nep-bec New Economics Papers
on Business Economics
Issue of 2009‒02‒14
38 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Intra-firm Conflicts and Interfirm Competition By Werner Güth; Kerstin Pull; Manfred Stadler
  2. Exchange Rate, Employment and Hours: What Firm-Level Data Say By Francesco Nucci; Alberto Franco Pozzolo
  3. This Job Is 'Getting Old:' Measuring Changes in Job Opportunities Using Occupational Age Structure By Autor, David; Dorn, David
  4. Do Firms ProvideWage Insurance Against Shocks? – Evidence from Hungary By Gábor Kátay
  5. Sectoral Differences in Wage Freezes and Wage Cuts: Evidence from a new Firm Survey By Radowski, Daniel; Bonin, Holger
  6. Identifying Sorting - In Theory By Jan Eeckhout; Philipp Kircher
  7. Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited By WenShwo Fang; Stephen M. Miller
  8. Are there Financial Constraints for Firms Investing in Skilled Employees? By Martinsson, Gustav
  9. The Great Moderation Flattens Fat Tails: Disappearing Leptokurtosis By WenShwo Fang; Stephen M. Miller; ChunShen Lee
  10. Treating Equals Unequally: Incentives in Teams, Workers' Motivation and Production Technology By Goerg, Sebastian; Kube, Sebastian; Zultan, Ro'i
  11. The Role of Trends and Detrending in DSGE Models By Andrle, Michal
  12. Job Search, Bargaining, and Wage Dynamics By Shintaro Yamaguchi
  13. Building The Business Case For Diversity In Offshoring By Carine Peeters; Patricia Garcia-Prieto; Sébastien Point
  14. The Impact of Market Timing on Canadian and U.S. Firms' Capital Structure By Zhaoxia Xu
  15. A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing By Andersson, Fredrik
  16. Inventories, Markups, and Real Rigidities in Menu Cost Models By Oleksiy Kryvtsov; Virgiliu Midrigan
  17. Holdups and Overinvestment in Physical Capital Markets By André Kurmann
  18. Innovation and Institutional Ownership By Philippe Aghion; John Van Reenen; Luigi Zingales
  19. The Evolution of the Returns to Human Capital in Canada, 1980 - 2006 By Boudarbat, Brahim; Lemieux, Thomas; Riddell, W. Craig
  20. Employment and Wage Adjustments at Firms under Distress in Japan: An Analysis Based upon a Survey By Kenn Ariga; Ryo Kambayashi
  21. The Gender Pay Gap for Private Sector Employees in Canada and Britain By Drolet, Marie; Mumford, Karen A.
  22. Emerging Asia's Impact on Food and Oil Prices: A Model-Based Analysis By René Lalonde; Philipp Maier; Dirk Muir
  23. Economies of scale in banking, confidence shocks, and business cycles By Dressler, Scott J.
  24. RELATIONSHIP LENDING - EMPIRICAL EVIDENCE FOR GERMANY By Memmel, Christoph; Schmieder, Christian; Stein, Ingrid
  25. The Consumption-Wealth Ratio, Real Estate Wealth, and the Japanese Stock Market By Kohei Aono; Tokuo Iwaisako
  26. Trigger Happy or Gun Shy? Dissolving Common-Value Partnerships with Texas Shootouts By Brooks, Richard; Landeo, Claudia; Spier, Kathryn
  27. Corporate social responsibility and shareholder's value: an empirical analysis By Becchetti , Leonardo; Ciciretti , Rocco; Hasan, Iftekhar
  28. Incentives, Gaming, and the Nonlinear Pay Scheme: Evidence from Personnel Data in a Large Japanese Auto Sales Firm By Tsuyoshi Tsuru
  29. Strategic Storage and Competition in European Gas Markets By Edmond Baranes; François Mirabel; Jean-Christophe Poudou
  30. The bank lending channel reconsidered By Milne , Alistair; Wood, Geoffrey
  31. A Comparative Analysis of the Returns on Provincial and Federal Canadian Bonds By Galvani, Valentina; Behnamian, Aslan
  32. Corporate Control and Multiple Large Shareholders By Dhillon, Amrita; Rossetto, Silvia
  33. Globalization, Creative Destruction, and Labor Share Change: Evidence on the Determinants and Mechanism from Longitudinal Plant-level Data By Mika Maliranta; Petri Böckerman
  34. A note on non-competes, bargaining and training by firms By Nicola Meccheri
  35. Truthful Revelation Mechanisms for Simultaneous Common Agency Games By Alessandro Pavan; Giacomo Calzolari
  36. What Accounts for the U.S.-Canada Education-Premium Difference? By Oleksiy Kryvtsov; Alexander Ueberfeldt
  37. Labour Shares and the Role of Capital and Labour Market Imperfections By Lena Suchanek
  38. A New Metric for Banking Integration in Europe By Gropp, Reint Eberhard; Kashyap, Anil K.

  1. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Kerstin Pull (University of Tübingen, Department of Economics and Business Administration); Manfred Stadler (University of Tübingen, Department of Economics and Business Administration)
    Abstract: We study interaction effects between intra-firm conflicts and interfirm competition on a duopolistic market with seller firms employing one or more agents and implementing tournament incentives. We show that inter-firm competition leads to higher incentive intensity, higher efforts and output levels but lower profits.
