nep-bec New Economics Papers
on Business Economics
Issue of 2009‒10‒03
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Wage insurance within German firms: do institutions matter? By Guertzgen, Nicole
  2. Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data By Daniel Bens; Philip Berger; Steven Monahan
  3. Do institutional changes affect business cycles? Evidence from Europe By Fabio Canova; Matteo Ciccarelli; Eva Ortega
  4. Recovery Rates and Macroeconomic Conditions: The Role of Loan Covenants By Zhang, Zhipeng
  5. The Quantitative Importance of News Shocks in Estimated DSGE Models By Hashmat Khan; John Tsoukalas
  6. Efficient organization of production: nested versus horizontal outsourcing By Oz Shy; Rune Stenbacka
  7. Decreasing wage mobility in Germany By Gernandt, Johannes
  8. Detecting Contagion with Correlation: Volatility and Timing Matter By Mardi Dungey; Abdullah Yalama
  9. Bank capital and value in the cross section By Hamid Mehran; Anjan Thakor
  10. Ambitious entrepreneurship, high-growth firms and macroeconomic growth By André van Stel; Roy Thurik; Erik Stam; Chantal Hartog
  11. Inflation, Human Capital and Tobin's <i>q</i> By Basu, Parantap; Gillman, Max; Pearlman, Joseph
  12. The Effect of Energy Prices on Operation and Investment in OECD Countries: Evidence from the Vintage Capital Model By Steinbuks, J.; Meshreky, A.; Neuhoff, K.
  13. Think Again: Higher Elasticity of Substitution Increases Economic Resilience By P. Dumas; S. Hallegatte
  14. Gender Wage Gaps Reconsidered: A Structural Approach Using Matched Employer-Employee Data By Cristian Bartolucci
  15. Blockholdings and corporate governance in the EU banking sector By Köhler, Matthias
  16. Cournot Oligopoly and Concavo-Concave Demand By Christian Ewerhart
  17. Do risk attitudes differ within the group of entrepreneurs? By Block, Joern; Sandner, Philipp; Spiegel, Frank
  18. Global rebalancing in a three-country model By Engler, Philipp
  19. Price-increasing competition: the curious case of overdraft versus deferred deposit credit By Brian T. Melzer; Donald P. Morgan
  20. Assessing the Impact of Wage Bargaining and Worker Preferences on the Gender Pay Gap in Ireland Using the National Employment Survey 2003 By McGuinness, Seamus; Kelly, Elish; O'Connell, Philip J.; Callan, Tim
  21. Privatization and liberalization in vertically linked markets By Stähler, Frank; Traub, Stefan

  1. By: Guertzgen, Nicole
    Abstract: Using a large linked employer-employee data set, this paper studies the extent to which employers insure workers against transitory and permanent firm-level shocks. Particular emphasis is given to the question of whether the amount of wage insurance depends on the nature of industrial relations. Adopting the identification strategy proposed by Guiso et al. (2005), it is shown that wage insurance is particularly apparent for individuals subject to collective wage agreements. While collective contracts alone are sufficient to fully insure workers against transitory shocks in small plants, they provide only partial insurance in medium-sized and large plants. At large employers, the joint existence of collective contracts and works councils helps to provide full insurance against transitory shocks, but provides only partial insurance against permanent shocks. This finding is consistent with the amount of insurance against permanent shocks being constrained by the possibility of considerable job losses and bankruptcy.
    Keywords: Wage insurance,linked employer-employee data,collective bargaining
    JEL: J31 J51
    Date: 2009
  2. By: Daniel Bens; Philip Berger; Steven Monahan
    Abstract: We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports, conducting our tests by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether that pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We find pseudo-segments are more likely to be aggregated within a line-of-business segment when the agency and proprietary costs of separately reporting the pseudo-segment are higher and when firm and pseudo-segment characteristics allow for more discretion in the application of segment reporting rules. For firms reporting multiple external segments, aggregation of pseudo-segments is driven by both agency and proprietary costs. However, for firms reporting a single external segment, we find no evidence of an agency cost motive for aggregation.
