nep-bec New Economics Papers
on Business Economics
Issue of 2009‒03‒14
28 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Managerial discretion and optimal financing policies with cash flow uncertainty By Alessandro Fiaschi
  2. Wage Dispersion and Firm Productivity in Different Working Environments By Benoît Mahy; François Rycx; Mélanie Volral
  3. Does Employee Body Weight Affect Employers' Behavior? By Lene Kromann
  4. Matching Firms, Managers, and Incentives By Bandiera, Oriana; Guiso, Luigi; Prat, Andrea; Sadun, Raffaella
  5. Large Employers Are More Cyclically Sensitive By Giuseppe Moscarini; Fabien Postel-Vinay
  6. Credit Supply and Output Volatility By Cristiano Cantore; Mathan Satchi
  7. Wage Dispersion and Wage Dynamics Within and Across Firms By Carrillo-Tudela, Carlos; Smith, Eric
  8. Bank ties and firm performance in Japan: some evidence since FY2002 By Patrick McGuire
  9. The structural transformation between manufacturing and services and the deline in the U.S. GDP volatility By Alessio Moro
  10. Fixed Cost, Number of Firms, and Skill Premium: An Alternative Source for Rising Wage Inequality By Kurokawa, Yoshinori
  11. Foreign Ownership and Firm Performance: Emerging-Market Acquisitions in the United States By Anusha Chari; Wenjie Chen; Kathryn M.E. Dominguez
  12. Fiscal Convergence, Business Cycle Volatility and Growth By Davide Furceri
  13. On the Relationship between Market Concentration and Bank Risk Taking By Kaniska Dam; Marc Escrihuela-Villar; Santiago Sánchez-Pagés
  14. Employment generation by small firms in Spain By Paloma López-García; Sergio Puente; Ángel Luis Gómez
  15. Does family ownership impact positively on firm value? Empirical evidence from Western Europe By Pindado, Julio; Requejo, Ignacio; Torre, Chabela de la
  16. Employee Involvement, Technology and Job Tasks By Francis Green
  17. The Long-Run Risks Model and Aggregate Asset Prices: An Empirical Assessment By Jason Beeler; John Y. Campbell
  18. "Assessing the Consequences of a Horizontal Merger and its Remedies in a Dynamic Environment" By Isao Ishida; Toshiaki Watanabe
  19. Control Rights, Pyramids, and the Measurement of Ownership Concentration By Edwards, Jeremy S S; Weichenrieder, Alfons J
  20. The Internal Governance of Firms By Acharya, Viral V; Myers, Stewart C; Rajan, Raghuram G
  21. Business Cycle Synchronization Across the Euro-Area: a Wavelet Analysis By Luís Francisco Aguiar; Maria Joana Soares
  22. Perceptions of Efficacy, Control, and Risk: A Theory of Mixed Control By Erik Monsen; Diemo Urbig
  23. The Misfortune of Non-financial Firms in a Financial Crisis: Disentangling Finance and Demand Shocks By Tong, Hui; Wei, Shang-Jin
  24. Uncertain Times, uncertain measures By Michelle Alexopoulos; Jon Cohen
  25. Distribution of Labour Productivity in Japan over the Period 1996–2006 By Souma, Wataru; Ikeda, Yuichi; Iyetomi, Hiroshi; Fujiwara, Yoshi
  26. Efficient Search on the Job and the Business Cycle, Second Version By Guido Menzio; Shouyong Shi
  27. Are Banks Different? Evidence from the CDS Market. By Burkhard Raunig; Martin Scheicher
  28. Why did we fail to predict GDP during the last cycle? A breakdown of forecast errors for Austria. By Martin Schneider; Christian Ragacs

  1. By: Alessandro Fiaschi
    Abstract: Building on the work of Stulz (1990), this paper analyzes the impact of managerial discretion on optimal leverage within an agency cost model of corporate financing. Under the assumption that stockholders do not know with certainty the mean of the cash flow distribution, we argue that leverage fails to control for the amount of cash the manager can misappropriate in personal projects. We develop a model of a firm’s value maximization problem that predicts that as expected earnings uncertainty increases the firm will decrease its optimal level of borrowing. In a second part, we test this proposition on a panel of non–financial UK firms, by investigating the determinants of firms’ performance and allowing for endogeneity of capital structure decisions. The estimates confirm that earnings uncertainty, as measured by the volatility in monthly consensus forecasts of individual companies’ earnings per share, negatively affects corporate leverage. Furthermore, new empirical support is found to the agency cost view that corporate performance is positively correlated with leverage when poorly managed firms are selected.
