating hold-up problems.
    Date: 2008
  7. By: Baldwin, John R.; Gu, Wulong
    Abstract: This paper provides an overview of the productivity program at Statistics Canada and a brief description of Canada's productivity performance. The paper defines productivity and the various measures that are used to investigate different aspects of productivity growth. It describes the difference between partial productivity measures (such as labour productivity) and a more complete measure (multifactor productivity) and the advantages and disadvantages of each. The paper explains why productivity is important. It outlines how productivity growth fits into the growth accounting framework and how this framework is used to examine the various sources of economic growth. The paper briefly discusses the challenges that face statisticians in measuring productivity growth. It also provides an overview of Canada's long-term productivity performance and compares Canada to the United States - both in terms of productivity levels and productivity growth rates.
    Keywords: Business performance and ownership, Economic accounts, Productivity accounts
    Date: 2008–02–25
  8. By: Miglo, A.
    Abstract: In recent years financing through the creation of an independent project company or financing by non-recourse debt has become an important part of corporate decisions. Shah and Thakor (JET, 1987) argue that project financing can be optimal when asymmetric information exists between firm's insiders and market participants. In contrast to that paper, we provide an asymmetric information argument for project financing without relying on corporate taxes, costly information production or an assumption that firms have the same mean of return. In addition, the model generates new predictions regarding asset securitization.
    Date: 2008
  9. By: Bronwyn H. Hall; Francesca Lotti; Jacques Mairesse
    Abstract: Innovation in SMEs exhibits some peculiar features that most traditional indicators of innovation activity do not capture. Therefore, in this paper, we develop a structural model of innovation which incorporates information on innovation success from firm surveys along with the usual R&D expenditures and productivity measures. We then apply the model to data on Italian SMEs from the "Survey on Manufacturing Firms" conducted by Mediocredito-Capitalia covering the period 1995-2003. The model is estimated in steps, following the logic of firms' decisions and outcomes: in the first, R&D intensity is linked to a set of firm and market characteristics. We find that international competition fosters R&D intensity, especially for high-tech firms. Firm size, R&D intensity, along with investment in equipment enhances the likelihood of having both process and product innovation. Both these kinds of innovation have a positive impact on firm's productivity, especially process innovation. Among SMEs, larger and older firms seem to be less productive.
    JEL: D24 L25 L26 O30 O32
    Date: 2008–12
  10. By: Du Caju, Philip (National Bank of Belgium); Gautier, Erwan (Bank of France); Momferatou, Daphne (European Central Bank); Ward-Warmedinger, Melanie E. (European Central Bank)
    Abstract: This paper presents information on wage bargaining institutions, collected using a standardized questionnaire. Our data provide information from 1995 and 2006, for four sectors of activity and the aggregate economy, considering 23 European countries, plus the US and Japan. Main findings include a high degree of regulation in wage setting in most countries. Although union membership is low in many countries, union coverage is high and almost all countries also have some form of national minimum wage. Most countries negotiate wages on several levels, the sectoral level still being the most dominant, with an increasingly important role for bargaining at the firm level. The average length of collective bargaining agreements is found to lie between one and three years. Most agreements are strongly driven by developments in prices and eleven countries have some form of indexation mechanism which affects wages. Cluster analysis identifies three country groupings of wage-setting institutions.
    Keywords: wage bargaining, institutions, indexation, trade union membership, cluster analysis
    JEL: J31 J38 J51 J58
    Date: 2008–12
  11. By: Scheffel, Eric (Cardiff Business School)
    Abstract: In a seminal study Hodrick et al. (1991) evaluate the ability of a simple cash-credit model to produce realistic variability in consumption velocity while at the same time successfully explaining other key statistics. Sufficient variability in the latter is found to be associated with far too volatile interest rate behaviour. Introducing habit-formation in consumption into a production-based cash costly-credit model (see Gillman and Benk, 2007) makes the evolution of deposits more rigid relative to credit. The same deposit rigidity leads to a more volatile price of credit, causing credit production overshooting relative to deposits. But only by introducing adjustment costs to investment in addition to habit persistence does credit production overshoot sufficiently to produce realistic variability in consumption velocity. The model succeeds in capturing sufficient variability in consumption velocity without obtaining too volatile interest rates. Also, this model of endogenous velocity does not suffer from indeterminacy problems discussed in Auray et al. (2005). In contrast to Gillmand and Benk (2007), the present study examies the role of the price-channel of credit production at business cycle frequency, ignoring or holding fixed the marginal cost channel stemming from credit productivity shocks.
    Keywords: Velocity; Consumption; Interest Rates
    JEL: E0 E2 E3 E4
    Date: 2008–12
  12. By: Konno, Tomohiko
    Abstract: We found hierarchical structure and negative degree correlation in firms' transaction network. The network consists of 800,000 Japanese firms. We also summarize other features of the network and discuss why studying network structure is important. We also found scale free distribution in undirected network.