    Date: 2009–09
  3. By: Fabio Canova (ICREA-UPF); Matteo Ciccarelli (European Central Bank); Eva Ortega (Banco de España)
    Abstract: We study the effects that the Maastricht treaty, the creation of the ECB, and the Euro changeover had on the dynamics of European business cycles using a panel VAR and data from ten European countries - seven from the Euro area and three outside of it. There are slow changes in the features of business cycles and in the transmission of shocks. Time variations appear to be unrelated to the three events of interest and instead linked to a process of European convergence and synchronization.
    Keywords: Business cycles, European Monetary Union, Panel VAR, Structural changes
    JEL: C15 C33 E32 E42
    Date: 2009–09
  4. By: Zhang, Zhipeng
    Abstract: For U.S. firms from 1988 to 2007, firms with stricter loan covenants had higher firm-level default recovery rates. Covenants were stricter, moreover, when set during downturns in the business cycle. This implies a negative dependence of recovery rates on lagged macroeconomic conditions. That is, bank loan contracts established in economic recessions have tight covenants, leading later to higher recovery rates. My empirical evidence suggests that private creditors have significant influence on firms' bankruptcy decisions through the channel of covenants in debt contracts.
    Keywords: Recovery rate; Bankruptcy; Loan covenant; Creditor control; Business cycle
    JEL: E32 G32 G33 G21
    Date: 2009–09–02
  5. By: Hashmat Khan (Department of Economics, Carleton University); John Tsoukalas (Department of Economics, University of Nottingham)
    Abstract: We estimate a dynamic stochastic general equilibrium (DSGE) model with several frictions and shocks, including news shocks to total factor productivity (TFP) and investment-specic (IS) technology, using quarterly US data from 1954-2004 and Bayesian methods. When all types of shocks are considered, TFP news and IS news compete with other atemporal and intertemporal shocks and account for less than 1.5% and 0.15% of the unconditional variance of output growth, respectively. In the fleexible price-wage environment, the contributions of the two shocks are 2.4% and 0%, respectively. When we exclude an atemporal (price markup) shock, the role for TFP news rises but the t of that model is substantially poorer relative to the benchmark model. Based on the variance decompositions and impulse responses, our ndings suggest that news shocks are likely to be less important in estimated sticky price-wage DSGE models relative to perfectly competitive models.
    Keywords: News shocks, Business cycles, DSGE models
    JEL: E2 E3
    Date: 2009–09–22
  6. By: Oz Shy; Rune Stenbacka
    Abstract: The authors characterize equilibrium and efficient modes of production by comparing nested (vertical) outsourcing with horizontal outsourcing. Nested outsourcing is found to be inefficient unless the cost of monitoring outsourced production lines increases sharply with the number of subcontractors and not only with the number of outsourced components. They characterize a market failure in which nested outsourcing is selected when the case dictates that horizontal outsourcing is the efficient outsourcing mode. This failure occurs at an intermediate range of the costs of monitoring outsourcing to several subcontractors.
    Keywords: Contracting out
    Date: 2009
  7. By: Gernandt, Johannes
    Abstract: Using data from the German Socio Economic Panel (SOEP) for the years 1984 to 2007, this paper analyses the amount, the development and the explanations of wage mobility, as well as volatility in West Germany, measured by ranks in the wage distribution. Individual wage mobility decreased between 1984/1987 and 2004/2007, while inequality increased steadily from the mid 1990s onwards. Mobility is highest in the middle section of the distribution. Better qualified persons, younger persons and employees of larger firms have higher chances of moving upwards. Wages are more volatile in the low-wage sector and for individuals moving downwards in the wage distribution.
    Keywords: Wage mobility,ranks,inequality,distribution,SOEP
    JEL: J31 J60 D31
    Date: 2009
  8. By: Mardi Dungey; Abdullah Yalama
    Abstract: We examine whether contagion tests are affected by controls for volatility clustering and the collection of synchronized data sets. Without controlling for volatility clustering synchronization does not apparently matter. Once volatility clustering is accounted for synchronized data dramatically changes results.
