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on Business Economics |
| By: | Neus Herranz; Stefan Krasa; Anne P. Villamil |
| Abstract: | This paper assesses quantitatively the impact of legal institutions on entrepreneurial firm dynamics. Owners choose firm size, financial structure and default to manage risk. We find: (i) Less risk averse entrepreneurs run bigger firms and it is optimal for them to incorporate, while more risk averse entrepreneurs run smaller firms and generally are better off remaining unincorporated. (ii) More risk-averse owners tend to default more often than the less risk averse, though they carry less debt. (iii) The model estimates a credit constraint, which binds for many but not all entrepreneurs and matches bank lending criteria. The model also finds modest differences in owner risk aversion, consistent with micro studies. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:128&r=bec |
| By: | Hashmat Khan (Department of Economics, Carleton University); John Tsoukalas (Department of Economics, University of Nottingham) |
| Abstract: | Recent work based on sticky price-wage estimated dynamic stochastic general equilibrium (DSGE) models suggests investment shocks are the most important drivers of post-World War II US business cycles. Consumption, however, typically falls after an investment shock. This finding sits oddly with the observed business cycle comovement where consumption, along with hours-worked and investment, moves with economic activity. We show that this comovement problem is resolved in an estimated DSGE model when the cost of capital utilization is specified in terms of increased depreciation of capital, as originally proposed by Greenwood et al. (1988) in a neoclassical setting. Traditionally, the cost of utilization is specified in terms of forgone consumption following Christiano et al. (2005), who studied the effects of monetary policy shocks. The alternative specication we consider has two additional implications relative to the traditional one: (i) it has a substantially better fit with the data and (ii) the contribution of investment shocks to the variance of consumption is over three times larger. The contributions to output, investment, and hours, are also relatively higher, suggesting that these shocks may be quantitatively even more important than previous estimates based on the traditional specification. |
| Keywords: | Investment shocks, comovement, estimated DSGE models |
| JEL: | E2 E3 |
| Date: | 2009–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:09-09&r=bec |
| By: | Böheim, René (University of Linz); Zweimüller, Martina (University of Linz) |
| Abstract: | A firm's decision to employ agency workers may be perceived as a replacement of directly employed workers or as way to curb union power, which trade unions would oppose. Alternatively, trade unions may encourage the (temporary) employment of agency workers in a firm, if they manage to bargain higher wages for their members. We estimate the relationship between hiring agency workers and trade union activity at the workplace, in particular, the type of collective bargaining agreements. We use British data from the Workplace Employment Relations Surveys (WERS) of 1998 and 2004. The empirical association between the employment of agency workers and union strength is weak, but positive. Furthermore, workplaces with collective bargaining have lower wages in the presence of agency workers, suggesting that agency workers are hired against the unions. |
| Keywords: | work agency, trade union, collective bargaining, flexibility, Workplace Employment Relations Survey |
| JEL: | D21 J31 J40 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4492&r=bec |
| By: | Matteo Iacoviello (Boston College); Marina Pavan (The Geary Institute, University College Dublin) |
| Abstract: | We present an equilibrium life-cycle model of housing where nonconvex adjustment costs lead households to adjust their housing choice infrequently and by large amounts when they do so. In the cross-sectional dimension, the model matches the wealth distribution, the age profiles of consumption, homeownership, and mortgage debt, and data on the frequency of housing adjustment. In the time-series dimension, the model accounts for the procyclicality and volatility of housing investment, and for the procyclical behavior of household debt. We use a calibrated version of our model to ask the following question: what are the consequences for aggregate volatility of an increase in household income risk and a decrease in downpayment requirements? We distinguish between an early period, the 1950s through the 1970s, when household income risk was relatively small and loan-to-value ratios were low, and a late period, the 1980s through today, with high household income risk and high loan-to-value ratios. In the early period, precautionary saving is small, wealth-poor people are close to their maximum borrowing limit, and housing investment, homeownership and household debt closely track aggregate productivity. In the late period, precautionary saving is larger, wealth-poor people borrow less than the maximum and become more cautious in response to aggregate shocks. As a consequence, the correlation between debt and economic activity on the one hand, and the sensitivity of housing investment to aggregate shocks on the other, are lower, as is found the data. Quantitatively, our model can explain: (one) 45 percent of the reduction in the volatility of household investment; (two) the decline in the correlation between household debt and economic activity; (three) about 10 percent of the reduction in the volatility of GDP. |