    Keywords: Tournament, Worker compensation, Strategic competition
    JEL: C72 L22 M52
    Date: 2009–01–30
  2. By: Francesco Nucci (Universit… di Roma "La Sapienza"); Alberto Franco Pozzolo (Universit… degli Studi del Moliste)
    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 specilcity 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 ;ows 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: 2009–01
  3. By: Autor, David (MIT); Dorn, David (Boston University)
    Abstract: High- and low-wage occupations are expanding rapidly relative to middle-wage occupations in both the U.S. and the E.U. We study the reallocation of workers from middle-skill occupations towards the tails of the occupational skill distribution by analyzing changes in age structure within and across occupations. Because occupations typically expand by hiring young workers and contract by curtailing such hiring, we posit that growing occupations will get younger while shrinking occupations will 'get old.' After verifying this proposition, we apply this observation to local labor markets in the U.S. to test whether markets that were specialized in middle-skilled occupations in 1980 saw a differential movement of both older and younger workers into occupations at the tails of the skill distribution over the subsequent 25 years. Consistent with aggregate trends, employment in initially middle-skill-intensive labor markets hollowed-out between 1980 and 2005. Employment losses among non-college workers in the middle of the occupational skill distribution were almost entirely countered by employment growth in lower-tail occupations. For college workers, employment losses at the middle were offset in roughly equal measures by gains in the upper- and lower-tails of the occupational skill distribution. But gains at the upper-tail were almost entirely limited to young college workers. Consequently, older college workers are increasingly found in lower-skill, lower-paying occupations.
    Keywords: job polarization, occupational structure, age structure, local labor markets, technical change
    JEL: E24 J11 J21 J24
    Date: 2009–01
  4. By: Gábor Kátay (Magyar Nemzeti Bank)
    Abstract: In this paper I address the question to what extent wages are affected by product market uncertainty. Implicit contract models imply that it is Pareto optimal for risk neutral firms to provide insurance to risk averse workers against shocks. Using matched employer-employee dataset, I adopted the estimation strategy proposed by Guiso et al. (2005) to evaluate wage responses to both permanent and transitory shocks in Hungary and compared my results to similar studies on Italian and Portuguese datasets. I found that firms do insure workers against product market uncertainties, but the magnitude of the wage response differs depending on the nature of the shock. Broadly speaking, the wage response to permanent shocks is twice as high as the response to transitory shocks. Comparing my results to the two other studies, the main difference lies in the elasticity of wages to transitory shocks. Unlike these previous findings, my results show that full insurance to transitory shocks is rejected.
    Keywords: product market uncertainty, risk sharing, wage insurance, optimal wage contract, matched employer-employee data.
    JEL: C33 D21 J33 J41
    Date: 2008
  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 L60 M52
    Date: 2008
  6. By: Jan Eeckhout (Department of Economics, University of Pennsylvania); Philipp Kircher (Department of Economics, University of Pennsylvania)
    Abstract: We argue that using wage data alone, it is virtually impossible to identify whether Assortative Matching between worker and firm types is positive or negative. In standard competitive matching models the wages are determined by the marginal contribution of a worker, and the marginal contribution might be higher or lower for low productivity firms depending on the production function. For every production function that induces positive sorting we can find a production function that induces negative sorting but generates identical wages. This arises even when we allow for non-competitive mismatch, for example due to search frictions. Even though we cannot identify the sign of the sorting, we can identify the strength, i.e., the magnitude of the cross-partial, and the associated welfare loss. While we show analytically that standard fixed effects regressions are not suitable to recover the strength of sorting, we propose an alternative procedure that measures the strength of sorting in the presence of search frictions independent of the sign of the sorting.