    JEL: D92 E22 G32
    Date: 2009–02
  2. By: Benoît Mahy (Université de Mons-Hainaut, WRC et chercheur associé au DULBEA); François Rycx (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn); Mélanie Volral (Université de Mons-Hainaut et WRC.)
    Abstract: This paper investigates the impact of wage dispersion on firm productivity in different working environments. More precisely, it examines the interaction with: i) the skills of the workforce, using a more appropriate indicator than the standard distinction between white- and blue collar-workers, and ii) the uncertainty of the firm economic environment, which has, to our knowledge, never been explored on an empirical basis. Using detailed LEED for Belgium, we find a hump-shaped relationship between (conditional) wage dispersion and firm productivity. This result suggests that up to (beyond) a certain level of wage dispersion, the incentive effects of “tournaments” dominate (are dominated by) “fairness” considerations. Findings also show that the intensity of the relationship is stronger for highly skilled workers and in more stable environments. This might be explained by the fact that monitoring costs and production-effort elasticity are greater for highly skilled workers and that in the presence of high uncertainty workers have less control over their effort-output relation and associate higher uncertainty with more unfair environments.
    Keywords: Wage dispersion, labour productivity, working environments, personnel economics, linked employer-employee data.
    JEL: J31 J24 M52
    Date: 2009–02
  3. By: Lene Kromann (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: This paper offers a study of possible favoritism of normal-weight individuals when firms make decisions on hiring, firing and promoting. Most existing studies use a wage equation to document dispersion in wages between normal- and overweight, however little is known about the reason for dispersion. Furthermore, the wage equations do not capture the sorting of workers into different occupations and industries. Using an equilibrium search model, this paper takes search friction and cross-firm differences in factor productivity into account, when looking at firm behavior. Addition- ally, a logit model is used to examine the occupation and industry distribution. Most importantly, we find that wage differences between normal-weight and overweight or obese workers are explained by differential firm behavior, both with respect to the job offer arrival rate and to the probability of being promoted. Further, we find that the trade industry hire overweight workers to a lesser extent than other industries.
    Keywords: Overweight, Firm behavior, Equilibrium Search Model, Multinomial Logit
    JEL: I10
    Date: 2009–03–09
  4. By: Bandiera, Oriana; Guiso, Luigi; Prat, Andrea; Sadun, Raffaella
    Abstract: We provide evidence on the match between firms, managers and incentives using a new survey designed for this purpose. The survey contains information on a sample of executives' risk preferences and human capital, on the explicit and implicit incentives they face and on the firms they work for. We model a market for managerial talent where both firms and managers are heterogeneous. Following the sources of heterogeneity observed in the data, we assume that firms differ by ownership structure and that family firms, though caring about profits, put relatively more weight on benefits of direct control than non-family firms. Managers differ in their degree of risk aversion and talent. The entry of firms and managers, the choice of managerial compensation schemes and the manager-firm matching are all endogenous. The model yields predictions on several equilibrium correlations that find support in our data: (i) Family firms use managerial contracts that are less sensitive to performance, both explicitly through bonus pay and implicitly through career development; (ii) More talented and risk-tolerant managers are matched with firms that offer steeper contracts. (iii) Managers who face steeper contracts work harder, earn more and display higher job satisfaction. Alternative explanations may account for some of these correlations but not for all of them jointly.
    Keywords: family firms; incentives; managers; matching; risk aversion
    JEL: D21
    Date: 2009–03
  5. 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. The differential growth rate of employment between large and small firms varies by about 5% over the business cycle. Omitting cyclical indicators may lead to conclude that, on average, these cyclical effects wash out and size does not predict subsequent growth (Gibrat's law). We employ a variety of measures of relative employment growth, employer size and classification by size. We revisit two statistical fallacies, the Regression and Reclas- sification biases, that can affect our results, and we show empirically that they are quantitatively modest given our focus on relative cyclical behavior. We exploit a va- riety of (mostly novel) 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. The pattern that we uncover is robust to different treatments of entry and exit of firms and establishments, and occurs within, not across broad industries, regions and states. Evidence on worker flows suggests that the pattern is driven at least in part by excess layoffs by large employers in and just after recessions, and by excess poaching by large employers late in expansions. We find the same pattern in similar datasets in four other countries, including full longitudinal censuses of employers from Denmark and Brazil. 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.
