nep-bec New Economics Papers
on Business Economics
Issue of 2010‒02‒27
28 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The effects of entry on incumbent innovation and productivity. By Aghion, P.; Blundell, R.; Griffith, R.; Howitt, P.; Prantl, S.
  2. Enforcement of labor regulation and firm size. By Almeida, R.; Carneiro, P.
  3. Illiquidity, insolvency, and banking regulation By Cao, Jin
  4. Corporate Risk Management and Dividend Signaling Theory By Georges Dionne; Karima Ouederni
  5. The return to firm investments in human capital. By Almeida, R.; Carneiro, P.
  6. Macro risk premium and intermediary balance sheet quantities By Tobias Adrian; Emanuel Moench; Hyun Song Shin
  7. The Evaluation Of Barrier Option Prices Under Stochastic Volatility By Carl Chiarella; Boda Kang; Gunter H. Meyer
  8. Quantifying the Impact of Financial Development on Economic Development By Jeremy Greenwood; Juan M. Sanchez; Cheng Wang
  9. Retire Later or Work Harder? By Bell, David N.F.; Hart, Robert A.
  10. Family Values and the Regulation of Labor By Alesina, Alberto; Algan, Yann; Cahuc, Pierre; Giuliano, Paola
  11. Financial Regulation, Integration and Synchronization of Economic Activity By Sebnem Kalemli-Ozcan; Elias Papaioannou; José Luis Peydró
  12. The Classification of Economic Activity By Berge, Travis J.; Jorda, Oscar
  13. Banking competition, collateral constraints and optimal monetary policy By Javier Andrés; Óscar Arce; Carlos Thomas
  14. The finances of American households in the past three recessions: evidence from the Survey of Consumer Finances By Kevin B. Moore; Michael G. Palumbo
  15. Investments in Intangible Assets and Australia's Productivity Growth By Paula Barnes; Andrew McClure
  16. Women between Part-Time and Full-Time Work: The Influence of Changing Hours of Work on Happiness and Life-Satisfaction By Vanessa Gash; Antje Mertens; Laura Romeu Gordo
  17. Performance pay and managerial experience in multitask teams: evidence from within a firm. By Griffith, R.; Neely, A.
  18. Training and Union wages. By Dustmann, C.; Schonberg, U.
  19. Reinvestment Decisions by Small Businesses in Emerging Economies By Sugato Chakravarty; Meifang Xiang
  20. Deep Financial Integration and Volatility By Sebnem Kalemli-Ozcan; Bent E. Sørensen; Vadym Volosovych
  21. What is Fair Pay for Executives? An Information Theoretic Analysis of Wage Distributions By Venkat Venkatasubramanian
  22. Organization, learning and cooperation. By Barr, Jason; Saraceno, Francesco
  23. Consumption and saving decisions in the face of choices about housing and pensions. By Wakefield, M.J.
  24. Financialization, Crisis and Commodity Correlation Dynamics By Annastiina Silvennoinen; Susan Thorp
  25. Market institutions and firm behaviour: employment and innovation in the face of reform . By Macartney, G.J.
  26. Transparency, Liquidity, and Valuation: International Evidence By Lang, Mark; Lins, Karl V.; Maffett, Mark
  27. Business Perceptions of the new French regime on Auto-Entrepreneurship: a risk-taking step back from socialism. By Arvind Ashta; Sophie Raimbault
  28. Choosing the scope of trade secret law when secrets complement patents By Ottoz, Elisabetta; Cugno, Franco

  1. By: Aghion, P.; Blundell, R.; Griffith, R.; Howitt, P.; Prantl, S.
    Abstract: How does firm entry affect innovation incentives in incumbent firms? Microdata suggest that there is heterogeneity across industries. Specifically, incumbent productivity growth and patenting is positively correlated with lagged greenfield foreign firm entry in technologically advanced industries, but not in laggard industries. In this paper we provide evidence that these correlations arise from a causal effect predicted by Schumpeterian growth theory—the threat of technologically advanced entry spurs innovation incentives in sectors close to the technology frontier, where successful innovation allows incumbents to survive the threat, but discourages innovation in laggard sectors, where the threat reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro panel data for the United Kingdom. We control for the endogeneity of entry by exploiting major European and U.K. policy reforms, and allow for endogeneity of additional factors. We complement the analysis for foreign entry with evidence for domestic entry and entry through imports.