    Keywords: sorting, assortative matching, identification, linked employer-employee data, interpretation of fixed-effects
    JEL: J31 C78
    Date: 2009–01–02
  7. By: WenShwo Fang (Department of Economics, Feng Chia University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas)
    Abstract: Previous studies (e.g., Hamori, 2000; Ho and Tsui, 2003; Fountas et al., 2004) find high volatility persistence of economic growth rates using generalized autoregressive conditional heteroskedasticity (GARCH) specifications. This paper reexamines the Japanese case, using the same approach and showing that this finding of high volatility persistence reflects the Great Moderation, which features a sharp decline in the variance as well as two falls in the mean of the growth rates identified by Bai and Perron’s (1998, 2003) multiple structural change test. Our empirical results provide new evidence. First, excess kurtosis drops substantially or disappears in the GARCH or exponential GARCH model that corrects for an additive outlier. Second, using the outlier-corrected data, the integrated GARCH effect or high volatility persistence remains in the specification once we introduce intercept-shift dummies into the mean equation. Third, the time-varying variance falls sharply, only when we incorporate the break in the variance equation. Fourth, the ARCH in mean model finds no effects of our more correct measure of output volatility on output growth or of output growth on its volatility.
    Keywords: Japan, real GDP growth, the Great Moderation, outlier, structural changes, IGARCH effect
    JEL: C32 E32 O40
    Date: 2009–01
  8. By: Martinsson, Gustav (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper explores how financial constraints affect intangible investment for knowledge intensive and less capital intensive firms. In this paper, a knowledge intensive firm implies a firm supplying knowledge intensive services which requires the firm to hire highly educated employees. In economics investment is defined as the act of incurring an immediate cost in the expectation of future reward, which also fits to the hiring of skilled employees. Drawing advantage of unique firm-level data comprising all Swedish knowledge intensive consulting firms I conclude that the accessibility to adequate collateral significantly affects the relationship between employment and internal funds at the firm level. The accessibility of adequate collateral is more important in an economic downturn than in an expansion and more important for highly knowledge intensive consulting firms. In this paper I make a novel attempt to incorporate knowledge intensive services firms into the financial constraints literature.
    Keywords: Incomplete markets; asymmetric information; knowledge intensive business services; economic development
    JEL: D52 D82 L84 O16
    Date: 2009–01–28
  9. By: WenShwo Fang (Department of Economics, Feng Chia University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); ChunShen Lee (Department of Economics, Feng Chia University)
    Abstract: Recently, Fagiolo et al. (2008) find fat tails in the distribution of economic growth rates after adjusting for outliers, autocorrelation, and heteroskedasticity. This paper employs US quarterly real output growth, showing that this finding of fat tails may reflect the Great Moderation. That is, leptokurtosis disappears after GARCH adjustment once we incorporate the break in the variance equation to account for the Great Moderation.
    Keywords: real GDP growth, the Great Moderation, leptokurtosis, GARCH models
    JEL: C32 E32 O40
    Date: 2009–01
  10. By: Goerg, Sebastian (University of Bonn); Kube, Sebastian (Max Planck Institute for Research on Collective Goods); Zultan, Ro'i (Max Planck Institute for Economics)
    Abstract: The importance of fair and equal treatment of workers is at the heart of the debate in organizational management. In this regard, we study how reward mechanisms and production technologies affect effort provision in teams. Our experimental results demonstrate that unequal rewards can potentially increase productivity by facilitating coordination, and that the effect strongly interacts with the exact shape of the production function. Taken together, our data highlight the relevance of the production function for organization construction and suggest that equal treatment of equals is neither a necessary nor a sufficient prerequisite for eliciting high performance in teams.
    Keywords: team incentives, equity, production function, social preferences, laboratory experiment, discriminating mechanism, mechanism desig
    JEL: C92 D23 D63 J31 J33 J41 M12 M52
    Date: 2009–01
  11. By: Andrle, Michal
    Abstract: The paper discusses the role of stochastic trends in DSGE models and effects of stochastic detrending. We argue that explicit structural assumptions on trend behavior is convenient, namely for emerging countries. In emerging countries permanent shocks are an important part of business cycle dynamics. The reason is that permanent shocks spill over the whole frequency range, potentially, including business cycle frequencies. Applying high- or band-pass filter to obtain business cycle dynamics, however, does not eliminate the influence of permanent shocks on comovements of time series. The contribution of the paper is to provide a way how to calculate the role of permanent shocks on the detrended/ filtered business cycle population dynamics in a DSGE model laboratory using the frequency domain methods.
    Keywords: detrending; band-pass filter; spectral density; DSGE.
    JEL: E32 C53 D58
    Date: 2008–08–01
  12. By: Shintaro Yamaguchi
    Abstract: This paper constructs and estimates a model of strategic wage bargaining with on-the-job search to explore three different components of wages: general human capital, match-specific capital, and outside option. As the workers find better job opportunities, the current employer has to compete with outside firms to retain them. This between-firm competition results in wage growth even when productivity remains the same. The model is estimated by a simulated minimum distance estimator and data from the NLSY79. The results indicate that the improved value of outside option raises wages of ten-year-experienced workers by 16%.