| Keywords: | Housing, Housing Investment, Household Debt, Life-cycle Models, Income Risk, Homeownership, Dynamic Stochastic General Equilibrium Models. |
| JEL: | E22 E32 E44 E51 D92 R21 |
| Date: | 2009–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:723&r=bec |
| By: | Edward Glaeser; William Kerr; Giacomo Ponzetto |
| Abstract: | Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale. Our evidence suggests that entrepreneurship is higher when fixed costs are lower and when there are more entrepreneurial people. |
| Keywords: | Entrepreneurship, Industrial Organization, Chinitz, Agglomeration, Clusters, Cities |
| JEL: | J2 L0 L1 L2 L6 O3 R2 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-36&r=bec |
| By: | Laurent Bach (Paris School of Economics and CREST); Nicolas Serrano-Velarde (Oxford University Centre for Business Taxation) |
| Abstract: | We study how, at times of CEO transitions, the identity of the CEO successor shapes labor contracts within family firms. We propose an alternate view of how family management might underperform relative to external management in family firms. The idea developed in this paper is that, in contrast to external professionals, CEOs promoted from within the family not only inherit control of the firm but also inherit a set of implicit contracts that affects their ability to restructure the firm. Consistent with our dynastic commitment hypothesis, we find that family-promoted CEOs are associated with lower turnover of the workforce, lower wage renegotiation, and greater loyalty for the incumbent workforce. |
| Keywords: | Succession, Family Firms, Implicit Contracts |
| JEL: | D23 G32 J33 J44 M14 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:0924&r=bec |
| By: | Sebastian Braun |
| Abstract: | The effects of unions on productivity and firm performance have been the topic of extensive research. Existing studies have, however, primarily focused on firm-level bargaining and on markets that are characterised by a small and fixed number of identical firms. This paper studies how different unionisation structures affect firm productivity and firm performance in a monopolistic competition model with heterogeneous firms and free entry. While centralised bargaining induces tougher selection among heterogeneous producers and thus increases average productivity, firm-level bargaining allows less productive entrants to remain in the market. Centralised bargaining also results in higher average output and profit levels than either decentralised bargaining or a competitive labour market. From the perspective of consumers, the choice between centralised and decentralised bargaining involves a potential trade-off between product variety and product prices |
| Keywords: | Trade unions, heterogeneous firms, productivity, firm performance |
| JEL: | J24 J50 D43 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1566&r=bec |
| By: | Anastasiya Shamshur |
| Abstract: | The choice of capital structure by firms is a fundamental issue in financial literature. According to a recent finding, the capital structure of firms remains almost unchanged during their lives meaning that leverage ratios are significantly stable over time. The stability of leverage ratios is mainly generated by an unobserved firm-specific effect that is liable for the majority of variation in capital structure (Lemmon, Roberts, and Zender 2008). However, the study focuses on the US economy, which is relatively stable. I study how substantial changes in the economy affect the stability of firms' capital structure in transition countries. Specifically, I concentrate on Central and Eastern European economies that passed through transition from central planning to a market economy and privatization, the Russian financial crisis, and EU membership. In addition, I investigate whether the ownership structure of firms is responsible for the part of the unexplained variation in leverage. |
| Keywords: | Capital Structure, Financing Decisions, Eastern Europe |
| JEL: | G32 C23 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp393&r=bec |
| By: | Björn van Roye; Dennis Wesselbaum |
| Abstract: | We implement capital in an endogenous separations New Keynesian matching model. In contrast to the vintage capital theory, we suggest a more general approach, such that workers have unrestricted access to a proportional share of the capital stock. We find that the introduction of capital generates an important channel for the transmission of aggregate productivity shocks, using capital-labor trade-off. The model generates higher volatilities of key variables and therefore enhances the performance of the matching model to generate stylized facts in response to an aggregate productivity shock. However, there is almost no difference for monetary policy shocks |
| Keywords: | Capital, Endogenous Separations, Search and Matching |