    Keywords: business cycle , employment, firm size.
    JEL: J21 E32
    Date: 2009–02
  6. By: Cristiano Cantore; Mathan Satchi
    Abstract: The link between aggregate profits and investment has been widely analysed through the impact of profits on net worth and therefore the firm’s ability to borrow, in the presence of credit market imperfections. How the business cycle is affected if profits also affect investment through an impact on savings and therefore the intermediary’s ability to lend, is the topic of this paper. We find that the fluctuations in the supply of credit that result from this may significantly amplify output responses to shocks in comparison to a situation where the net worth mechanism operates alone.
    Keywords: Business Cycles; Credit Market Imperfections; Loan Supply
    JEL: E32 E44 E51
    Date: 2009–03
  7. By: Carrillo-Tudela, Carlos (University of Leicester); Smith, Eric (University of Essex)
    Abstract: This paper examines wage dispersion and wage dynamics in a stock-flow matching economy with on-the-job search. Under stock-flow matching, job seekers immediately become fully informed about the stock of viable vacancies. If only one option is available, monopsony wages result. With more than one firm bidding, Bertrand wages arise. The initial and expected threat of competition determines the evolution of wages and thereby introduces a novel way of understanding wage differences among similar workers. The resulting wage distribution has an interior mode and prominent, well-behaved tails. The model also generates job-to-job transitions with both wage cuts and jumps.
    Keywords: wage dispersion, wage dynamics, job search, stock-flow matching
    JEL: J31 J63 J64
    Date: 2009–02
  8. By: Patrick McGuire
    Abstract: Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firms' top 10 shareholders, this paper explores the process of banks' equity disposal. There is some evidence that, after FY2001, banks' sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank - proxied by firm-bank loan and shareholding ties - continues to be negatively associated with firm performance through FY2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.
    Keywords: Cross-Shareholding; Main Bank; Japanese Banks; Firm Performance
    Date: 2009–03
  9. By: Alessio Moro
    Abstract: For a single firm with a given volatility of total factor productivity at the gross output level (GTFP), the volatility of total factor productivity at the value added level (YTFP) increases with the share of intermediate goods in gross output. For a Cobb-Douglas production function in capital, labor and intermediate goods, YTFP volatility is equal to GTFP volatility divided by one minus the share of intermediate goods in gross output. In the U.S., this share is steadily around 0.6 for manufacturing and 0.38 for services during the 1960-2005 period. Thus, the same level of GTFP volatility in the two sectors implies a 55% larger YTFP volatility in manufacturing. This fact contributes to the higher measured YTFP volatility in manufacturing with respect to services. It follows that, as the services share in GDP increases from 0.53 in 1960 to 0.71 in 2005 in the U.S., GDP volatility is reduced. I construct a two-sector dynamic general equilibrium input-output model to quantify the role of the structural transformation between manufacturing and services in reducing the U.S. GDP volatility. Numerical results for the calibrated model economy suggest that the structural transformation can account for 32% of the GDP volatility reduction between the 1960-1983 and the 1984-2005 periods.
    Keywords: Volatility decline, Structural change, Real business cycle, Total factor productivity
    JEL: C67 C68 E25 E32
    Date: 2009–02
  10. By: Kurokawa, Yoshinori
    Abstract: The number of firms and the wage inequality increased in U.S. manufacturing industries after the late 1970s and early 1980s, when the so-called "Carter/Reagan deregulation" was implemented. This paper provides a possible theoretical explanation for this observed relationship between the number of firms and the wage inequality on the basis of fixed cost. By modifying a variety model, we show that lowering the fixed cost of entry increases the variety of inputs used by the final good. The skill premium then rises through variety-skill complementarity. Our model also shows that the size of a firm decreases and the real wage of low-skilled labor does not necessarily decline, which are compatible with U.S. observations.