    Date: 2009–01
  13. By: Carine Peeters (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and ECARES, Université Libre de Bruxelles.); Patricia Garcia-Prieto (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Sébastien Point (Université de Franche-Comté, EM Strasbourg Business School.)
    Abstract: Offshoring inevitably leads to increased cultural diversity in work relations. Most companies perceive this increased diversity as a risk, a problem that needs to be minimized or remedied for offshoring to succeed. Building on the business case for diversity management literature we propose an alternative positive view of cultural diversity in the context of offshore relationships. We suggest that the increased cultural diversity that offshoring brings can actually be an opportunity companies should recognize and leverage in order to foster business performance. We specifically argue that under certain conditions related to the organizational context, type of project, teams, and tasks offshored, offshore projects driven by innovation might actually hold a unique competitive advantage through the utilization of their team cultural diversity.
    Date: 2009–02
  14. By: Zhaoxia Xu
    Abstract: This paper studies the impact of market timing on Canadian firms' capital structure and makes a comparison with U.S. firms. There is no evidence that market timing affects Canadian firms' capital structure in the same manner as it affects their U.S. counterparts. The effect of past equity issues on Canadian firms' capital structure is transitory. Canadian firms adjust at a faster rate toward the leverage target than U.S. firms. These results challenge the generality of the market-timing theory of capital structure.
    Keywords: Financial markets; International topics
    JEL: G32
    Date: 2009
  15. By: Andersson, Fredrik (Department of Economics)
    Abstract: The make-or-buy decision is analyzed in a three-layer principal-management-agent model. There is a cost-saving/quality tradeoff in effort provision. The principal chooses between employing an in-house management and contracting with an independent management; the cost-saving incentives facing the management are, endogenously, weaker in the former case. Cost-saving incentives trickle down to the agent, affecting the cost-saving/quality trade-off. It is shown that weak cost-saving incentives to the management promote quality provision by the agent, and that a more severe quality-control problem between the principal and the management, as well as a higher valuation of quality, make an in-house management more attractive.
    Keywords: Make-or-buy decision; Multitask principal-agent problem; Outsourcing
    JEL: D23 L22 L24
    Date: 2009–01–07
  16. By: Oleksiy Kryvtsov; Virgiliu Midrigan
    Abstract: Real rigidities that limit the responsiveness of real marginal cost to output are a key ingredient of sticky price models necessary to account for the dynamics of output and inflation. We argue here, in the spirit of Bils and Kahn (2000), that the behavior of marginal cost over the cycle is directly related to that of inventories, data on which is readily available.We study a menu cost economy in which firms hold inventories in order to avoid stockouts and to economize on fixed ordering costs. We find that, for low rates of depreciation similar to those in the data, inventories are highly sensitive to changes in the cost of holding and acquiring them over the cycle. This implies that the model requires an elasticity of real marginal cost to output approximately equal to the inverse of the elasticity of intertemporal substitution in order to account for the countercyclical inventory-to-sales ratio in the data. Stronger real rigidities lower the cost of acquiring and holding inventories during booms and counterfactually predict a procyclical inventory-to-sales ratio.
    Keywords: Business fluctuations and cycles; Transmission of monetary policy
    JEL: E31 F12
    Date: 2009
  17. By: André Kurmann
    Abstract: Firms in many situations must make investment decisions long before they meet with new capital suppliers. In addition, most physical capital is specific to a task or location, thus implying potentially important switching costs in case negotiations between a firm and a supplier break down. The present paper analyzes the implications of these frictions. The sequentiality of investment makes it impossible to write binding ex-ante contracts. Together with the rents arising from switching costs, this implies a holdup problem. In partial equilibrium, firms react strategically by overinvesting so as to reduce their marginal productivity and thus the price of capital they negotiate with their suppliers upon matching. In general equilibrium, the holdup problem interacts with externalities from switching costs, resulting in inefficient allocations. In a more general macroeconomic context, the holdup problem in physical capital markets interacts with holdup problems in labor markets that typically lead to underinvestment. As long as capital and labor are complements, this presents the firm with a trade-off between overinvestment and overemployment that neutralizes, at least partially, the distortionary effects of each of the two holdup problems.
    Keywords: Holdup problems, Trading frictions, Investment, Strategic bargaining
    JEL: D23 D24 E22
    Date: 2009
  18. By: Philippe Aghion; John Van Reenen; Luigi Zingales
    Abstract: We find that institutional ownership in publicly traded companies is associated with more innovation(measured by cite-weighted patents). To explore the mechanism through which this link arises, webuild a model that nests the lazy-manager hypothesis with career-concerns, where institutional ownersincrease managerial incentives to innovate by reducing the career risk of risky projects. The datasupports the career concerns model. First, whereas the lazy manager hypothesis predicts a substitutioneffect between institutional ownership and product market competition (and managerial entrenchmentgenerally), the career-concern model allows for complementarity. Empirically, we reject substitutioneffects. Second, CEOs are less likely to be fired in the face of profit downturns when institutionalownership is higher. Finally, using instrumental variables, policy changes and disaggregating by typeof owner we find that the effect of institutions on innovation does not appear to be due to endogenousselection.