    Date: 2009–02
  2. By: Almeida, R.; Carneiro, P.
    Abstract: This paper investigates how the enforcement of labor regulation affects firm size and other firm characteristics in Brazil. We explore firm level data on employment, capital, and output, city level data on economic characteristics and new administrative data measuring enforcement of regulation at the city level. Since enforcement may be endogenous, we instrument this variable with the distance between the city where the firm is located and surrounding enforcement offices, while controlling for a rich set of city characteristics (such as past levels of informality in the city). We present suggestive evidence of the validity of this instrument. We find that stricter enforcement of labor regulation constrains firm size, and leads to higher unemployment.
    Date: 2009–03
  3. By: Cao, Jin
    Abstract: This paper provides a compact framework for banking regulation analysis in the presence of uncertainty between systemic liquidity and solvency shocks. Extending the work by Cao & Illing (2009a, b), it is shown that systemic liquidity shortage arises endogenously as part of the inferior mixed strategy equilibrium. The paper compares dierent traditional regulatory policies which intend to fix the ineciencies, and argues that the co-existence of illiquidity and insolvency problems adds extra cost for banking regulation and makes some schemes that are optimal under pure illiquidity risks (such as liquidity regulation with lender of last resort policy) fail. The regulatory cost can be minimized by combining the advantages of several instruments.
    Keywords: liquidity risk; insolvency risk; liquidity regulation; equity requirement
    JEL: E5 G21 G28
    Date: 2010–02
  4. By: Georges Dionne; Karima Ouederni
    Abstract: This paper investigates the effect of corporate risk management on dividend policy. We extend the signaling framework of Bhattacharya (1979) by including the possibility of hedging the future cash flow. We find that the higher the hedging level, the lower the incremental dividend. This result is in line with the purpoted positive relation between information asymmetry and dividend policy (e.g., Miller and Rock, 1985) and the assertion that risk management alleviates the information asymmetry problem (e.g., DaDalt et al., 2002). Our theoretical model has testable implications.
    Keywords: Signaling theory, Dividend policy, Risk management policy, Corporate hedging, Information asymmetry
    JEL: G35 G32 D82
    Date: 2010
  5. By: Almeida, R.; Carneiro, P.
    Abstract: In this paper we estimate the rate of return to firm investments in human capital in the form of formal job training. We use a panel of large firms with detailed information on the duration of training, the direct costs of training, and several firm characteristics. Our estimates of the return to training are substantial (8.6%) for those providing training. Results suggest that formal job training is a good investment for these firms possibly yielding comparable returns to either investments in physical capital or investments in schooling.
    Date: 2009–01
  6. By: Tobias Adrian; Emanuel Moench; Hyun Song Shin
    Abstract: The macro risk premium measures the threshold return for real activity that receives funding from savers. We base our argument in this paper on the relationship between the macro risk premium and the growth of financial intermediaries' balance sheets. The spare capacity of their balance sheets determines the intermediaries' risk appetite, which in turn determines the real projects that receive funding and, hence, the supply of credit. Monetary policy affects risk appetite by changing the ability of intermediaries to leverage their capital. We estimate the time-varying risk appetite of financial intermediaries for the United States, Germany, the United Kingdom, and Japan, and study the joint dynamics of risk appetite using macroeconomic aggregates for the United States. We argue that risk appetite is an important indicator of monetary conditions.
