nep-bec New Economics Papers
on Business Economics
Issue of 2009‒02‒22
sixteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Managerial Power, Stock-Based Compensation, and Firm Performance: Theory and Evidence By Choe, Chongwoo; Tian, Gloria; Yin, Xiangkang
  2. Ownership Structure, Board Composition and Investment Performance By Eklund, Johan; Palmberg, Johanna; Wiberg, Daniel
  3. Job Search, Bargaining, and Wage Dynamics By Shintaro Yamaguchi
  4. Managerial Entrenchment, Banker Distribution, and Corporate Governance: Evidence from Japan By Takanori Tanaka
  5. On the (Sub)optimality of Multi-tier Hierarchies: Coordination versus Motivation By Choe, Chongwoo; Ishiguro, Shingo
  6. Large Employers Are More Cyclically Sensitive By Giuseppe Moscarini; Fabien Postel-Vinay
  7. Compatibility with Firm Dominance By María Fernanda Viecens
  8. Best performance-best practice nelle imprese manifatturiere italiane By Calabrese Giuseppe
  9. La responsabilité sociale, est-elle une variable influençant les performances d’entreprise? By Greta Falavigna
  10. Mergers and Business Model Assimilation: Evidence from Low-Cost Airlines Takeovers By Paul W. Dobson; Claudio A. Piga
  11. "Twin Peaks" in Energy Prices: A Hotelling Model with Pollution Learning By Chakravorty, Ujjayant; Leach, Andrew; Moreaux, Michel
  12. A New Metric for Banking Integration in Europe By Reint Gropp; Anil Kashyap
  13. The Determinants of Misreporting Weight and Height: The Role of Social Norms By Julian Messina; Chiara Strozzi; Jarkko Turunen
  14. A Note on Liquidity Risk Management By Markus K. Brunnermeier; Motohiro Yogo
  15. Product Diversification and Stability of Employment and Sales: First Evidence from German Manufacturing Firms By Nils Braakmann; Joachim Wagner
  16. Strategic supply function competition with private information By Vives, Xavier

  1. By: Choe, Chongwoo; Tian, Gloria; Yin, Xiangkang
    Abstract: We study theoretically and empirically the relation among CEO power, CEO pay and firm performance. Our theoretical model follows the rent extraction view of CEO compensation put forward by the managerial power theory. We test our theoretical findings using the sample of S&P1500 firms. The predicted relation between power and pay is largely supported. However, the relation between power and firm performance has mixed support, suggesting that, while the managerial power theory has relevance in explaining the relation between power and pay, the scope of power needs to be broadened for better understanding of how managerial power affects firm performance.
    Keywords: Managerial power; agency theory; stock-based compensation; firm performance; pay-performance sensitivity.
    JEL: D82 G30 J33
    Date: 2009–02
  2. By: Eklund, Johan (RATIO and Jönköping International Business School); Palmberg, Johanna (Jönköping International Business School); Wiberg, Daniel (Jönköping International Business School and CESIS Royal Institute of Technology)
    Abstract: In this paper the relation between ownership structure, board composition and firm performance is explored. A panel of Swedish listed firms is used to investigate how board composition affects firm performance. Board heterogeneity is measured as board size, age and gender diversity. The results show that Swedish board of directors have become more diversified in terms of gender. Also, fewer firms have the CEO on the board which can be interpreted as a sign of increased independency. The regression analysis shows that gender diversity has a small but negative effect on investment performance, and the same holds for CEO being on the board. The analysis also show that board size has a significant negative effect on investment performance. When incorporating all the explanatory variables into one equation however, the negative effect of larger boards dilutes the effect of gender diversity and having the CEO on the board.
    Keywords: Corporate governance; board composition; investments performance; marginal q
    JEL: G30 L20 L21 L22 L25
    Date: 2009–02–13
  3. 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
  4. By: Takanori Tanaka (Institute of Social and Economic Research, Osaka University)
    Abstract: This paper investigates whether managerial entrenchment of controlling shareholders affects the distribution of bankers to the boards of Japanese manufacturing firms. Bankers are not likely to be appointed to firms with large corporate shareholders as controlling shareholders because large corporate shareholders have incentives to entrench managers. Moreover, in the aftermath of executive appointments of banks and large corporate shareholders, restructuring and improved performances of the appointing firms are facilitated. The results suggest that managerial entrenchment of large corporate shareholders generates the substitution of role of corporate governance between banks and large corporate shareholders.
