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on Business Economics |
| By: | Gary E. Powell (McColl School of Business, Queens University of Charlotte); H. Kent Baker (Kogod School of Business, American University) |
| Abstract: | We survey the CFOs of 1,000 large U.S. companies to learn their views about corporate cash holdings. Specifically, we investigate managerial views about the determinants of cash holdings and whether they believe that corporate governance affects a firm’s level of cash holdings, spending of cash, and value of cash holdings. We find their views provide support for an optimal tradeoff approach to cash holdings, limited support for a financing hierarchy explanation, mixed support for arguments that financial constraints affect a firm’s cash holdings, and generally no support for most agency cost explanations. The survey results show that managers believe the effectiveness of a firm’s corporate governance structures may affect its cash holdings and spending of cash but not the value of its cash holdings. |
| Keywords: | Cash Holdings, Corporate Governance |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:msb:wpaper:2010-01&r=bec |
| By: | TOMIURA Eiichi; ITO Banri; WAKASUGI Ryuhei |
| Abstract: | Offshoring requires firms to have strong corporate headquarters for monitoring and contracting with suppliers. This paper exploits the unique Japanese firm-level data, which categorizes the type of offshore supplier as: own FDI subsidiaries, subsidiaries owned by other Japanese firms, and foreign suppliers. This paper finds that firms outsourcing to foreign or Japanese suppliers tend to allocate significantly more workers to corporate headquarters, compared with firms involved in intra-firm offshoring. The ownership rather than nationality of suppliers is the significant determinant for the size of corporate headquarters in offshoring firms. This finding is robust even after firm-specific effects are controlled for. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:10032&r=bec |
| By: | Sen, Debapriya; Stamatopoulos, Giorgos |
| Abstract: | This paper considers a Cournot duopoly game with endogenous organization structures. There are two firms A and B who compete in the retail market, where A is more efficient than B. Prior to competition in the retail stage, firms simultaneously choose their organization structures which can be either 'centralized' (one central unit chooses quantity to maximize firm's profit) or 'decentralized' (the retail unit chooses quantity to maximize firm's revenue while the production unit supplies the required quantity). Identifying the (unique) Nash Equilibrium for every retail-stage subgame, we show that the reduced form game of organization choices is a potential game. The main result is that with endogenous organization structures, situations could arise where the less efficient firm B obtains a higher profit than its more efficient rival A. |
| Keywords: | Centralized structure; decentralized structure; potential games |
| JEL: | L13 L21 D43 C72 |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23324&r=bec |
| By: | Jarko Fidrmuc (Austrian Central Bank, CESifo Munich, and Comenius University Bratislava); Taro Ikeda (Graduate School of Economics, Kobe University); Kentaro Iwatsubo (Graduate School of Economics, Kobe University) |
| Abstract: | We exploit dynamic correlations defined in the frequency domain to estimate determinants of output comovement of OECD countries between 1990 and 2008. We show that trade intensity, degree of financial integration and specialization pattern have significantly different effects on comovements at different frequencies. This can bias the results using aggregate data or statistical filters. For example, financial integration is shown to have the highest positive effect for the business cycle frequencies, while it is insignificant for the short-term frequencies. |
| Keywords: | Business cycle, Transmission, Financial Integration, Dynamic Correlation |
| JEL: | E32 F15 F41 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1007&r=bec |
| By: | Daniel Garrett; Alessandro Pavan |
| Abstract: | We characterize a firm's pro fit-maximizing turnover policy in an environment where managerial productivity changes stochastically over time and is the manager's private information. Our key positive result shows that the productivity level that the firm requires for retention declines with the manager's tenure in the firm. Our key normative result shows that, compared to what is efficient, the profit-maximizing policy either induces excessive retention (i.e., inefficiently low turnover) at all tenure levels, or excessive fi ring at the early stages of the relationship followed by excessive retention after succiently long tenure. |
| Keywords: | managerial turnover, termination clauses, dynamic mechanism design, adverse selection,moral hazard |
| JEL: | D82 |
| Date: | 2010–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1490&r=bec |
| By: | George Deltas (Department of Economics, University of Illinois, U.-C., United States); Thanasis Stengos (Department of Economics, University of Guelph, Canada); Eleftherios Zacharias (Department of Economics, Athens School of Economics, Greece) |
| Abstract: | This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is ownered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization. |
| Keywords: | Pricing, Multiproduct firms, Personal Computers, Product Entry and Exit |
| JEL: | L11 D43 L63 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:14_10&r=bec |
| By: | Feng, Shuaizhang (Princeton University); Zheng, Bingyong (Shanghai University of Finance and Economics) |