    Keywords: Monetary policy ; Intermediation (Finance) ; Risk ; Capital market ; Credit
    Date: 2010
  7. By: Carl Chiarella (School of Finance and Economics, University of Technology, Sydney); Boda Kang (School of Finance and Economics, University of Technology, Sydney); Gunter H. Meyer
    Date: 2010–01–01
  8. By: Jeremy Greenwood (University of Pennsylvania); Juan M. Sanchez (Federal Reserve Bank of Richmond); Cheng Wang (Iowa State University and Fudan University)
    Abstract: How important is financial development for economic development? A costly-state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2000. The calibrated model is then used to study cross-country data, using international data on interest-rate spreads. The analysis suggests a country like Uganda could increase its output by 140 to 180% if it could adopt the world's best practice in the financial sector. Still, this amounts to only 34 to 40% of the gap between Uganda's potential and actual output.
    Keywords: costly-state verification, economic development, financial intermediation, firm-size distribution, interest-rate spreads, cross-country output differences, cross-country TFP differences
    JEL: E13 O11 O16
    Date: 2010–02
  9. By: Bell, David N.F.; Hart, Robert A.
    Abstract: We compare two policies of increasing British state pension provision: (a) increase the pensionable age of men and women, (b) maintain the existing retirement age but require older workers to work longer per-period hours. There are reasons for policy makers to give serious consideration to the under-researched alternative (b). First, from wage - hours contract theory we know that there are potential gains to both workers and firms of allowing hours to rise in work experience. Second, there is strong evidence that job satisfaction rises in age. Third, there has in any case been a significant overall increase in the hours supplied by older workers in the last two decades. We review the relevant theory, model the trade-off between later retirement versus increased work intensity, produce relevant background facts, and provide estimates of the policy trade-offs.
    Keywords: hours of work; statutory retirement age; Older workers
    Date: 2010–01
  10. By: Alesina, Alberto (Harvard University); Algan, Yann (Sciences Po, Paris); Cahuc, Pierre (Ecole Polytechnique, Paris); Giuliano, Paola (University of California, Los Angeles)
    Abstract: Flexible labor markets require geographically mobile workers to be efficient. Otherwise, firms can take advantage of the immobility of workers and extract monopsony rents. In cultures with strong family ties, moving away from home is costly. Thus, individuals with strong family ties rationally choose regulated labor markets to avoid moving and limiting the monopsony power of firms, even though regulation generates lower employment and income. Empirically, we do find that individuals who inherit stronger family ties are less mobile, have lower wages, are less often employed and support more stringent labor market regulations. There are also positive cross-country correlations between the strength of family ties and labor market rigidities. Finally, we find positive correlations between labor market rigidities at the beginning of the twenty first century and family values prevailing before World War II, which suggests that labor market regulations have deep cultural roots.
    Keywords: family values, labor regulation
    JEL: E0 P16 Z10 Z13
    Date: 2010–02
  11. By: Sebnem Kalemli-Ozcan (University of Houston and NBER); Elias Papaioannou; José Luis Peydró
    Abstract: We investigate the effect of financial integration on the degree of international business cycle synchronization. For identfication, we use a confidential database on banks' bilateral exposure over the past three decades and employ a novel bilateral country-pair panel instrumental vari- ables approach. First, we show that conditional on global shocks and country-pair fixed factors countries that become more financially integrated over time have less synchronized growth pat- terns, in line with the standard theories of output fluctuations. Second, to isolate the one-way impact of financial integration on output co-movement and account for measurement error in the financial integration measure, we exploit variation in the transposition dates of the European Union-wide legislative acts (the "Directives") from the Financial Services Action Plan (FSAP). These laws are designed to harmonize regulation of financial markets in the European Union. We find that increases in financial integration stemming from regulatory-legislative harmoniza- tion policies in capital markets are followed by more divergent output cycles, even when we condition on monetary unification. Our results contrast with those of the previous empirical studies. We reconcile the different results by showing that the earlier estimates suffer from the standard identification problems.