    Keywords: Fixed cost; The number of firms; Skill premium; Variety-skill complementarity
    JEL: L51 L13 J31
    Date: 2008–10–10
  11. By: Anusha Chari; Wenjie Chen; Kathryn M.E. Dominguez
    Abstract: This paper examines the recent upsurge in foreign acquisitions of U.S. firms, specifically focusing on acquisitions made by firms located in emerging markets. Neoclassical theory predicts that, on net, capital should flow from countries that are capital-abundant to countries that are capital-scarce. Yet increasingly emerging market firms are acquiring assets in developed countries. Using transaction-specific acquisition data and firm-level accounting data we evaluate the post-acquisition performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007. Our empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of non-acquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets and employment), relative to matched non-acquired U.S. firms before the acquisition year. In the years following the acquisition, sales and employment decline while profitability rises, suggesting significant restructuring of the target firms.
    JEL: F21 F23 G34
    Date: 2009–03
  12. By: Davide Furceri
    Abstract: This paper analyzes the effects of fiscal convergence on business cycle volatility and growth. Using a panel 21 OECD countries (including 11 EMU countries) and 40 years of data, we find that countries with similar government budget positions tend to have smoother business cycles. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with smoother business cycles. We also find evidence that reduced business cycle volatility through higher fiscal convergence stimulates growth. Our empirical results are economically and statistically significant and robust.<P>Convergence budgétaire, volatilité des cycles économiques et croissance<BR>Ce document analyse les effets de la convergence budgétaire sur la volatilité des cycles économiques et la croissance. En utilisant un échantillon de 21 pays de l’OCDE (incluant 11 pays de la zone euro) sur 40 ans, nous trouvons que les pays qui ont des positions budgétaires similaires tendent à avoir des cycles plus lisses. Cela signifie que la convergence budgétaire (sous la forme de ratios de déficit en point de PIB constamment similaires) est systématiquement associée à des cycles économiques plus lisses. Nous trouvons également qu’une volatilité des cycles économiques réduite grâce à une convergence budgétaire stimule la croissance. Nos résultats empiriques sont économiquement et statistiquement significatifs et robustes.
    Keywords: croissance économique, economic growth, business cycle volatility, volatilité des cycles économiques, fiscal convergence, convergence budgétaire
    JEL: E44 G20 G21 G28 R21
    Date: 2009–02–25
  13. By: Kaniska Dam (CIDE); Marc Escrihuela-Villar (Universitat de les Illes Balears); Santiago Sánchez-Pagés (Edinburgh School of Economics)
    Abstract: We analyse risk-taking behaviour of banks in the context of spatial competition. Banks mobilise unsecured deposits by offering deposit rates, which they invest either in a prudent or in a gambling asset. Limited liability along with high return of a successful gamble induce moral hazard at the bank level. We show that when the market concentration is low, banks invest in the gambling asset. On the other hand, for sufficiently high levels of market concentration, all banks choose the prudent asset to invest in. We further show that a merger of two neighboring banks increases the likelihood of prudent behaviour. Finally, introduction of a deposit insurance scheme exacerbates banks’ moral hazard problem.
    Keywords: Market concentration; Bank mergers; Risk-taking
    JEL: G21 L11 L13
    Date: 2009
  14. By: Paloma López-García (Banco de España); Sergio Puente (Banco de España); Ángel Luis Gómez (Banco de España)
    Abstract: Despite the relevance in terms of policy, we still know little in Spain about where and by whom jobs are created, and how that is affecting the size distribution of firms. The main innovation of this paper is to use a rich database that overcomes the problems encountered by other firm-level studies to shed some light on the employment generation of small firms in Spain. We find that small firms contribute to employment disproportionately across all sectors of the economy although the difference between their employment and job creation share is largest in the manufacturing sector. The job creators in that sector are both new and established firms whereas only new small firms outperform their larger counterparts in the service sector. The large annual job creation of the small firm size class is shifting the firm size distribution towards the very small production units, although not uniformly across industries of different technology intensity.