    Keywords: Innovation, institutional ownership, career concerns, R&D, productivity
    JEL: O31 O32 O33 G20 G32
    Date: 2009–02
  19. By: Boudarbat, Brahim; Lemieux, Thomas; Riddell, W. Craig
    Abstract: This paper examines the evolution of the returns to human capital in Canada over the period 1980-2006. Most of the analysis is based on Census data, and on weekly wage and salary earnings of full-time workers. Our main finding is that the returns to education increased substantially for Canadian men between 1980 and 2000, in contrast to conclusions reached in previous studies. For example, the adjusted wage gap between men with exactly a bachelors’ degree and men with only a high school diploma increased from 34 percent to 43 percent during this period. Most of this rise took place in the early 1980s and late 1990s. Returns to education also rose for Canadian women, but the magnitudes of the increases were more modest. For instance, the adjusted BA-high school wage differential among women increased about 4 percentage points between 1980 and 1985 and remained stable thereafter. Results based on Labour Force Survey data show the upward trend in returns to education has recently been reversed for both men and women. Another important development is that after fifteen years of expansion (1980-1995), the return to work experience measured by the wage gap between younger and older workers declined between 1995 and 2000. Finally, we find little difference between measures based on means and those based on medians of log wages for both genders. Also, the use of broader earnings measures (such as including self-employment earnings, using weekly earnings of all workers, or using annual earnings of full-time workers) does not alter the main conclusions from the analysis based on weekly wage and salary earnings of full-time workers.
    Keywords: Human Capital, Wage Differentials, Returns to Education, Canada
    JEL: J24 J31
    Date: 2009–02–02
  20. By: Kenn Ariga (Institute of Economic Research, Kyoto University); Ryo Kambayashi (Institute of Economic Research, Hitotsubashi University)
    Abstract: We use the result from a survey of Japanese firms in manufacturing and service to investigate the choice of wage and employment adjustments when they needed to reduce substantially the total labor cost. Our regression analysis indicates that the large size reduction favors the layoffs of the core employees, whereas the base wage cuts are more likely if the firms do not feel immediate pressures from the external labor market or the strong competition in the product market. We also find some evidence that the concerns over adverse selection or demoralizing effects of wage cuts are real. Firms do try to avoid using base wage cuts if they consider these factors more important.
    Date: 2009–01
  21. By: Drolet, Marie (Statistics Canada); Mumford, Karen A. (University of York)
    Abstract: Country-specific factors, such as the wage setting environment, are important determinants in explaining the relative size of the gender wage gap. This paper uses British and Canadian linked employer-employee data to investigate the importance of the workplace for the gender wage gap. Our main findings are that the unadjusted gender earnings gaps are similar between the two countries and that women, especially older women, are disproportionately represented in low-wage workplaces. Workplace effects, however, reduce the wage gap by 14.5% in Canada and increase the gap by 3.2% in Britain.
    Keywords: gender earnings gap, workplaces, Britain, Canada
    JEL: J16 J0
    Date: 2009–01
  22. By: René Lalonde; Philipp Maier; Dirk Muir
    Abstract: The authors explore the usefulness of macroeconomic models in analyzing global economic developments by examining movements in commodity prices between July 2007 and July 2008. They use the Bank of Canada's version of the Global Economy Model and investigate the longerterm outlook for commodity prices by constructing two different, globally consistent, scenarios for emerging Asia. In the first scenario, the authors assume that a persistent increase in emerging Asia's productivity underlies its sustained growth; in the second scenario, they assume that a combination of productivity increases and a temporary demand shock underlie its growth. The demand for commodities increases in both scenarios, but, by comparing the two, the authors reveal that each scenario has considerably different economic implications. Allowing for the possibility that a small share of emerging Asia's growth might be fuelled by a temporary demand shock generates a strong "boom-bust" outcome for emerging Asia, and amplifies the volatility in commodity markets. The authors also investigate the possibility that emerging markets react to inflation by revaluing their exchange rates by 10 per cent. This affects the outlook for commodities only marginally.