    Keywords: Banking Integration, Co-movement, Fluctuations, Financial Legislation
    JEL: E32 F15 F36 G21 O16
    Date: 2010–02
  12. By: Berge, Travis J. (University of California, Davis); Jorda, Oscar (University of California, Davis)
    Abstract: The Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research provides a historical chronology of business cycle turning points. This paper investigates three central aspects about this chronology: (1) How skillful is the BCDC in classifying economic activity into expansions and recessions? (2) Which indices of business conditions best capture the current but unobservable state of the business cycle? And (3) Which indicators predict future turning points best and at what horizons? We answer each of these questions in detail with methods novel to economics designed to assess classification ability. In the process we clarify several important features of business cycle phenomena.
    JEL: C14 E32 E37
    Date: 2009–12
  13. By: Javier Andrés (Universidad de Valencia); Óscar Arce (CNMV); Carlos Thomas (Banco de España)
    Abstract: We analyze optimal monetary policy in a model with two distinct financial frictions. First, borrowing is subject to collateral constraints. Second, credit flows are intermediated by monopolistically competitive banks, thus giving rise to endogenous lending spreads. We show that, up to a second order approximation, welfare maximization is equivalent to stabilization of four goals: inflation, output gap, the consumption gap between constrained and unconstrained agents, and the distribution of the collateralizable asset between both groups. Following both financial and non-financial shocks, the optimal monetary policy commitment implies a short-run trade-off between stabilization goals. Such policy tradeoffs become amplified as banking competition increases, due to the fall in lending spreads and the resulting increase in financial leveraging.
    Keywords: banking competition, lending spreads, collateral constraints, monetary policy, linear-quadratic method
    JEL: E32 E52 G10 G21
    Date: 2010–02
  14. By: Kevin B. Moore; Michael G. Palumbo
    Abstract: The downturn in economic activity in the U.S. that began in December 2007 (as determined by researchers with the National Bureau of Economic Research) has been noticeably deeper and has already lasted considerably longer than the prior two recessions--those beginning in July 1990 and in March 2001. In addition, a key difference between the current and the past two recessions is the extent to which consumer spending and residential investment have dropped since late 2007--that is, the extent to which the household sector appears to have "led" the drop in aggregate economic activity in this recession. This paper uses household-level data from the Federal Reserve Board's series of Surveys of Consumer Finances to document three factors that appear to have contributed to greater financial stress in the household sector in the current downturn compared with the prior two: 1) substantial and widespread reductions in home values that resulted in sizable erosions of home equity and net worth for many homeowners; 2) markedly expanded holdings of corporate equity among middle-income households which lost significant market value, on net, as stock prices sunk; and, 3) greater debt on household balance sheets and overall financial vulnerability around the onset of the 2008-09 recession, particularly for those in the middle of the income distribution.
    Date: 2010
  15. By: Paula Barnes; Andrew McClure (Productivity Commission)
    Abstract: Investment in capital is important for economic growth. But capital is not just physical assets; firms also invest in 'soft' capital such as knowledge, firm-specific skills, and better ways of doing business. This investment results in accumulation of 'intangible assets'. Intangible assets have been categorised as computerised information, innovative property (including R&D) and economic competencies (including firm-specific human capital and organisational capital), and most are difficult to measure. These assets can depreciate more rapidly than physical capital, but they are investments nonetheless, delivering benefits over time, not just in the period the expenditure was made. Many elements of spending on intangibles are treated as a current expense in the national accounts rather than as an investment. This leads to an understatement of investment in the economy. It also may affect measures of multifactor productivity (MFP) growth. Applying the methodology of Corrado, Hulten and Sichel (2006) found that intangible investment currently is almost half the size of tangible investment in the market sector of the Australian economy. While experimental in nature, the estimates suggest that - market sector investment in intangibles was $57 billion in 2005-06, 80 per cent of which is currently not treated as investment in the national accounts; average annual growth in intangible investment has been about 1.3 times that of tangibles since 1974-75; including intangible investment in total investment largely removes the past downward trend in the market sector ratio of investment to output (gross value added); investments in organisational capital (strategic planning, adaptation and reorganisation) and computerised information have grown at relatively high rates — making up 27 and 13 per cent of intangible investment in 2005-06. Treating investment in intangible assets as capital raises measured final output and measured capital inputs and alters the capital-labour ratio, hence the effect on measured MFP growth is complex. However, in Australia, adjusting for intangible investment not currently included in the national accounts does not have a large direct effect on the level or pattern of conventionally-measured MFP growth. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.