| Abstract: | This paper develops a two-period labor market model with imperfect information and on-the-job training, and uses data from National Longitudinal Survey of Youth 1979 Cohorts (NLSY79) to test its predictions. We find that training does not explain the positive relationship between employer size and wage. In addition, for industries that display size-wage premium, workers in large establishments are more likely to receive on-the-job training but their return to training is smaller. Our theory, substantiated by the new empirical evidence, suggests that it is not large firms, per se, but firms that hire better workers who are paying a wage premium. |
| Keywords: | imperfect information, sorting, on-the-job training, size-wage premium |
| JEL: | D83 J31 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4998&r=bec |
| By: | Laura Alfaro; Paola Conconi; Harald Fadinger; Andrew F. Newman |
| Abstract: | We study how trade policy affects firms’ ownership structures. We embed an incomplete contracts model of vertical integration choices into a standard perfectly-competitive international trade framework. Integration decisions are driven by a trade-off between the pecuniary benefits of coordinating production decisions and the managers’ private benefits of operating in preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits: higher prices lead to more integration. Because tariffs increase domestic product prices, this effect provides a novel theoretical channel through which trade policy can influence firm boundaries. We then examine the evidence, using a unique dataset to construct firm-level indexes of vertical integration for a large set of countries. In line with the predictions of our model, we obtain three main results. First, higher tariffs lead to higher levels of vertical integration. Second, differences in ownership structure across countries, measured by the difference in sectoral vertical integration indexes, are smaller in sectors with similar levels of protection. Finally, ownership structures are more alike among members of regional trade agreements. |
| JEL: | D23 F13 F23 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16118&r=bec |
| By: | stefano Colombo (DISCE, Università Cattolica) |
| Abstract: | The unidirectional Hotelling model where consumers can buy only from firms located on their right (left) is extended to allow for elastic demand functions. A Bertrand-type model and a Cournot-type model are considered. If firms choose location and then set prices, agglomeration never arises; instead, if firms choose location and then set quantities, agglomeration arises at one endpoint of the segment when transportation costs are low enough. Equilibrium distance between firms is lower in Cournot than Bertrand under the whole parameters’ set. We also study the impact of firms’ location on perfect collusion sustainability. We show that when consumers can buy only from firms located on their right (left), the incentive to deviate of each firm decreases the more the firm is located to the right (left) and the more the rival is located to the left (right). |
| Keywords: | Unidirectional Hotelling model; Location equilibrium; Collusion; Bertrand; Cournot. |
| JEL: | D43 L11 L41 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie3:ief0095&r=bec |
| By: | Basu, Parantap; Semenov, Andrei; Wada, Kenji |
| Abstract: | Following Kocherlakota and Pistaferri (2009), we consider two forms of incomplete risk sharing in economies with consumer heterogeneity: (a) where agents are unable to insure their consumption against idiosyncratic skill shocks and (b) where idiosyncratic shocks to skills can be partially insured by striking long term insurance contract with truth revelation constraint. When considering the equity premium, currency premium, risk-free rate, and consumption-real exchange rate puzzles in an integrated framework, we find empirical evidence that although the pricing kernel associated with (a) outperforms the complete risk-sharing stochastic discount factor and the pricing kernel associated with (b), it is still unable to jointly resolve these asset-pricing anomalies. |
| Keywords: | Currency Premium; Equity Premium; Exchange Rate. |
| JEL: | F30 G00 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23351&r=bec |
| By: | Daniel X. Nguyen (Department of Economics, University of Copenhagen) |
| Abstract: | This paper presents a model of trade that explains why firms wait to export and why many exporters fail. Firms face uncertain demands that are only realized after the firm enters the destination. The model retools the timing of uncertainty resolution found in productivity heterogeneity models. This retooling addresses several shortcomings. First, the imperfect correlation of demands reconciles the sales variation observed in and across destinations. Second, since demands for the firm's output are correlated across destinations, a firm can use previously realized demands to forecast unknown demands in untested destinations. The option to forecast demands causes firms to delay exporting in order to gather more information about foreign demand. Third, since uncertainty is resolved after entry, many firms enter a destination and then exit after learning that they cannot profit. This prediction reconciles the high rate of exit seen in the first years of exporting. Finally, when faced with multiple countries in which to export, some firms will choose to sequentially export in order to slowly learn more about its chances for success in untested markets. |
| Keywords: | firm heterogeneity; exporting; trade failures; trade delay |
| JEL: | F12 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1017&r=bec |
| By: | Altmann, Steffen (IZA); Falk, Armin (University of Bonn); Huffman, David (Swarthmore College) |