    Keywords: Corporate governance; Managerial entrenchment; Controlling shareholders; Banks
    JEL: D23 G21 G32
    Date: 2009–01
  5. By: Choe, Chongwoo; Ishiguro, Shingo
    Abstract: This paper studies internal organization of a firm using an incomplete contracting approach a la Grossman-Hart-Moore and Aghion-Tirole. The two key ingredients of our model are externalities among tasks that require coordination, and investment in task-specific human capital. We compare three types of organizational structures: centralization where the decision authority for all tasks is given to the party without task-specific human capital, decentralization where the decision authority for each task is given to the party with necessary human capital, and hierarchical delegation where the decision authority is allocated in a hierarchical fashion. Centralization is optimal when externalities and the requisite coordination are the main issue in organization design. Decentralization is optimal if the investment in human capital is more important. Hierarchical delegation is optimal in the intermediate case. We also discuss the optimal pattern of hierarchical delegation as well as several directions extending the basic model.
    Keywords: Delegation; Incomplete Contracts; Hierarchy
    JEL: D23 C70 L22
    Date: 2008–07
  6. By: Giuseppe Moscarini; Fabien Postel-Vinay
    Abstract: We provide new evidence that large firms or establishments are more sensitive than small ones to business cycle conditions. Larger employers shed proportionally more jobs in recessions and create more of their new jobs late in expansions, both in gross and net terms. We employ a variety of measures of relative employment growth, employer size and classification by size, and a variety of U.S. datasets, both repeated cross-sections and job flows with employer longitudinal information, starting in the mid 1970's and now spanning four business cycles. We revisit two statistical fallacies, the Regression and Reclassification biases, and show empirically that they are quantitatively modest given our focus on relative cyclical behavior. The differential growth rate of employment between large (>1000 employees) and small (<50) firms varies by about 5% over the business cycle, and is strongly negatively correlated with the unemployment rate. This pattern occurs within, not across broad industries, regions and states, and is robust to different treatments of entry and exit. It appears to be partly driven by excess (mass) layoffs by large employers during and just after recessions, and by excess poaching by large employers late in expansions. We find the same qualitative pattern in longitudinal censuses of employers from Denmark and Brazil, and in other countries. Finally, we sketch a simple firm-ladder model of turnover that can shed light on these facts, and that we analyze in detail in companion papers.
    JEL: E24 E32 J23 J63
    Date: 2009–02
  7. By: María Fernanda Viecens
    Abstract: This paper analyzes the effect of firm dominance on the incentives to become compatible and how compatibility decisions affect investment incentives. We will consider compatibility in two dimensions: compatibility of the complementary good and inter-network compatibility. We show that if products are substitutes, compatibility tends to be welfare decreasing with the potential negative consequences of increasing compatibility being more likely when asymmetries are strong. We also find that in many instances the dominant firm’s interests regarding compatibility are in line with those of users, and are opposite to those of the weak firm, which will always demand more compatibility to be enforced. Finally we show that compatibility may harm innovation, particularly for the dominant firm.
    Date: 2009–02
  8. By: Calabrese Giuseppe (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy)
    Abstract: The aim of this working paper is to analyse the best practices of a sample of manufacturing firms that have carried out lasting best performance in terms of solvency, growth and profitability. Firstly, the paper analyses the factors that have favoured or hindered best performance, that is: size; ownership and corporate structure; product and production strategies; competitive and international position; human resources management; product and process development, and so on. Secondly, the paper analyses the correlation between size, qualitative and relational growth. By cluster analysis, three groups of firms have been defined with different levels of qualitative and relational contents. The clusters are the dependent variable of an ordered logit regression and the explanatory variables are the performance and structural variables. The research has been founded by the Piedmont Region and, consequently, is focused on the manufacturing companies located in this region.
    Keywords: Best performance, Best practice, Manufacturing firms, Size growth
    JEL: L60 M10
    Date: 2008–12
  9. By: Greta Falavigna (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy)
    Abstract: In the last decades, Corporate Social Responsibility (CSR) has been deeply studied. Many researchers focused on the best social report form underlining advantages, and they shown that these documents follow more and more often balance-sheets. This work analyses the relation between the writing of social report and both with the profitability and with the technical efficiency. The outcomes suggest that Corporate Social Responsibility improves firm profitability and expands firm market share. Moreover, the relation between the writing of social report and technical efficiency shows that firms interested in Corporate Social Responsibility are also the most efficient, from a technical point of view.
