nep-bec New Economics Papers
on Business Economics
Issue of 2010‒06‒18
ten papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Trade, Capital Redistribution and Firm Structure By Qiu, Larry D; Wen Zhou, Wen
  2. Mark-up, Productivity and Imperfect Competition: An empirical analysis of the Japanese retail trade industry By KATO Atsuyuki
  3. Oil and the macroeconomy: A quantitative structural analysis By Francesco Lippi; Andrea Nobili
  4. Credit Whitin the Firm By Luigi Guiso; Luigi Pistaferri; Fabiano Schivardi
  5. Global Links and Local Bonds: The Role of Ownership and Size in Productivity Growth By Erol Taymaz; Ebru Voyvoda; Kamil Yilmaz
  6. The strategic effect of bundling: a new perspective By A. Mantovani
  7. The Dynamics of Optimal Risk Sharing By Patrick Bolton; Christopher Harris
  8. High Performance Work Practices and Employee Voice: A Comparison of Japanese and Korean Workers By Bae, Kiu-Sik; Chuma, Hiroyuki; Kato, Takao; Kim, Dong-Bae; Ohashi, Isao
  9. Pay for Performance and Corporate Governance Reform By Hristos Doucouliagos; Janto Haman; T.D. Stanley
  10. Efficiency and risk in european banking By Franco Fiordelisi; David Marques-Ibanez; Phil Molyneux

  1. By: Qiu, Larry D; Wen Zhou, Wen
    Abstract: A model of heterogeneous firms with multiple products and two production factors (labor and capital) is used to study how trade liberalization affects firms’choices through both product and factor markets. Trade liberalization is shown to always redistribute capital toward more efficient firms and always to improve an industry’s total factor productivity. However, it may reduce capital prices and cause labor productivity to drop. Low efficiency firms are affected mainly by changes in the factor market, while high efficiency firms are affected mainly by changes in the product market. In response to trade liberalization, low efficiency firms always reduce their product scope, but high efficiency firms may expand their scope. The model demonstrates the importance of the interplay between product and factor markets.
    Keywords: firm heterogeneity, trade liberalization, multiproduct, multifactor, firm structure, scale, scope, mergers and acquisitions
    JEL: F12 F13 F15 L11 L25
    Date: 2010–05
  2. By: KATO Atsuyuki
    Abstract: This paper examines mark-up and productivity of retail trade industries under imperfect competition. Applying a newly developed approach by Martin (2010) to Japanese retail trade firm data, we estimate the firm-specific mark-up and productivity without price information and discuss their dispersion. Our results reveal that some assumptions largely used in productivity analysis such as constant returns to scale and perfect competition possibly bias estimates of productivity. Higher mark-up do not always mean higher productivity while firms with lower mark-ups are less productive. Relative levels of firm-specific mark-up and productivity are persistent. The performance of mark-up and productivity are heterogeneous across various retail trade industries. Among them, food retailers have both lower market power and lower productivity. Furthermore, regression results indicate that effects of deterministic factors on mark-ups do not coincide with those of productivity. It implies that competition-friendly policies possibly lead to unsuccessful results where firms pursue profit maximisation by pursuing pricing power rather than by raising productivity. Ignoring market power may produce misunderstandings concerning how various factors affect productivity and may thus lead to misleading policy implications.
    Date: 2010–06
  3. By: Francesco Lippi (University of Sassary, EIEF); Andrea Nobili (Bank of Italy)
    Abstract: We model an economy where the cost of the oil input, industrial production, and other macroeconomic variables fluctuate in response to fundamental oil supply shocks, as well as aggregate demand and supply shocks generated domestically and in the world economy. We estimate the effects of these structural shocks on US monthly data over 1973.1-2007.12, using robust sign restrictions suggested by the model. It is shown that the interplay between the oil market and the US economy goes in both ways. First, US output falls below the baseline for a prolonged period of time after a negative oil supply shock. However, oil-supply shocks explain a relatively modest part of overall output fluctuations (about 10%). Second, most variations of (real) oil prices occur in response to shocks originated in the global economy and in the US. In particular, supply shocks in the rest of the world and in the US explain more than half of the variance of oil price fluctuations. Finally, the correlation between oil prices and the US business cycle depends on the nature of the fundamental shock: a negative correlation emerges in periods when oil-supply shocks or global demand shocks occur, while a positive correlation emerges in periods of supply shocks in the global economy or the US. The unconditional correlation between oil prices and US production over a long sample period is tenuous because it blends conditional correlations with different signs.