| JEL: | E22 E32 J64 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1561&r=bec |
| By: | Marco Grazzi |
| Abstract: | Using firm level data this study investigates the relation between export activity and firm's profitability. The paper shows that, contrary to other performance indicators such as productivity, exporting activity is not systematically associated to higher firm's profitability. This is shown both by means of non-parametric methods and, with an approach that is more standard within the empirical trade literature, by regression techniques that try to identify an "export premium". |
| Keywords: | export premium; productivity; profitability |
| JEL: | F10 D20 L60 |
| Date: | 2009–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2009/16&r=bec |
| By: | Michael Hübler |
| Abstract: | This paper contributes to Hübler (2008) who analyses a partial equilibrium model of outsourcing with Cournot competition in intermediate good production. Final production is located in Western Europe, whereas the intermediate good can be manufactured by a Western (outsourcing) or Eastern European supplier (offshore outsourcing). The paper asks the question how changes in production costs, in particular wages, affect output and thus labor input in the two regions. The paper proves analytically that under certain conditions higher production costs in one region reduce intermediate good production in both regions |
| Keywords: | Offshoring, outsourcing, Cournot competition, intermediate goods, high-skilled, low-skilled |
| JEL: | D24 D43 F20 J31 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1564&r=bec |
| By: | Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide); José Luis Torres Chacón (Departamento de Teoría e Historia Económica de la Universidad de Málaga) |
| Abstract: | We use a dynamic general equilibrium growth model to quantify the contribution to productivity growth from different technological sources in the three leading economies of the world: Japan, Germany and the U.S. The sources of technology are classified into neutral progress and investment-specific progress. The latter can be split into two different types of equipment: Information and Communication Technologies (ICT) and non-ICT equipment. This decomposition analysis is done for both long term and short term growth. In the long run, neutral technological change is the main source of productivity growth in Japan and Germany. For the U.S., the main source of productivity growth arises from investment-specific technological change, mainly associated with ICT. Finally, impulse-response analysis reveals that deviations from the balanced growth path in the short run are mainly due to neutral shocks in the three countries. |
| Keywords: | Productivity growth; Investment-specific progress; Neutral progress; Information and communication technology. |
| JEL: | O3 O4 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:09.09&r=bec |
| By: | Blien, Uwe (IAB, Nürnberg); Dauth, Wolfgang (University of Erlangen-Nuremberg); Schank, Thorsten (University of Erlangen-Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg) |
| Abstract: | The wage curve identified by Blanchflower and Oswald (1994) postulates that the wage level is a decreasing function of the regional unemployment rate. In testing this hypothesis, most empirical studies have not taken into account that differences in the institutional framework may have an impact on the existence (or the slope) of a wage curve. Using a large-scale linked employer-employee data set for western Germany, this paper provides a first test of the relevance of different bargaining regimes and of works councils for the existence of a wage curve. In pooled regressions for the period 1998 to 2006 as well as in worker-level or plant-level fixed-effects estimations we obtain evidence for a wage curve for plants with a collective bargaining agreement at firm level. The point estimates for this group of plants are close to the -0.1 elasticity of wages with respect to unemployment postulated by Blanchflower and Oswald. In this regime, we also find that works councils dampen the adjustment of wages to the regional unemployment situation. In the other regimes of plants that either do not make use of collective contracts or apply sectoral agreements, we do not find a wage curve. |
| Keywords: | wages, wage curve, collective bargaining, Germany |
| JEL: | J50 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4488&r=bec |
| By: | Marco Capasso; Elena Cefis; Koen Frenken |
| Abstract: | This study analyses persistence in growth rates of the entire population of Dutch manufacturing firms. Previous literature on firm growth rates shows that extreme growth events are likely to be negatively correlated over time. A rebound effect following an extreme growth event questions the existence of persistent outperformers, indicated by a positive correlation over time. By supplementing the quantile regression analyses with transition probability matrices, our study shows that ?bouncing? firms co-exist with persistent outperformers. This result is robust if we exclude firms involved in acquisitions or spin offs. Differentiating among different size classes, we find that the existence of persistent outperformers is especially pronounced in micro firms. We interpret this finding as supporting the notion of a Schumpeter Mark I regime, with small firms displaying strong heterogeneity in their growth patterns, versus a Schumpeter Mark II regime, with large firms displaying less heterogeneity of growth. |