    Keywords: International topics; Recent economic and financial developments
    JEL: E30 E50 E58 E60
    Date: 2009
  23. By: Dressler, Scott J.
    Abstract: This paper quantitatively investigates equilibrium indeterminacy due to economies of scale (ES) in financial intermediation. Financial intermediation provides deposits (inside money) which can substitute with currency to purchase consumption, and depositing decisions are susceptible to non-fundamental confidence (sunspot) shocks. With the intermediation sector calibrated to match US data: (i) indeterminacy arises for small degrees of ES; (ii) sunspot shocks qualitatively resemble monetary shocks; and (iii) monetary policies can stabilize the real impact of sunspot shocks, but only under complete information. The analysis also assesses the removal of these shocks on the volatility decline observed during the US Great Moderation.
    Keywords: Financial Intermediation; Inside Money; Indeterminacy; Business Cycles
    JEL: E32 C68 E44
    Date: 2009–01
  24. By: Memmel, Christoph (Deutsche Bundesbank); Schmieder, Christian (European Investment Bank); Stein, Ingrid (Deutsche Bundesbank)
    Abstract: Relationship lending is a common practice in credit financing all over the world, notably also in the European Union, which has been assumed to be particularly beneficial for Small and Medium-Sized Enterprises (SMEs). During recent years, there has been the impression that relationship lending loses ground due to a change of the banks' business models, which could ultimately yield to a worsening of the business environment for corporates and SMEs. In this study, we investigate the determinants of relationship lending for Germany, where relationship lending traditionally plays an important role. Compared to previous studies, we refer to much more comprehensive data with information on more than 16,000 firm-bank relationships. Our findings confirm the assumption that relationship lending seems to be an important pillar for economic growth and employment: We find that the firms that are most likely to contribute to (future) economic growth, namely small and R&D-intensive firms, tend to choose a relationship lender. The same is observed for firms of high credit quality, independent of their size or R&D intensity. Furthermore, we also observe that the importance of relationship lending did not decrease since the mid 1990s.
    Keywords: Relationship banking; German banking system; SME
    JEL: G21 G32
    Date: 2008–05–20
  25. By: Kohei Aono; Tokuo Iwaisako
    Abstract: The first contribution of this paper, following the works of Lettau and Ludvigson (2001a,b), is construction of the Japanese consumption-wealth ratio data series and to examine whether it explains Japanese stock market data. We find that the consumption- wealth ratio does not predict future stock returns, but it does help to explain the cross-section of Japanese stock returns. The second contribution of the paper is that we propose new consumption-wealth ratios in terms of which we more explicitly deal with household real estate wealth utilizing Japanese aggregate level data. Such ``real estate augmented'' consumption-wealth ratios work in a similar way, but perform bet- ter than, the consumption-wealth ratio calculated with only financial wealth data. While the scaled factor model with the consumption-wealth ratio proposed by Let- tau and Ludvigson performs relatively well with Japanese data, the book-to-market related anomaly pointed out by Jagannathan et al. (1998) remains strong.
    Keywords: consumption-wealth ratio; cointegration; cross-section of stock returns
    JEL: E21 G12
    Date: 2008–06
  26. By: Brooks, Richard (Yale Law School); Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: The operating agreements of many business ventures include clauses to facilitate the exit of joint owners. In so-called Texas Shootouts, one owner names a single buy-sell price and the other owner is compelled to either buy or sell shares at that named price. Despite their prevalence in real-world contracts, Texas Shootouts are rarely triggered. In our theoretical framework, sole ownership is more efficient than joint ownership. Negotiations are frustrated, however, by the presence of asymmetric information. In equilibrium, owners eschew buy-sell offers in favor of simple offers to buy or to sell shares and bargaining failures arise. Experimental data support these findings.
    Keywords: Exit Mechanisms for Joint Ownership Ventures; Texas Shootout Clauses; Buy-Sell Mechanisms; Shotgun Provisions; Russian Roulette Agreements; Put-Call Options; Cake-Cutting Rule; Bargaining with Common Values; Experiments; Ultimatum Exchange Environments with Endogenous Offer Types
    JEL: C72 C90 D44
    Date: 2009–01–22
  27. By: Becchetti , Leonardo; Ciciretti , Rocco; Hasan, Iftekhar (Lally School of Management, Rensselaer Polytechnic Institute and Bank of Finland Research)
    Abstract: In today’s global economy, corporate social responsibility (CSR) is a core component of corporate strategy. Due in part to financial scandals, losses, and the diminished reputation of the affected listed companies, CRS is emerging as a crucial instrument for minimizing conflicts with stakeholders. While corporations are busy adopting and enhancing CSR practices, there is (beyond a very few notable exceptions) no established empirical research on its impact and relevance for the capital market. Our paper investigates this issue by tracing market reactions to corporate entry into and exit from the Domini 400 Social Index (a recognized CSR benchmark) between 1990 and 2004. Our paper highlights two main findings: i) a significant upward trend in absolute values of abnormal returns, irrespective of the event (entry/exit vis-à-vis the index) type; and ii) a significant negative effect on abnormal returns after announcement from the Domini index. The latter effect continues to persist even after controlling for concurring financial distress shocks and stock market seasonality.