    JEL: C23
    Date: 2009–09
  9. By: Hamid Mehran; Anjan Thakor
    Abstract: We address two questions: (i) Are bank capital structure and value correlated in the cross section, and if so, how? (ii) If bank capital does affect bank value, how are the components of bank value affected by capital? We first develop a dynamic model with a dissipative cost of bank capital that is traded off against the benefits of capital: strengthened incentives for the bank to engage in value-enhancing loan monitoring and a higher probability of avoiding regulatory closure due to loan delinquencies. The model predicts that (i) the total value of the bank and its equity capital are positively correlated in the cross section, and (ii) the various components of bank value--the synergies among the bank's assets and liabilities and the net present value to the shareholders of investing capital in the bank--are also positively cross-sectionally related to bank capital. When we confront the predictions with the data on bank acquisitions, we find strong support. The results are robust to a variety of alternative explanations--growth prospects, desire to acquire toe-hold positions, desire of capital-starved acquirers to buy capital-rich targets, market timing, pecking order, the effect of banks with binding capital requirements, too-big-to-fail, target profitability, risk, and mechanical effects.
    Keywords: Bank capital ; Bank assets
    Date: 2009
  10. By: André van Stel; Roy Thurik; Erik Stam; Chantal Hartog
    Abstract: We estimate the impact of ambitious entrepreneurship (entrepreneurs expecting to grow their firm) and high-growth firms (firms that have actually realized high growth rates) on subsequent macroeconomic growth for a sample of countries participating in the Global Entrepreneurship Monitor between 2002-2005. We find that ambitious entrepreneurship has a positive impact on macroeconomic growth. This effect is stronger than that of entrepreneurship in general. Surprisingly, this effect of ambitious entrepreneurship is stronger in low-income countries than in high-income countries. Established high-growth firms do not seem to drive macroeconomic growth.  
    Date: 2009–09–25
  11. By: Basu, Parantap; Gillman, Max (Cardiff Business School); Pearlman, Joseph
    Abstract: A pervasive empirical finding for the US economy is that inflation is negatively correlated with the normalized market price of capital (Tobin's q) and growth. A dynamic stochastic general equilibrium model of endogenous growth is developed to explain these stylized facts. In this model, human capital is the principal driver of self-sustained growth. Long run comparative statics analysis suggests that inflation diverts scarce time resource to leisure which lowers human capital utilization. This impacts growth adversely and modulates capital adjustment cost downward resulting in a decline in Tobin's q. For the short run, a Tobin effect of inflation on growth weakens the negative association between inflation and q.
    Date: 2009–09
  12. By: Steinbuks, J.; Meshreky, A.; Neuhoff, K.
    Abstract: This paper analyzes the effect of energy prices on energy efficiency, separately accounting for operational and investment choices in different sectors. For this purpose, capital stock is characterised by vintages with different intensities of energy use, calculated as a function of exogenously-evolving technology availability and energy prices. Our model separately accounts for substitution between inputs to for production (labour, energy and materials), and the potential for more efficient use of these inputs by choosing more efficient technologies at the time of investment. The model is estimated for 23 OECD countries across four sectors, and their respective prices for final energy consumption over the period 1990-2005. Vintage representation of capital stock significantly improves the explanatory value of the model at the sector level. Our results imply that rising energy costs result in substantial decline in energy use in the long-run.
    Keywords: energy efficiency, energy prices, investment, vintage capital model
    JEL: D24 E22 Q41 Q43
    Date: 2009–09–24
  13. By: P. Dumas (Centre International de Recherche sur l’Environnement et le Développement (CIRED)); S. Hallegatte (Ecole Nationale de la Météorologie, Météo-France and CIRED)
    Abstract: This paper shows that, counter-intuitively, a higher elasticity of substitution in model production function can lead to reduced economic resilience and larger vulnerability to shocks in production factor prices. This result is due to the fact that assuming a higher elasticity of substitution requires a recalibration of the production function parameters to keep the model initial state unchanged. This result has consequences for economic analysis, e.g., on the economic vulnerability to climate change.