    Keywords: multifactor productivity (MFP) growth, organisational capital, Intangible assets, economic growth, computerised information, innovative property, R&D, economic competencies, human capital
    JEL: O
    Date: 2009–03
  16. By: Vanessa Gash; Antje Mertens; Laura Romeu Gordo
    Abstract: This paper asks whether part-time work makes women happy. Previous research on labour supply has assumed that as workers freely choose their optimal working hours on the basis of their innate preferences and the hourly wage rate, outcome reflects preference. This paper tests this assumption by measuring the impact of changes in working-hours on life satisfaction in two countries (the UK and Germany using the German Socio-Economic Panel and the British Household Panel Survey). We find decreases in working-hours bring about positive and significant improvement on well-being for women.
    Keywords: Temporary Employment, Unemployment, Health
    JEL: J41 J64 I10
    Date: 2010
  17. By: Griffith, R.; Neely, A.
    Abstract: This article exploits a quasi‐experimental setting to estimate the impact that a commonly used performance‐related pay scheme had on branch performance in a large distribution firm. The scheme, which is based on the Balanced Scorecard, was implemented in all branches in one division but not in another. Branches from the second division are used as a control group. Our results suggest that the Balanced Scorecard had some impact but that it varied with branch characteristics, and, in particular, branches with more experienced managers were better able to respond to the new incentives.
    Date: 2009–01
  18. By: Dustmann, C.; Schonberg, U.
    Abstract: This paper investigates whether unions, through imposing wage floors that lead to wage compression, increase on-the-job training. Our analysis focuses on Germany. Based on a model of unions and firm-financed training, we derive empirical implications regarding apprenticeship training intensity, layoffs, wage cuts, and wage compression in unionized and nonunionized firms. We test these implications using firm panel data matched with administrative employee data. We find support for the hypothesis that union recognition, via imposing minimum wages and wage compression, increases training in apprenticeship programs.
    Date: 2009–05
  19. By: Sugato Chakravarty (Purdue University); Meifang Xiang (University of Wisconsin, Whitewater)
    Abstract: We investigate the cross-country determinants of profit reinvestment decisions, using data compiled by the World Bank from around 7,000 businesses in 34 countries. We find that, compared to the security of property rights, it is a firm’s access to external financing that plays a significant role in a firm’s reinvestment decision in emerging economies. The extent of private ownership and the level of competition faced by firms are additional significant factors correlated with the reinvestment decision. Furthermore, we uncover a firm size effect in that the above factors driving firm reinvestment decision appears to impact small firms more than the relatively larger firms. Our findings complement, as well as build on, those from China and a few Eastern European countries.
    Keywords: Reinvestment; investment; external financing; property rights; competition
    Date: 2010–01
  20. By: Sebnem Kalemli-Ozcan (University of Houston and NBER); Bent E. Sørensen; Vadym Volosovych
    Abstract: We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset (AMADEUS) from 16 European countries, we construct a measure of "deep" financial integration at the regional level based on observations of foreign ownership at the firm-level. We find a significant positive effect of foreign ownership on the volatility of firms' outcomes in static as well as dynamic empirical frameworks. This effect survives aggregation and carries over to regional output, leading to a positive association between deep financial integration and aggregate fluctuations. To identify the causal effect of financial integration on volatility we exploit variation in the transposition dates of the European Union-wide legislative acts from the Financial Services Action Plan (FSAP). We find that high trust regions located in countries who harmonized their capital markets sooner have increased levels of financial integration and volatility.