    Keywords: corporate social responsibility; event study
    JEL: D21 G14 L21
    Date: 2009–01–19
  28. By: Tsuyoshi Tsuru
    Abstract: This paper examines incentives and gaming behavior in a sales workforce using personnel records from one of Japanfs largest auto sales chains. The company replaced a simple, linear compensation system in 2000 with nonlinear pay scheme kinked around a draw line. Econometric analysis indicates the following. First, the new pay scheme yields productivity increases, although a month-end deadline induces gaming behavior. Second, the incentive effect is weaker for used car sales staff than for new car sales staff. The difference can be attributed to disincentives such as smaller gross profits and larger servicing burdens that discouraged workers near the threshold from putting forth additional effort.
    Keywords: Compensation; Automobile Dealership; Incentives; Gaming
    JEL: M12 M5 J31 J33
    Date: 2008–10
  29. By: Edmond Baranes; François Mirabel; Jean-Christophe Poudou
    Abstract: In this paper, we study how competition on downstream gas markets is influenced by sourcing decisions in the supply chain. We analyze the sequential relationships between storage decisions and intermediate pricing in spot markets. We show that an upstream leadership in the access to storage facilities leads a dominant firm to adopt strategic storage decision. This strategy consists in stockpiling more than supplied in the downstream market. This behavior is a part of a raising rival's cost strategy for the leader. Furthermore in some cases, optimal regulation of gas storage access may not prevent such a behavior.
    Keywords: Storage, spot market, gas markets, regulation
    Date: 2008
  30. By: Milne , Alistair (Cass Business School, UK and Monetary Policy and Research Department, Bank of Finland); Wood, Geoffrey (Cass Business School, UK and Monetary Policy and Research Department, Bank of Finland)
    Abstract: It has been widely accepted that constraints on the wholesale funding of bank balance sheets amplify the transmission of monetary policy through what is called the ‘bank lending channel’. We show that the effect of such bank balance sheet constraints on monetary transmission is in fact theoretically ambiguous, with the prior expectation, based on standard theoretical models of household and corporate portfolios, that the bank lending channel attenuates monetary policy transmission. We examine macroeconomic data for the G8 countries and find no evidence that banking sector deposits respond negatively and more than lending to tightening of monetary policy, as the accepted view of the bank lending channel requires. The overall picture is mixed, but these data generally suggest that deposits fluctuate procyclically and somewhat less over the business cycle than bank lending, and that total bank deposits, unlike bank lending, show little direct response to changes in interest rates. This suggests it is very unlikely that the bank lending channel amplifies monetary policy. Our paper has thus corrected a misunderstanding about the role of banks in monetary policy transmission that has persisted in the literature for some two decades.
    Keywords: credit channel; monetary transmission; bank financing constraints
    JEL: E44 E52 G32
    Date: 2009–01–21
  31. By: Galvani, Valentina (University of Alberta, Department of Economics); Behnamian, Aslan (University of Alberta, Department of Economics)
    Abstract: Our empirical analysis unveils a striking uniformity between the returns of Canadian federal and provincial bonds. Furthermore, the return spreads between these debt instruments are shown to be white noise. Relying on tests for mean-variance spanning, we also show that market participants are unlikely to benefit from expanding portfolios of federal bonds with debt securities issued by the Canadian provinces.
    Keywords: diversification benefits; bonds; spanning; Canada
    JEL: G11 G18
    Date: 2009–01–30
  32. By: Dhillon, Amrita (University of Warwick); Rossetto, Silvia (Toulouse School of Economics and University of Warwick)
    Abstract: Many firms have more than one blockholder, but finance theory suggests that one blockholder should be sufficient to bestow all benefits on a firm that arise from concentrated ownership. This paper identifies a reason why more blockholders may arise endogenously. We consider a setting where multiple shareholders have endogenous conflicts of interest depending on the size of their stake. Such conflicts arise because larger shareholders tend to be less well diversified and would therefore prefer the firm to pursue more conservative investment policies. When the investment policy is determined by a shareholder vote, a single blockholder may be able to choose an investment policy that is far away from the dispersed shareholders' preferred policy. Anticipating this outcome reduces the price at which shares trade. A second blockholder (or more) can mitigate the conflict by shifting the voting outcome more towards the dispersed shareholders' preferred investment policy and this raises the share price. The paper derives conditions under which there are blockholder equilibria.The model shows how different ownership structures affect firm value and the degree of underpricing in an IPO.