    Keywords: Corporate Social Responsibility (CSR), Firm technical efficiency, Firm profitability, Data Envelopment Analysis, Bootstrap
    JEL: B21 C14 L20 Z13
    Date: 2008–12
  10. By: Paul W. Dobson (Business School, Loughborough University.); Claudio A. Piga (Department of Economics, Loughborough University)
    Abstract: This paper examines mergers that lead to an almost immediate replacement of the target firm’s business model in favor of that of the acquiring firm. We examine the post-merger behavior of the two leading European dedicated low-cost airlines, EasyJet and Ryanair, each acquiring another low-cost airline, respectively Go Fly and Buzz. We find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of inter-temporal price schedules used on the acquired routes, with early booking fares noticeably reduced and only very late booking fares increased. The analysis suggests that the takeovers had a net beneficial effect as a consequence of the introduction of the acquiring firms’ business models and associated yield management pricing systems. .
    Keywords: merger policy; Business model; Low-cost airline; Price discrimination; Yield management .
    JEL: L11 L13 L93
    Date: 2009–02
  11. By: Chakravorty, Ujjayant (University of Alberta, Department of Economics); Leach, Andrew (University of Alberta, School of Business); Moreaux, Michel (Laboratory of Natural Resource Economics, Toulouse School of Economics)
    Abstract: We study how environmental regulation in the form of a cap on aggregate emissions from a fossil fuel (e.g., coal) affects the arrival of a clean substitute (e.g., solar energy). The cost of the substitute decreases with cumulative use because of learning-by-doing. We show that energy prices may initially increase but then decline upon attaining the targeted level of pollution, followed by another cycle of rising and falling prices. The surprising result is that with pollution and learning, the Hotelling model predicts the cyclical behavior of energy prices in the long run. The alternating trends in upward or downward price movements we show may at least partially explain recent empirical findings by Lee, List and Strazicich (2006) that long run resource prices are stationary around deterministic trends with structural breaks in intercept and trend slope. The main implication of our results is that testing for secular price trends as predicted by the textbook Hotelling model may lead to incorrect conclusions regarding the predictive power of the theory of nonrenewable resource economics.
    Keywords: dynamic models; energy markets; environmental externalities; global warming; technological change
    JEL: Q12 Q32 Q41
    Date: 2009–02–01
  12. By: Reint Gropp; Anil Kashyap
    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.
    JEL: G18 G21 L1
    Date: 2009–02
  13. By: Julian Messina; Chiara Strozzi; Jarkko Turunen
    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.
    Date: 2009–01
  14. By: Markus K. Brunnermeier; Motohiro Yogo
    Abstract: When a firm is unable to rollover its debt, it may have to seek more expensive sources of financing or even liquidate its assets. This paper provides a normative analysis of minimizing such rollover risk, through the optimal dynamic choice of the maturity structure of debt. The objective of a firm with long-term assets is to maximize the effective maturity of its liabilities across several refinancing cycles, rather than to maximize the maturity of the current bonds outstanding. An advantage of short-term financing is that a firm, while in good financial health, can readjust its maturity structure more quickly in response to changes in its asset value.
    JEL: G32 G33
    Date: 2009–02
  15. By: Nils Braakmann (Institute of Economics, University of Lüneburg); Joachim Wagner (Institute of Economics, University of Lüneburg)
    Abstract: We use a unique rich newly built data set for German manufacturing enterprises to investigate the relationship between product diversification and the stability of sales and employment. We find that contrary to portfolio theoretic considerations more diversified firms exhibit a higher variability of sales and employment. However, the effects are negligibly small from an economics point of view.
    Keywords: Product diversification, stability, variability, Germany
    JEL: D21 L60
    Date: 2009–02
  16. By: Vives, Xavier (IESE Business School)
    Abstract: A Bayesian supply function equilibrium is characterized in a market where firms have private information about their uncertain costs. It is found that with supply function competition, and in contrast to Bayesian Cournot competition, competitiveness is affected by the parameters of the information structure: supply functions are steeper with more noise in the private signals or more correlation among the costs parameters. In fact, for large values of noise or correlation supply functions are downward sloping, margins are larger than the Cournot ones, and as we approach the common value case they tend to the collusive level. Furthermore, competition in supply functions aggregates the dispersed information of firms (the equilibrium is privately revealing) while Cournot competition does not. The implication is that with the former the only source of deadweight loss is market power while with the latter we have to add private information. As the market grows large the equilibrium becomes competitive and we obtain an approximation to how many competitors are needed to have a certain degree of competitiveness.
    Keywords: imperfect competition; adverse selection; competitiveness; rational expectations; collusion; welfare;
    JEL: D44 D82 L13 L94
    Date: 2008–11–09

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