    Keywords: firm volatility, foreign ownership, regional integration, social capital, macro volatility
    JEL: E32 F15 F36 O16
    Date: 2010–02
  21. By: Venkat Venkatasubramanian
    Abstract: The high pay packages of U.S. CEOs have raised serious concerns about what would constitute a fair pay.
    Date: 2010–02
  22. By: Barr, Jason; Saraceno, Francesco (Centre de recherche en économie de Sciences Po)
    Abstract: This paper models the organization of the firm as a type of artificial neural network in a duopoly setting. The firm plays a repeated Prisoner’s Dilemma type game, and must also learn to map environmental signals to demand parameters and to its rival’s willingness to cooperate. We study the prospects for cooperation given the need for the firm to learn the environment and its rival’s output. We show how profit and cooperation rates are affected by the sizes of both firms, their willingness to cooperate, and by environmental complexity. In addition, we investigate equilibrium firm size and cooperation rates.
    Keywords: Artificial neural networks;; Prisoner’s Dilemma;; Cooperation;; Firm learning;
    JEL: C63 C72 D21 D83 L13
    Date: 2009–05
  23. By: Wakefield, M.J.
    Abstract: This thesis presents analyses of households' decisions regarding housing and pension wealth accumulation, in forward-looking models. The first of three chapters on housing presents a model of housing demand over the life cycle, and examines its sensitivity to prices and borrowing constraints. Demand responses can be unusual: when the price of housing goes up, the demand for starter homes may increase if enough people "downsize" their homes. The next chapter involves carefully matching a life cycle model of consumption and housing choices, to recent episodes in the U.K., and using this structure to understand why house prices and consumption growth are strongly positively correlated. The model provides a good match to data on home ownership and consumption growth. The analysis gives a firmer theoretical footing to the claim that wealth effects from house prices are unlikely to have been the main driver of the correlation with consumption growth. The third housing chapter presents a model in which the prices of two types of home are endogenous. A perfect foresight set up is used, and transitions between steady states following shocks to income and mortgage markets, are studied. The findings suggest that credit shocks are more promising than income shocks as a potential explanation of large house price fluctuations and housing transactions level that covary positively with prices. The final substantive chapter uses a difference-in-differences strategy to evaluate the effect on private pension coverage of a recent U.K. reform to private pensions and pension contribution limits The reform is seen to have had a positive effect on pension coverage for lower earners. This pattern is consistent with forward-looking responses to the financial incentives involved.
    Date: 2009–04
  24. By: Annastiina Silvennoinen (Queensland University of Technology); Susan Thorp (School of Finance and Economics, University of Technology, Sydney)
    Abstract: We study bi-variate conditional volatility and correlation dynamics for individual commodity futures and financial assets from May 1990-July 2009 using DSTCC-GARCH (Silvennoinen and Terasvirta 2009). These models allow correlation to vary smoothly between extreme states via transition functions driven by indicators of market conditions. Expected stock volatility and money manager open interest in futures markets are relevant transition variables. Results point to increasing integration between commodities and financial markets. Higher commodity returns volatility is predicted by lower interest rates and corporate bond spreads, US dollar depreciations, higher expected stock volatility and financial traders open positions. We observe higher and more variable correlations between commodity futures and financial asset returns, particularly from mid-sample, often predicted by higher expected stock volatility. For many pairings, we observe a structural break in the conditional correlation processes from the late 1990s.