    Keywords: Network of firms, scale free network, complex network, hierarchy, degree correlation
    JEL: L16
    Date: 2008
  13. By: Adelaide Maria Figueiredo (LIAAD/INESC-Porto and Faculdade de Economia, Universidade do Porto); Fernanda Otília Figueiredo (CEAUL and Faculdade de Economia, Universidade do Porto); Natália Pimenta Monteiro (NIPE and Departamento de Economia, Universidade do Minho)
    Abstract: This paper examines labor adjustments in ten Portuguese banks after the ownership transfer to the private sector. The results show that the restructuring process is a very complex phenomenon, with firms exhibiting diverse adjustments in terms of either speed or path. In addition, our findings also show that the pay level in the banking industry is by far the workforce attribute that changed more, reflecting substantial changes in terms of composition and not size of the workforce. In particular, firms tend to reduce the share of workers in managerial occupations and replace the most experienced employees with younger and more educated workers. Our empirical evidence also suggests that privatization is associated with a higher level of rent sharing.
    Keywords: Labor adjustments; Portuguese banking industry; privatization; Statis
    JEL: D21 J31 J51 L13
    Date: 2008–12
  14. By: McGuinness, Seamus (ESRI); Kelly, Elish (ESRI); O'Connell, Philip J. (ESRI)
    Abstract: This paper uses a linked employer-employee dataset to analyse the impact of institutional wage bargaining regimes on levels of average labour costs and within firm wage dispersion in private sector companies in Ireland. The results show that while centralised bargaining reduced labour costs within both the indigenous and foreign-owned sectors, the relative advantage was greater among foreign-owned firms. The analysis suggests that there are potentially large competitiveness gains to multinational companies that choose to locate in countries implementing a centralised bargaining system. Furthermore, the results provide additional support to the view that collective bargaining reduces within firm wage inequality.
    Keywords: Ireland/Labour Costs/Wage Bargaining Regimes/Wage Dispersion
    JEL: J51 J52 J58
    Date: 2008–12
  15. By: Charles Nolan; Christoph Thoenissen
    Abstract: Employing the financial accelerator (FA) model of Bernanke, Gertler and Gilchrist (1999) enhanced to include a shock to the FA mechanism, we construct and study shocks to the efficiency of the financial sector in post-war US business cycles. We find that financial shocks are very tightly linked with the onset of recessions, more so than TFP or monetary shocks. The financial shock invariably remains contractionary for sometime after recessions have ended. The shock accounts for a large part of the variance of GDP and is strongly negatively correlated with the external finance premium. Second-moments comparisons across variants of the model with and without a (stochastic) FA mechanism suggests the stochastic FA model helps us understand the data.
    Keywords: Financial accelerator; financial shocks; macroeconomic volatility
    JEL: E30 E44 E52
    Date: 2008–12
  16. By: Messina, Julián (University of Girona); Strozzi, Chiara (University of Modena and Reggio Emilia); Turunen, Jarkko (European Central Bank)
    Abstract: We study differences in the adjustment of aggregate real wages in the manufacturing sector over the business cycle across OECD countries, combining results from different data and dynamic methods. Summary measures of cyclicality show genuine cross-country heterogeneity even after controlling for the impact of data and methods. We find that more open economies and countries with stronger unions tend to have less pro-cyclical (or more counter-cyclical) wages. We also find a positive correlation between the cyclicality of real wages and employment, suggesting that policy complementarities may influence the adjustment of both quantities and prices in the labour market.
    Keywords: dynamic correlation, business cycle, real wages, labour market institutions
    JEL: E32 J30 C10
    Date: 2008–12
  17. By: Ana Espinola-Arredondo; Esther Gal-Or; Felix Munoz-Garcia (School of Economic Sciences, Washington State University)
    Abstract: We examine an incumbent?s trade-o¤ between expanding her business, which increases her pro?ts, and the information that such expansion signals to potential competitors, which attracts them to the market. Speci?cally, we consider a signaling game where the incumbent knows the actual realization of demand, whereas the entrant can only observe whether the incumbent de- cided to expand the size of her business in the past. In particular, we analyze the set of pooling and separating equilibria surviving the intuitive criterion in this signaling model. Our predic- tions can support the expected observation that only incumbents in good market conditions expand their businesses (separating equilibria), but also the less obvious and interesting pooling equilibria in which no ?rm expands her business, and despite such non-expansion entrants choose to enter the industry. This equilibrium result helps us provide an explanation about the high failure rates that new ?rms face when entering a market, as con?rmed by multiple empirical studies.
    Keywords: Business expansion, Signaling, Entry deterrence. Failure rates.
    JEL: L12 D82
    Date: 2008–08
  18. By: Philip Liu (Reserve Bank of Australia)
    Abstract: This paper examines the sources of Australia’s business cycle fluctuations. The cyclical component of GDP is extracted using the Beveridge-Nelson decomposition and a structural VAR model is identified using robust sign restrictions derived from a small open economy model. In contrast to previous VAR studies, international factors are found to contribute to over half of the output forecast errors, whereas demand shocks have relatively modest effects.