    Keywords: Firm-level data, employment creation and destruction, and firm size distribution
    JEL: L11 L53 J21
    Date: 2009–03
  15. By: Pindado, Julio (Departamento de Administración y Economía de la Empresa, Facultad de Economía y Empresa, Universidad de Salamanca); Requejo, Ignacio (Departamento de Administración y Economía de la Empresa, Facultad de Economía y Empresa, Universidad de Salamanca); Torre, Chabela de la (Departamento de Administración y Economía de la Empresa, Facultad de Economía y Empresa, Universidad de Salamanca)
    Abstract: Given the importance of family firms all over the world, our main objective is to study whether ownership concentration in the hands of family owners contributes to increase the market value of the firm. Additionally, we analyze whether family firms outperform nonfamily corporations. The estimation of our models by using the Generalized Method of Moments provides interesting results. We find that family ownership positively impacts on firm value. Nevertheless, when ownership concentration in the hands of the family is too high, firm value decreases; thus giving rise to a non-linear relation between family ownership concentration and firm value. Moreover, our results show that young family firms perform better than old ones. Finally, we find that family firms are superior performers to non-family ones, even when nonlinearities are taken into account; but the better performance is primarily due to young family corporations. Overall, the empirical evidence provided supports a positive impact of family ownership on firm value, supporting the idea that family control may be beneficial to minority shareholders
    Keywords: family firm, ownership concentration, firm value.
    JEL: G32
    Date: 2008–04
  16. By: Francis Green
    Abstract: Using new job requirements data for Britain I show that there has been a rise in various forms of communication tasks: influencing and literacy tasks have grown especially fast, as have self-planning tasks. External communication tasks, and numerical tasks have also become more important, but physical tasks have largely remained unchanged. Although the classification of tasks as programmable or otherwise is found to be problematic, computer use accounts for much of the changed use of generic skills. Going beyond the technology, I investigate whether organisational changes requiring greater employee involvement explain some of the new skill requirements. Using either industry or occupation panel analyses, I find that employee involvement raises the sorts of generic skills that human resource management models predict, in particular three categories of communication skills and self-planning skills. These effects are found to be independent of the effect of computers on generic skills.
    Keywords: communication skill; literacy; numeracy; computers; autonomy
    JEL: J21 J23 J24 J29
    Date: 2009–02
  17. By: Jason Beeler; John Y. Campbell
    Abstract: The long-run risks model of asset prices explains stock price variation as a response to persistent fluctuations in the mean and volatility of aggregate consumption growth, by a representative agent with a high elasticity of intertemporal substitution. This paper documents several empirical difficulties for the model as calibrated by Bansal and Yaron (BY, 2004) and Bansal, Kiku, and Yaron (BKY, 2007a). BY's calibration counterfactually implies that long-run consumption and dividend growth should be highly persistent and predictable from stock prices. BKY's calibration does better in this respect by greatly increasing the persistence of volatility fluctuations and their impact on stock prices. This calibration fits the predictive power of stock prices for future consumption volatility, but implies much greater predictive power of stock prices for future stock return volatility than is found in the data. Neither calibration can explain why movements in real interest rates do not generate strong predictable movements in consumption growth. Finally, the long-run risks model implies extremely low yields and negative term premia on inflation-indexed bonds.
    JEL: E21 G12
    Date: 2009–03
  18. By: Isao Ishida (Faculty of Economics and Graduate School of Public Policy, University of Tokyo); Toshiaki Watanabe (Institute of Economic Research, Hitotsubashi University)
    Abstract: This paper estimates a dynamic oligopoly model to assess the economic consequences of a horizontal merger that took place in 1970 to create the second largest global producer of steel. The paper solves a Markov perfect Nash equilibrium for the model and simulates the welfare effects of the horizontal merger. Estimates reveal that the merger enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while the exercise of market power was restrained primarily by the presence of fringe competitors. Our simulation result also indicates that structural remedies endorsed by the competition authority failed to promote competition. model.