    Keywords: Substitution, Calibration, Constant Elasticity of Substitution, Shock
    JEL: D24 E17 E23
    Date: 2009–08
  14. By: Cristian Bartolucci
    Abstract: In this paper I propose and estimate an equilibrium search model using matched employer-employee data to study the extent to which wage differentials between men and women can be explained by differences in productivity, disparities in friction patterns, segregation or wage discrimination. The availability of matched employer-employee data is essential to empirically disentangle differences in workers productivity across groups from differences in wage policies toward those groups. The model features rent splitting, on-the-job search and two-sided heterogeneity in productivity. It is estimated using German microdata. I find that female workers are less productive and more mobile than males, I only find significant evidence of discrimination in the construction sector. The total gender wage gap is 38 percent. It turns out that most of the gap, 82 percent, is accounted for by differences in productivity, 6.8 percent is driven by segregation while differences in destruction rates explain 1.2 percent of the total wage-gap. Netting out differences in offer-arrival rates would increase the gap by 2.5 percent. Due to differences in wage setting, female workers receive wages 4.7 percent lower than male ones.
    Keywords: Labor market discrimination, search frictions, structural estimation, matched employer-employee data.
    JEL: J70 C51 J64
    Date: 2009
  15. By: Köhler, Matthias
    Abstract: Ownership structures widely differ across the EU. While large blockholdings dominate in the banking sector in Continental Europe, ownership is widely dispersed in the United Kingdom. These differences have consequences for corporate governance in the EU banking sector. This paper analyzes the efficiency of shareholder control and hostile takeovers as corporate governance mechanisms in the EU banking sector against the background of the regulatory environment and differences in the ownership structure of banks. Particular attention is put on current trends in the ownership structure of banks (e. g. sovereign wealth funds). The paper is based on a new dataset on shareholdings in listed banks in the EU banking sector. The results indicate that EU regulations have not always improved corporate governance in the banking sector. While shareholder control has been improved by a better protection of minority shareholder rights, the efficiency of the takeover market has been reduced in Continental Europe.
    Keywords: Banks,blockholdings,corporate governance,hostile takeovers,takeover directive
    JEL: G21 G34 G38 K29
    Date: 2009
  16. By: Christian Ewerhart
    Abstract: The N-firm Cournot model with general technologies is reviewed to derive generalized and unified conditions for existence of a pure strategy Nash equilibrium. Tight conditions are formulated alternatively (i) in terms of concavity of two-sided transforms of inverse demand, or (ii) as linear constraints on the elasticities of inverse demand and its first derivative. These conditions hold, in particular, if a firm’s marginal revenue decreases in other firms’ aggregate output, or if inverse demand is logconcave. The analysis relies on lattice-theoretic methods, engaging both cardinal and ordinal notions of supermodularity. As a byproduct, a powerful test for strict quasiconcavity is obtained.
    Keywords: Cournot competition, existence of Nash equilibrium, concavity of demand, supermodular games, strict quasiconcavity
    JEL: L13 C72 C62
    Date: 2009–09
  17. By: Block, Joern; Sandner, Philipp; Spiegel, Frank
    Abstract: The notion of risk and entrepreneurship has been widely discussed in the entrepreneurship literature. Starting a business involves risk and requires a risk-taking attitude. Most studies have com-pared entrepreneurs with non-entrepreneurs such as managers or bankers. So far, little research exists on the risk attitudes of different types of entrepreneurs. This study aims to fill this gap. Our particular focus is on the entrepreneurs’ motivations to start their business. The results show that opportunity entrepreneurs are more willing to take risks than necessity entrepreneurs. In addition, entrepreneurs who are motivated by creativity are more risk-tolerant than other entrepreneurs. The study contributes to the literature about risk attitudes of entrepreneurs and to the literature about necessity and opportunity entrepreneurship.
    Keywords: Entrepreneurship; Self-employment; Risk attitude; Necessity entrepreneurship; Creativity entrepreneurship
    JEL: L26 M13 J23
    Date: 2009–09–29
  18. By: Engler, Philipp
    Abstract: This paper extends the model of Engler et al. (2007) on the adjustment of the US current account to a three-country world economy. This allows an analysis of the differential impact of a reversal of the US current account on Europe and Asia. In particular, the outcomes under different exchange rate policies are analysed. The main finding is that large factor re-allocations from non-tradables to tradables will be necessary in the US. The direction of factor re-allocation in Asia depends on whether the Bretton-Woods-II regime of unilaterally fixed or manipulated exchange rates in Asia is continued. If this is the case, the tradables sector and the current account surplus will continue to grow even when the US deficit closes. The flip side of this result is that Europe will face a huge real appreciation and an enormous current account deficit. With floating exchange rates worldwide, the impact on Europe will be limited while Asia´s tradables sector will shrink.