    Keywords: commodity futures; double smooth transition; conditional correlation; financialization
    JEL: G11 C22
    Date: 2010–01–01
  25. By: Macartney, G.J.
    Abstract: This thesis investigates the effect that market institutions have on economic outcomes such as employment and innovation. The market institutions under study are those that determine the conditions in product, labour and capital markets. Of particular interest is how the effect of institutional changes in one market depends on the conditions in another, or depends on the nature of innovation by the firm. The first chapter describes the matching of patents at the European Patent Office to firm accounts data for all registered firms across fifteen European countries. This constitutes a valuable new dataset for research in innovation that is used for much of the empirical work in this thesis. The second chapter investigates the impact of product market competition on unemployment, and how this depends on labour market institutions. It uses differential changes in regulations across OECD countries to find that increased competition reduces unemployment, more so in countries with strong unions. The third chapter investigates how the effect of product market competition on innovation depends on financial institutions. Using exogenous variation in competition in manufacturing industries this chapter finds that the positive effect of competition on innovation is larger in countries with good financial institutions. The fourth chapter investigates the effect of employment protection legislation on innovation. The theoretical effect of employment protection legislation on innovation is ambiguous, and empirical evidence is thus far inconclusive. This chapter finds that within multinational enterprises overall innovation occurs more in subsidiaries located in countries with high employment protection, however radical innovation occurs more in subsidiaries located in countries with low employment protection.
    Date: 2009–09
  26. By: Lang, Mark (University of North Carolina, Chapel Hill); Lins, Karl V. (University of Utah); Maffett, Mark (University of North Carolina, Chapel Hill)
    Abstract: We examine the relation between transparency, stock market liquidity, and valuation for a global sample of firms. Following the prior literature, we argue that transaction costs will be higher and investors will be less willing to transact if they perceive significant issues with respect to transparency, particularly in international settings where potential information effects are more pronounced Consistent with expectations, we document lower transaction costs and greater liquidity (as measured by lower bid-ask spreads and fewer zero return days) when transparency is likely to be higher (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following and more accurate analyst forecasts). We also find evidence that the relation between transparency and liquidity is more pronounced when country-level investor protections and disclosure requirements are poor, suggesting that firm-level transparency matters most when country-level institutions are weak. Finally, we provide evidence that increased liquidity is associated with lower implied cost of capital based on an analyst-forecast-based valuation model, and with higher valuation as measured by Tobin's Q. Magnitudes are substantial, with an interquartile increase in transparency in a low investor protection country associated with a decrease in bid-ask spread from 1.9% to 0.9% and a decrease in cost of capital of 62 basis points.
    Date: 2009–01
  27. By: Arvind Ashta (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France); Sophie Raimbault (CEREN, Burgundy School of Business (Groupe ESC Dijon-Bourgogne), France)
    Abstract: France has a rather low rate of enterprise creation. Institutional analysis helps to explain why this is so. Nevertheless, in the last few years since 2003, France has been modernizing its legal framework to stimulate enterprise creation and this has achieved some success. A new regime of Auto-entrepreneur has recently been introduced in early 2009 as a new start up mechanism, creating a lot of buzz. This paper presents the new French regime and its accountancy and tax inputs, explaining the economic motivations of the new institution and its limitations. The paper presents results of a questionnaire administered to CEO's of small business enterprises on their perceptions of this regime. The research indicates that the entrepreneurship law is perceived to be risky for tax and social security revenues, lack of entrepreneurial capabilities, lack of social security net for failed entrepreneurs, and increased competition for small enterprises from their own employees. Future directions for research are indicated in entrepreneurship and microfinance, business regulation and globalization.
    Keywords: Entrepreneurship, microenterprise, microcredit, French law, socialism, capitalism, regulatory analysis.
    Date: 2009–11
  28. By: Ottoz, Elisabetta; Cugno, Franco
    Abstract: We present a model where an incumbent firm has a proprietary product whose technology consists of at least two components, one of which is patented while the other is kept secret. At the patent expiration date, an entrant firm will enter the market on the same technological footing as the incumbent if it is successful in duplicating, at certain costs, the secret component of the incumbent’s technology. Otherwise, it will enter the market with a production cost disadvantage. We show that under some conditions a broad scope of trade secret law is socially beneficial despite the innovator is over-rewarded.
    Keywords: knowledge spillovers; duplication costs; covenants not to compete; inevitable disclosure
    JEL: O34 O31
    Date: 2010–02–14

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