    Date: 2009–01
  19. By: Edwards, Jeremy S S; Weichenrieder, Alfons J
    Abstract: The recent corporate governance literature has emphasised the distinction between control and cash-flow rights but has disregarded measurement issues. Control rights may be measured by immediate shareholder votes, the voting rights as traced through ownership chains, or voting power indices that may or may not trace ownership through chains. We compare the ability of various measures to identify the effects of ownership concentration on share valuation using a German panel data set. The widely-used weakest link principle does not perform well in this comparison. Furthermore, measures that trace control through ownership chains do not outperform those that rely on immediate ownership, thus questioning the role of pyramids in the separation of control and cash-flow rights. The paper emphasises that there is a distinction between these two aspects of ownership even without pyramids or preferred stock, identification of which requires measures that, like the Shapley-Shubik index, do not simply equate control rights with voting rights.
    Keywords: Control rights; Cash-flow rights; Pyramids; Ownership structure
    JEL: G34 G32
    Date: 2009–01–14
  20. By: Acharya, Viral V; Myers, Stewart C; Rajan, Raghuram G
    Abstract: We develop a model of internal governance where the self-serving actions of top management are limited by the potential reaction of subordinates. We find that internal governance can mitigate agency problems and ensure firms have substantial value, even without any external governance. Internal governance seems to work best when both top management and subordinates are important to value creation. We then allow for governance provided by external financiers and show that external governance, even if crude and uninformed, can complement internal governance in improving efficiency. Interestingly, this leads us to a theory of investment and dividend policy, where dividends are paid by self-interested CEOs to maintain a balance between internal and external control. Finally, we explore how the internal organization of firms may be structured to enhance the role of internal governance. Our paper could explain why firms with limited external oversight, and firms in countries with poor external governance, can have substantial value.
    Keywords: Agency theory; Corporate governance; Dividends; Internal organization; Short-termism
    JEL: D23 G31 G32 G34 G35 L21 M51
    Date: 2009–03
  21. By: Luís Francisco Aguiar (Universidade do Minho - NIPE); Maria Joana Soares (Universidade do Minho - Departamento de Matemática)
    Abstract: We use wavelets, cross-wavelets, wavelet-phase analysis, wavelet-clustering and multidimensional mapping to study business cycle synchronization across countries that are part of the Euro12 Area. Based on the wavelet spectra, we propose a metric to measure business cycle disynchronicity. We identify Germany, France, Spain, Austria and the Benelux countries as the core of the Euroland and another group with a less synchronous business cycle and ask whether these latter countries are converging to the Euroland core, and, if so, at what frequencies. With the exception of Portugal,all countries are converging to the Euro core. This convergence is particularly strong in the case of Ireland and Italy.
    Date: 2009
  22. By: Erik Monsen (Max Planck Institute of Economics, Jena, Germany); Diemo Urbig (Max Planck Institute of Economics, Jena, Germany)
    Abstract: Based on the aggregated insights of the existing theories related to multiple sources of efficacy and locus of control, we introduce the theory of mixed control, a model of compound-risk perception. This theory considers outcome expectancies as being composed of expectancies regarding three distinct sources of risk (self, others, and chance). This reflects that entrepreneurship is a complex and dynamic activity, involving multiple sources of risk. Beliefs about the efficacy of these elements are weighted by the degree to which these elements are perceived to control the outcome. The interaction of efficacy and control beliefs is therefore at the core of our theory. Further, we discuss that risks are not only subjectively perceived but can be endogenous and depend on future decisions and actions of the entrepreneur.
    Keywords: locus of control, self-efficacy, risk perception
    JEL: D8 D83 D84
    Date: 2009–03–04
  23. By: Tong, Hui; Wei, Shang-Jin
    Abstract: If a non-financial firm does not do well in a financial crisis, it could be due to either a contraction of demand for its output or a contraction of supply of external finance. We propose a framework to assess the relative importance of the two shocks, making use of a measure of a firm's financial constraint based on Whited and Wu (2006) and another measure of sensitivity to a demand shock, and apply it to the 2007-2008 crisis. We find robust evidence suggesting that both channels are at work, but that a finance shock is economically more important in understanding the plight of non-financial firms.
    Keywords: demand shock; financial crisis; liquidity constraint
    JEL: G2 G3
    Date: 2009–03
  24. By: Michelle Alexopoulos; Jon Cohen
    Abstract: Are uncertainty shocks an important source of post WWII business cycle fluctuations? The evidence we present in this paper suggests they are. Using both the traditional measure of uncertainty – the stock market volatility index – and a new one - based on the number of New York Times’ articles on uncertainty and economic activity - we demonstrate that these shocks generate short sharp recessions and recoveries. Output, employment, productivity, consumption and investment all decrease in response to an unanticipated rise in uncertainty. Moreover, we find that wide spread changes in the level of uncertainty captured by our new newspaper index can account for between 10 and 25 percent of the short-run variation in these variables.