    Date: 2009
  33. By: Mika Maliranta; Petri Böckerman
    Abstract: ABSTRACT : We examine the sources and micro-level mechanisms of the changes in the labor share of value added. We link the micro-level dynamics of the labor share change with that of productivity and wage growth. Using a useful variant of the decomposition method we make a distinction between the change in the average plant and the micro-level restructuring. With Finnish plant-level data covering three decades we show that micro-level restructuring is the link between the declining labor share and increasing productivity in 12 manufacturing industries of four regions, and that increased international trade is a factor underlying those shifts.
    Keywords: globalization, international trade,foreign ownership, micro-level restructuring, labor share
    JEL: F16 J31
    Date: 2009–02–02
  34. By: Nicola Meccheri
    Abstract: This paper analyzes how non-competes, via wage bargaining, can affect firms’ incentives to provide their employees with on-the-job training. The results show that non-competes increase incentives to provide general training, but reduce those related to specific training.
    Keywords: non-competes, bargaining, general training, specific training
    JEL: J24 J41 K31
    Date: 2008–01–01
  35. By: Alessandro Pavan; Giacomo Calzolari
    Abstract: This paper considers games in which multiple principals contract simultaneously with the same agent. We introduce a new class of revelation mechanisms that, although it does not always permit a complete equilibrium characterization, it facilitates the characterization of the equilibrium outcomes that are typically of interest in applications (those sustained by pure-strategy profiles in which the agent's behavior in each relationship is Markov, i.e., it depends only on payoff-relevant information such as the agent's type and the decisions he is inducing with the other principals). We then illustrate how these mechanisms can be put to work in environments such as menu auctions, competition in nonlinear tariffs, and moral hazard settings. Lastly, we show how one can enrich the revelation mechanisms, albeit at a cost of an increase in complexity, to characterize also equilibrium outcomes sustained by non-Markov strategies and/or mixed-strategy profiles.
    Keywords: Mechanism design, contracts, revelation principle, menus, endogenous payoff-relevant information
    JEL: D89 C72
    Date: 2008
  36. By: Oleksiy Kryvtsov; Alexander Ueberfeldt
    Abstract: This paper analyzes the differences in wage ratios of university graduates to less than university graduates, the education premium, in Canada and the United States from 1980 to 2000. Both countries experienced a similar increase in the fraction of university graduates and a similar increase in skill biased technological change based on capital-embodied technological progress, but only the United States had a large increase in the education premium. Using a calibrated Krussel et al. (2000) model, the paper finds that the cross country difference is in equal proportion due to the effective stock of capital equipment, the growth in skilled labor supply relative to unskilled labor and the relative abundance of skilled population in 1980. Growth in the working age population is unimportant for the difference.
    Keywords: Labour markets; Productivity
    JEL: E24 E25 J24 J31
    Date: 2009
  37. By: Lena Suchanek
    Abstract: In continental Europe, labour shares in national income have exhibited considerable variation since 1970. Empirical and theoretical research suggests that the evolution of labour markets and labour market imperfections can, in part, explain this phenomenon. The author analyzes the role of capital market imperfections in the determination of the distribution of national income, comparing European and Anglo-Saxon countries. She uses a simple general-equilibrium model to trace the effects of credit and labour market imperfections on factor shares. Simulations indicate that improvements in capital markets can explain lower labour shares. An increase in the degree of employee power results in higher labour shares. Regression results confirm the author's findings. Improvements in credit markets and decreasing employee bargaining power have contributed to shrinking labour shares, especially in Europe. Openness is a negative determinant of labour shares.
    Keywords: Economic models; Labour markets; Financial institutions
    JEL: C78 E25 J64
    Date: 2009
  38. By: Gropp, Reint Eberhard; Kashyap, Anil K.
    Abstract: Most observers have concluded that while money markets and government bond markets are rapidly integrating following the introduction of the common currency in the euro area, there is little evidence that a similar integration process is taking place for retail banking. Data on cross-border retail bank flows, cross-border bank mergers and the law of one price reveal no evidence of integration in retail banking. This paper shows that the previous tests of bank integration are weak in that they are not based on an equilibrium concept and are neither necessary nor sufficient statistics for bank integration. The paper proposes a new test of integration based on convergence in banks’ profitability. The new test emphasises the role of an active market for corporate control and of competition in banking integration. European listed banks profitability appears to converge to a common level. There is weak evidence that competition eliminates high profits for these banks, and underperforming banks tend to show improved profitability. Unlisted European banks differ markedly. Their profits show no tendency to revert to a common target rate of profitability. Overall, the banking market in Europe appears far from being integrated. In contrast, in the U.S. both listed and unlisted commercial banks profits converge to the same target, and high profit banks see their profits driven down quickly.
    Date: 2008

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