    Keywords: Australian business cycle; sign restriction VAR; stabilisation policy; international shocks
    JEL: E32 E52 E63 F41
    Date: 2008–12
  19. By: Galo Nuño Barrau (Research Department, Banco Bilbao Vizcaya Argentaria)
    Abstract: Technology shocks are at the core of real business cycle models. Although tra- ditionaly described as exogenous, technology shocks can be the result of the endoge- nous decisions by economic agents under uncertainty. To demostrate it, in this paper I develop a dynamic stochastic general equilibrium model that incorporates Schum- peterian endogenous growth features that affect the convergence to the steady-state. In this model, technology advances are due to the introduction of vertical innovations by entrepreneurs who try to become monopolists in different economic sectors. En- trepreneurs? ventures are ?nanced by banks. The model is solved and estimated by bayesian methods for the United States economy to compute the value of some of its structural parameters. Results show that for a country close to the technology fron- tier, the presented innovation mechanism is roughly equivalent in terms of volatilies, correlations and impulse responses to technology shocks in real business cycle mod- els. Therefore, the behavior of the productivity can be due not only to technology considerations but also to ?nancial and entrepreneurial reasons.
    JEL: C50 E27 O40
    Date: 2008–12
  20. By: Beach, Charles M.; Finnie, Ross; Gray, David
    Abstract: This paper examines the variability of workers' earnings in Canada over the 1982-to-2000 period by a graphical descriptive approach using the Longitudinal Administrative Data base file. Following Gottschalk and Moffitt (1994), we decompose the total variance of workers' earnings into a 'permanent' or long-run component between workers and a 'transitory' or year-to-year earnings instability component over time for given workers. The decomposition is applied to a five-year moving window. Several results are found. First, the general rise in total earnings variance over the period reflects quite different patterns of change for its separate components. Long-run earnings inequality has generally increased over the period, while year-to-year earnings instability has pretty steadily decreased. Changes in the total earnings variability have been driven primarily by changes in long-run earnings inequality. Second, the patterns of change in the two variance components showed substantial differences between men and women. Since the early 1990s, long-run earnings inequality continued to rise for men, but it markedly decreased for women. Since the late 1980s, earnings instability fell quite steadily for women, but it showed a more cyclical pattern for men. Third, the patterns across ages of the two variance components are almost opposite. Long-run earnings inequality generally rises with age, so it is markedly highest among older-age workers. Earnings instability, in contrast, generally declines with age, so it is markedly highest among entry-age workers.
    Keywords: Labour, Wages, salaries and other earnings
    Date: 2008–12–18
  21. By: Paola Conconi (Université Libre de Bruxelles, ECARES and CEPR); Patrick Legros (Université Libre de Bruxelles, ECARES and CEPR); Andrew F. Newman (Boston University and CEPR)
    Abstract: We embed a simple incomplete-contracts model of organization design in a standard two-country perfectly-competitive trade model to examine how the liberalization of product and factor markets affects the ownership structure of firms. In our model, managers decide whether or not to integrate their firms, trading off the pecuniary benefits of coordinating production decisions with the private benefits of operating in their preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits. In particular, non-integration is chosen at “low” and “high” prices, while integration occurs at moderate prices. Organizational choices also depend on the terms of trade in supplier markets, which affect the division of surplus between managers. We obtain three main results. First, even when firms do not relocate across countries, the price changes triggered by liberalization of product markets can lead to significant organizational restructuring within countries. Second, the removal of barriers to factor mobility can lead to inefficient reorganization and adversely affect consumers. Third, “deep integration” the liberalization of both product and factor markets ­ leads to the convergence of organizational design across countries.
    Keywords: Firms, Contracts, Globalization
    JEL: D23 F13 F23
    Date: 2008–10–27
  22. By: Christian Calmès (Département des sciences administratives, Université du Québec (Outaouais), et LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle)
    Abstract: We provide new evidence of a worsening of the risk-return trade-off in Canadian banking. Surging OBS activities have led to increasingly volatile net operating revenues, and might have reduced well-known measures of bank profitability, like return on assets and return on equity. In this context, a natural question arises: should we re-regulate? On this matter, we confirm Calmès(2003) prediction: a maturation process took place after 1997. Using a new approach based on ARCH-M estimation, we find that an additional risk premium has emerged. In this sense, there is no need to re-regulate.
    Keywords: ARCH-M Models, risk premium, financial stability
    JEL: G20 G21
    Date: 2008–10–20
  23. By: Stylianos Perrakis (Concordia University); Christos Constantatos (Department of Economics, University of Macedonia); Jean Lefoll (HEC, University of Geneva)
    Abstract: We examine the interaction between financial and microeconomic decisions in a differentiated duopoly where additional willingness-to-pay for high quality is uncertain. Product specification is endogenous. We consider two three-stage games, according to the order of moves: qualities-financial structure-prices and financial structure-qualities-prices. Once debt is contracted, the manager maximizes equity instead of total value. We find that in both games debt a) increases both prices and qualities but most likely reduces product differentiation due to rival quality response; b) reduces the value of the levered high quality firm because it increases the low quality. Moreover, c) the cost of debt is higher for the second game, implying that it is higher for projects using debt to finance a product’s development-cumcommercialization compared to those financing only the commercialization stage.
    Keywords: Vertical differentiation; uncertainty; financial structure; leverage; sequential quality choice.
    JEL: L00 G32
    Date: 2008–12

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