    Keywords: Uncertainty shocks, Business cycles
    JEL: E32 E2 C82
    Date: 2009–02–24
  25. By: Souma, Wataru; Ikeda, Yuichi; Iyetomi, Hiroshi; Fujiwara, Yoshi
    Abstract: The distribution of labour productivity is investigated by analyzing the longitudinal micro-level data set which contains detailed financial condition of large numbers of Japanese companies over the period 1996–2006. The generalized beta function of the second kind is applied to explain the distribution. We calculate marginal labour productivity by using the fitting parameters, and show that the economy in the labour market is not in equilibrium. By comparing parameters characterizing high productivity range and low productivity range, we show that inequality of low productivity range is larger than that of high productivity range. In addition, it is shown that the change of inequality in low productivity has strong correlation with GDP.
    Keywords: Labour productivity, marginal labour productivity, inequality
    JEL: C16 E23 L60
    Date: 2009
  26. By: Guido Menzio (Department of Economics, University of Pennsylvania); Shouyong Shi (Department of Economics, University of Toronto)
    Abstract: We build a directed search model of the labor market in which workers’ transitions between unemployment, employment, and across employers are endogenous. We prove the existence, uniqueness and efficiency of a recursive equilibrium with the property that the distribution of workers across employment states affects neither the agents’ values and strategies nor the market tightness. Because of this property, we are able to compute the equilibrium outside the non-stochastic steady-state. We use a calibrated version of the model to measure the effect of productivity shocks on the US labor market. We find that productivity shocks generate procyclical fluctuations in the rate at which unemployed workers become employed and countercyclical fluctuations in the rate at which employed workers become unemployed. Moreover, we find that productivity shocks generate large counter-cyclical fluctuations in the number of vacancies opened for unemployed workers and even larger procyclical fluctuations in the number of vacancies created for employed workers. Overall, productivity shocks alone can account for 80 percent of unemployment volatility, 30 percent of vacancy volatility and for the nearly perfect negative correlation between unemployment and vacancies.
    Keywords: Directed search, On the Job Search, Business Cycles
    JEL: E24 E32 J64
    Date: 2008–08–11
  27. By: Burkhard Raunig (Oesterreichische Nationalbank, Economic Studies Division, P.O. Box 61, A-1010 Vienna,); Martin Scheicher (European Central Bank, Kaiserstrasse 29, D – 60311, Frankfurt am Main, Germany,)
    Abstract: This paper uses regression analysis to compare the market pricing of the default risk of banks to that of other firms. We study how CDS traders discriminate between banks and other type of firms and how their judgement changes over time, in particular, since the start of the recent financial turmoil. We use monthly data on the Credit Default Swaps (CDS) of 41 major banks and 162 non-banks. By means of panel analysis, we decompose the CDS premia into the expected loss and the risk premium. Our primary result is that market participants indeed viewed banks differently and that they drastically changed their mind during the recent turmoil that started in August 2007.
    Keywords: Credit default swap, market discipline, default risk, risk premium
    JEL: E43 G12 G13
    Date: 2009–02–16
  28. By: Martin Schneider (Oesterreichische Nationalbank, Economic Analysis Division, P.O. Box 61, A-1010 Vienna,); Christian Ragacs (Oesterreichische Nationalbank, Economic Analysis Division, P.O. Box 61, A-1010 Vienna,)
    Abstract: This paper proposes an informal taxonomy to break down forecast errors of institutional forecasts. This breakdown is demonstrated for the forecasts of the Oesterreichische Nationalbank (OeNB) for Austrian GDP. The main result is that the largest part of the forecast errors can be explained by erroneous projections of the international environment. Data revisions also substantially contribute to the forecasting error for the forecast of the current year. Domestic exogenous variables play a minor role only. The inclusion of judgement improves the forecasting performance.
    Keywords: Forecast error taxonomy; Breakdown; Austria; Judgement; Technical forecast.
    Date: 2009–02–11

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