    JEL: C32 E3 F4
    Date: 2010
  4. By: Luigi Guiso (European University Institute and EIEF); Luigi Pistaferri (Stanford University, NBER, IZA and SIEPR); Fabiano Schivardi (Cagliari University and EIEF)
    Abstract: We exploit time variation in the degree of development of local credit markets and matched employer-employee data to assess the role of the rm as an internal credit market. In less developed local credit markets rms can oer a atter wage-tenure prole than rms in more developed credit markets to lend implicitly to their workers or oer a steeper prole to implicitly borrow from their workers. We nd that rms located in less nancially developed markets oer wages that are lower at the beginning of tenure and grow faster than those oered by rms in more nancially developed markets, helping rms nance their operations by raising funds from workers. Because we control for local market eects and only exploit time variation in the degree of local nancial development induced by an exogenous liberalization, the eect we nd is unlikely to re ect unobserved local factors that systematically aect wage tenure proles. The size of implicit loans is larger for rms with more problematic access to bank credit and workers less likely to face credit constraints. The amount of credit generated by implicit lending within the rm is economically important and can be as large as 30% of bank lending. Consistent with credit market imperfections opening up trade opportunities within the rm, we nd that the internal rate of return of implicit loans lies between the rate at which workers savings are remunerated in the market and the rate rms pay on their loans from banks.
    JEL: J3 L2 G3
    Date: 2009
  5. By: Erol Taymaz (Middle East Technical University); Ebru Voyvoda (Middle East Technical University); Kamil Yilmaz (Koc University)
    Abstract: This paper examines direct and indirect contributions of foreign firms and small and medium-sized enterprises (SMEs) to aggregate productivity growth. We focus our attention on foreign firms and small firms for three reasons. First, industrial policy in almost all countries is oriented towards supporting SMEs and attracting foreign investment. Second, these two categories of firms contribute to micro-heterogeneity in all industries. Third, the recent industrial dynamics literature on foreign investment and small firms emphasizes the potential benefits of foreign firms and SMEs in generating new technologies, and creating new jobs. Using the data for Turkish manufacturing plants, we estimate production functions for all ISIC 4-digit level industries for the 1983-2001 period. We decompose productivity growth into its components (structural change, entry and exit, technical change, efficiency change, and scale effects) by firm ownership and size. The decomposition analysis by firm ownership and size allows us to understand the sources of productivity contributions by foreign firms and small firms.
    Keywords: Productivity dynamics, decomposition, foreign direct investment, small and medium sized enterprises
    JEL: D24 L25 L60
    Date: 2010–06
  6. By: A. Mantovani
    Abstract: This paper investigates the strategic effect of bundling when a multi-product firm producing two complements faces competition in both markets. I consider a demand structure where both Cournot and Bertrand competition can be evaluated. Bundling is completely ineffective when firms compete in quantities. On the contrary, under Bertrand competition, selling the two goods in a package is profitable when the goods produced by the rivals are perceived as close substitutes to those produced by the multi-product firm. Bundling drives prices up, and not only consumer surplus, but also social welfare shrinks, thus calling for the intervention of the antitrust agency.