| Keywords: | firm growth; heterogeneity; persistence, transition probability matrices; quantile regression |
| JEL: | L11 L25 |
| Date: | 2009–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2009/15&r=bec |
| By: | Pouliakas, Konstantinos; Theodoropoulos, Nikolaos |
| Abstract: | Using two cross-sections of a representative dataset of British establishments, the effect of various forms of incentive pay (e.g. performance-related pay (PRP), profit-sharing, share ownership, cash bonuses) on the absence rates of firms is investigated. Incentives that are tightly linked to individual or group merit are found to be significantly related to lower absenteeism. Important disparities in the effect of PRP on absenteeism are detected, which depend on the extent of monitoring, private-public status, teamwork, and other organizational changes. The findings are robust to the potential endogenous relation between monitoring, PRP and absenteeism, and have important implications for the design of optimal compensation policies by firms. |
| Keywords: | performance-related pay; incentives; absenteeism |
| JEL: | J22 C21 J33 |
| Date: | 2009–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18238&r=bec |
| By: | Hideo Konishi (Boston College); Chiu Yu Ko (Boston College) |
| Abstract: | This paper considers a matchmaker game in the Shapley-Shubik (1971) (one-to-one) assignment problem. Each firm proposes how much it is willing to pay each worker if they are matched. Each worker also proposes which salary she is willing to accept from each firm if they are matched. The matchmaker chooses a matching to maximize profit (the sum of the difference between the offering and asking salaries from each matched firm-worker). First, we show that Nash equilibrium may generate inefficient outcomes, but the matchmaker's profit is always zero in every Nash equilibrium. Second, we show that the sets of stable assignments and strong Nash equilibria are equivalent. These results extend to the Kelso-Crawford (1982) many-to-one assignment problem. Interestingly, in the one-to-one matching case, our results are closely related to the common agency game by Bernheim and Whinston (1986), while in the many-to-one assignment problem, such relationships break down completely. |
| Keywords: | two-sided matching problem, stable assignment, strong Nash equilibrium, coalition-proof Nash equilibrium, no-rent property, implementation theory |
| JEL: | C71 C72 C78 |
| Date: | 2009–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:721&r=bec |
| By: | Kwamie Dunbar (University of Connecticut and Sacred Heart University) |
| Abstract: | The recent global economic downturn in a number of economies was preceded by rising credit market risk brought on by a massive financial market failure. This paper develops a small open economy model that analyzes the interaction of business cycle volatilities with capital accumulation and the subsequent impacts on economic growth. We use a stochastic dynamic programming model to test the central hypothesis that rising volatility shocks is an inhibitor to capital accumulation and subsequently economic growth. The model illustrates that traditional capital-based growth models which assume a constant capital stock are not consistent with the business cycle variation in capital accumulation. Furthermore, it appears that an increase in precautionary savings arising from a stochastic shock does not completely translate into productive capital investment need for growth, since risk-averse households will seek out risk-free government or foreign assets. We find this conclusion consistent with the empirical findings of Ramey et al (1995) and Badinger (2009) who both argued that, business cycle volatility is important to the growth discussion because of its robust net negative effect on output growth. |
| Keywords: | Economic Growth; Capital Accumulation; Business Cycle Volatilities; Stochastic Optimal Control; Economic Contraction; Credit Default Swaps; Credit Crisis; Credit Markets |
| JEL: | C61 D81 E13 E32 E44 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2009-36&r=bec |
| By: | Justin Pierce |
| Abstract: | This paper describes the effects of a temporary increase in tariffs on the performance and behavior of U.S. manufacturers. Using antidumping duties as an example of temporary protection, I compare the responses of protected manufacturers to those predicted by models of trade with heterogeneous firms. I find that apparent increases in revenue productivity associated with antidumping duties are primarily due to increases in prices and mark-ups, as physical productivity falls among protected plants. Moreover, antidumping duties slow the reallocation of resources from less productive to more productive uses by reducing product-switching behavior among protected plants. |
| Keywords: | Antidumping; Temporary Protection; Heterogeneous Firms; Productivity |
| JEL: | F13 F14 D24 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-38&r=bec |