| Abstract: | We analyze the impact of imperfect contract enforcement on the emergence of unemployment. In an experimental labor market where trading parties can form long-term employment relationships, we compare a work environment where effort is observable, but not verifiable to a situation where explicit contracts are feasible. Our main result shows that unemployment is much higher when third-party contract enforcement is absent. Unemployment is involuntary, being caused by firms' employment and contracting policy. Moreover, we show that implicit contracting can lead to a segmentation of the labor market. Firms in both segments earn similar profits, but workers in the secondary sector face much less favorable conditions than their counterparts in primary-sector jobs. |
| Keywords: | incentives, implicit contracts, unemployment, fairness, dual labor markets |
| JEL: | C92 J64 M55 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5001&r=bec |
| By: | Michael D. Bordo; Thomas F. Helbling |
| Abstract: | In this paper, we review and attempt to explain the changes in business cycle synchronization among 16 industrial countries and the over the past century and a quarter, demarcated into four exchange rate regimes. We find that there is a secular trend towards increased synchronization for much of the twentieth century and that it occurs across diverse exchange rate regimes. This finding is in marked contrast to much of the recent literature, which has focused primarily on the evidence for the past 20 or 30 years and which has produced mixed results. We then examine the role of global shocks and shock transmission in the trend toward synchronization. Our key finding here is that global (common) shocks generally are the dominant influence. |
| JEL: | F0 N0 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16103&r=bec |
| By: | Evan Calford (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia); Christoph Heinzel (Centre for Energy and Environmental Markets (CEEM) School of Economics, Australian School of Business, University of New South Wales, Australia); Regina Betz (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia) |
| Abstract: | We analyse the efficiency effects of the initial permit allocation given to firms with market power in both permit and output market. We examine two models: a long-run model with endogenous technology and capacity choice, and a short-run model with fixed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the effects derived under Cournot competition, but displays higher pass-through profits. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market efficiency in the short run. |
| Keywords: | Emissions trading, Initial permit allocation, Bertrand competition, EU ETS, Endogenous technology choice, Kreps and Scheinkman |
| JEL: | L13 Q28 D43 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:eenhrr:1059&r=bec |
| By: | Gu, Wulong; Wong, Ambrose |
| Abstract: | This paper produces an estimate of market-based human capital investment and stock for Canada over the period from 1970 to 2007 based on the lifetime income approach and compares it with that of physical and natural capital investment and stock. It adopts the methodology developed by Jorgenson and Fraumeni, and estimates human capital stock as the expected future lifetime income of all individuals. Human capital investment is estimated as changes in human capital stock due to the addition of new members of the working age population arising from the rearing and education of children and the effect of immigration on human capital. The main findings are as follows: 1. The volume of aggregate human capital rose at an annual rate of 1.7% in Canada for the period 1970 to 2007, and most of the growth is due to the increase in the number of individuals in the working-age population. The rising education level of the Canadian population is also a significant contributing factor to the growth in human capital. 2. The compositional effects of aging of the Canadian population (a movement to a population that is older on average) reduced human capital growth by 0.6% per year over the period 1980 to 2007, while the rising education level increased human capital growth by 0.7% per year over the period. 3. Human capital stock on a per capita basis increased at 0.9% per year for the period 1970 to 1980, due to the rising education attainment during the period. After 1980, human capital stock per capita was virtually unchanged due to two offsetting factors: rising education level which increased human capital stock and the compositional effects of population aging, which reduced human capital stock. 4. The value of human capital investment and stock exceeds the value of physical capital investment and stock, and the ratio of human capital investment and stock to physical capital investment and stock declined over time. In 2007, human capital stock is about four times |
| Keywords: | Economic accounts, Financial and wealth accounts |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2010062e&r=bec |
| By: | Leonard I. Nakamura; Kasper Roszbach. |
| Abstract: | In this paper, the authors use credit rating data from two Swedish banks to elicit evidence on banks' loan monitoring ability. They test the banks' ability to forecast credit bureau ratings, and vice versa, and show that bank ratings are able to predict future credit bureau ratings. This is evidence that bank credit ratings, consistent with theory, contain valuable private information. However, the authors also find that public ratings have an ability to predict future bank ratings, implying that internal bank ratings do not fully or efficiently incorporate all publicly available information. This suggests that risk analyses by banks or regulators should be based on both internal bank ratings and public ratings. They also document that the credit bureau ratings add information to the bank ratings in predicting bankruptcy and loan default. The methods the authors use represent a new basket of straightforward techniques that enables both financial institutions and regulators to assess the performance of credit ratings systems. |
| Keywords: | Credit ratings ; Risk assessment |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:10-21&r=bec |