    JEL: D43 L13 L41
    Date: 2010–05
  7. By: Patrick Bolton (Finance and Economics Division, Columbia University Business School); Christopher Harris (Department of Economics, University of Cambridge)
    Abstract: We study a dynamic-contracting problem involving risk sharing between two parties – the Proposer and the Responder – who invest in a risky asset until an exogenous but random termination time. In any time period they must invest all their wealth in the risky asset, but they can share the underlying investment and termination risk. When the project ends they consume their final accumulated wealth. The Proposer and the Responder have constant relative risk aversion R and r respectively, with R > r > 0. We show that the optimal contract has three components: a non-contingent flow payment, a share in investment risk and a termination payment. We derive approximations for the optimal share in investment risk and the optimal termination payment, and we use numerical simulations to show that these approximations offer a close fit to the exact rules. The approximations take the form of a myopic benchmark plus a dynamic correction. In the case of the approximation for the optimal share in investment risk, the myopic benchmark is simply the classical formula for optimal risk sharing. This benchmark is endogenous because it depends on the wealths of the two parties. The dynamic correction is driven by counterparty risk. If both parties are fairly risk tolerant, in the sense that 2 > R > r, then the Proposer takes on more risk than she would under the myopic benchmark. If both parties are fairly risk averse, in the sense that R > r > 2, then the Proposer takes on less risk than she would under the myopic benchmark. In the mixed case, in which R > 2 > r, the Proposer takes on more risk when the Responder’s share in total wealth is low and less risk when the Responder’s share in total wealth is high. In the case of the approximation for the optimal termination payment, the myopic benchmark is zero. The dynamic correction tells us, among other things, that: (i) if the asset has a high return then, following termination, the Responder compensates the Proposer for the loss of a valuable investment opportunity; and (ii) if the asset has a low return then, prior to termination, the Responder compensates the Proposer for the low returns obtained. Finally, we exploit our representation of the optimal contract to derive simple and easily interpretable sufficient conditions for the existence of an optimal contract.
    Date: 2005–07
  8. By: Bae, Kiu-Sik (Korea Labor Institute); Chuma, Hiroyuki (Hitotsubashi University); Kato, Takao (Colgate University); Kim, Dong-Bae (University of Incheon); Ohashi, Isao (Hitotsubashi University)
    Abstract: Using a unique new cross-national survey of Japanese and Korean workers, we report the first systematic evidence on the effects on employee voice of High Performance Work Practices (HPWPs) from the two economies which are noted for the wide use of HPWPs. We find for both nations that: (i) workers in firms with HPWPs aimed at creating opportunities for employees to get involved (such as shopfloor committees and small group activities) are indeed more likely to have stronger senses of influence and voice on shopfloor decision making than other workers; (ii) workers whose pay is tied to firm performance are more likely to have a stake in firm performance and hence demand such influence and voice; and (iii) consequently workers in firms with HPWPs are more likely to make frequent suggestions for productivity increase and quality improvement. As such, this paper contributes to a small yet growing new empirical literature which tries to understand the actual process and mechanism through which HPWPs lead to better enterprise performance.
    Keywords: high performance work practices, employee voice, Japan, Korea
    JEL: J53 M54 M52
    Date: 2010–05
  9. By: Hristos Doucouliagos; Janto Haman; T.D. Stanley
    Abstract: Directors’ pay and corporate governance continue to generate public outrage and calls for reform. Our meta-regression analysis of all comparable UK pay-for-performance estimates finds little, if any, meaningful association between directors’ pay and corporate performance. However, there is evidence of the effectiveness of past ‘comply-or-explain’ rules, especially the Cadbury Report. Unfortunately, the effects of past reform efforts tend to erode over time. The paper also explores differences between pay-performance estimates, finding that these are largely explained by how pay and performance are measured by a given study.
    Keywords: Directors’ pay, governance reform, meta-regression analysis
    JEL: G3 M52 J33
    Date: 2010–06–07
  10. By: Franco Fiordelisi (Faculty of Economics, University of Rome III, Via S. D’Amico 77, 00182, Rome, Italy.); David Marques-Ibanez (European Central Bank, Directorate General Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Phil Molyneux (European Central Bank, Directorate General Research, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We analyze the impact of efficiency on bank risk. We also consider whether bank capital has an effect on this relationship. We model the inter-temporal relationships among efficiency, capital and risk for a large sample of commercial banks operating in the European Union. We find that reductions in cost and revenue efficiencies increase banks’ future risks thus supporting the bad management and efficiency version of the moral hazard hypotheses. In contrast, bank efficiency improvements contribute to shore up bank capital levels. Our findings suggest that banks lagging behind in their efficiency levels might expect higher risk and subdued capital positions in the near future. JEL Classification: G21, D24, C23, E44.
    Keywords: banking risk, capital, efficiency.
    Date: 2010–06

This nep-bec issue is ©2010 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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