    Keywords: Global imbalances,US current account deficit,dollar adjustment,sectoral adjustment
    JEL: E2 F32 F41
    Date: 2009
  19. By: Brian T. Melzer; Donald P. Morgan
    Abstract: We find that banks charge more for overdraft credit when depositors have access to a potential substitute: deferred deposit ("payday") credit. We attribute this rise in prices partly to adverse selection created by banks' practice of charging a flat fee regardless of the overdraft amount--pricing that favors depositors prone to large overdrafts. When deferred deposit credit priced per dollar borrowed is available, depositors prone to small overdrafts switch to that option. That selection works against banks; large overdrafts cost more to supply and, if depositors default, banks lose more, so prices rise. Consistent with this adverse-selection hypothesis, we document that the average dollar amount per returned check at banks and other depository institutions increases when depositors have access to deferred deposit credit. Beyond documenting another case of price-increasing competition, our findings bear on theories of adverse selection in credit markets and contribute to the debate over the pros and cons of payday credit.
    Keywords: Overdrafts ; Bank competition ; Banks and banking - Service charges ; Bank deposits
    Date: 2009
  20. By: McGuinness, Seamus (ESRI); Kelly, Elish (ESRI); O'Connell, Philip J. (ESRI); Callan, Tim (ESRI)
    Abstract: This paper assesses the magnitude and nature of the gender pay gap in Ireland using the National Employment Survey 2003, an employeremployee matched dataset. The results suggest that while a wage bargaining system centred around social partnership was of benefit to females irrespective of their employment status, the minimum wage mechanism appears to improve the relative position of part-time females only. Trade union membership was associated with a widening gender pay gap in the full-time labour market and a narrowing differential among part-time workers. In relation to the motivations for working part-time, which help us to account for selection into part-time employment, our results indicate that when these factors are incorporated into the part-time decomposition, the previously observed wage gap is eliminated.
    Keywords: Gender wage gap; Wage bargaining regime; Full-time/part-time labour markets; Linked employer-employee data, Ireland
    Date: 2009–09
  21. By: Stähler, Frank; Traub, Stefan
    Abstract: State-owned enterprises (SOEs) are often vertically integrated firms which operate in key industries like transport, telecommunication and power generation. They provide an infrastructure and invest in its quality. We discuss the effects of liberalization and their privatization which can be complete or partial such that upstream production is still run by an SOE. We show that granting a downstream rival access to the infrastructure of a vertically integrated private firm is welfare improving in most cases even if a holdup problem exists. For any vertically separated structure we find that privatization through multi-product firms welfare dominates privatization through single-product firms. ; Öffentliche Unternehmen (SOEs) sind häufig als vertikal integrierte Unternehmen in bedeutenden Industrien wie Transportwesen, Telekommunikation und Stromversorgung tätig. Sie stellen eine Infrastruktur bereit und investieren in deren Qualität. Wir diskutieren die Effekte von Liberalisierung und Privatisierung, wobei die Privatisierung vollständig oder nur partiell vorgenommen werden kann, so dass die vorgelagerte Produktionsstufe weiterhin durch ein SOE betrieben wird. Wir zeigen, dass es die Wohlfahrt steigernd ist, wenn auf der nachgelagerten Stufe Konkurrenten eines privatisierten vertikal integrierten Unternehmen der Zugriff auf die Infrastruktur gestattet wird. Dies gilt in den meisten Fällen auch trotz eines Holdup-Problems für den Betreiber der Infrastruktur. Im Falle vertikaler Trennung ergibt sich, dass die Privatisierung in Mehr-Produkt-Unternehmen der Privatisierung in Ein-Produkt-Unternehmen wohlfahrtsmäßig überlegen ist.
    Keywords: Privatization,vertical integration,state-owned enterprises
    JEL: L33 L23 H54
    Date: 2009

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