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on Business Economics |
| By: | Francisco Gallego; Borja Larraín |
| Abstract: | Using a novel data base for three emerging markets, we find that the type of large shareholder matters for CEO compensation. In particular, we find a compensation premium of about 30 log points for professional (not controller-related) CEOs working in firms controlled by a family compared to firms controlled by other large shareholders. The premium cannot be explained away by standard firm characteristics, observable executive skills (e.g., education or tenure), or the compensation of the CEO in herformer job. The premium comes mostly from family firms with absent founders and when sons are involved. |
| Keywords: | CEO compensation, Large shareholders, family firms, emerging markets |
| JEL: | G3 J3 M52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:379&r=bec |
| By: | Lippi, Francesco; Schivardi, Fabiano |
| Abstract: | We present a model in which the owner of the firm enjoys a private benefit from developing a personal relationship with the executives. This may lead the owner to retain a senior executive in office even though a more productive replacement is available. The model shows that the private returns of the employment relationship distort executive selection, reducing the executives' average ability and the firm productivity. We estimate the structural parameters of the model using a panel of Italian firms with information on the nature of the controlling shareholder, matched with individual records of their executives. These estimates are used to quantify the relevance of private returns and the related productivity gap across firms characterized by four different types of ownership: government, family, conglomerate and foreign. We find that private returns are large in family and government controlled firms, while smaller with other ownership types. The resulting distortion in executive selection can account for TFP differentials between control types of about 10%. The structural estimates are fully consistent with a set of model-based OLS regressions, even though the sample moments used by the two approaches are different. |
| Keywords: | corporate governance; private returns; TFP |
| JEL: | D2 G32 L2 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8031&r=bec |
| By: | Filipe Silva (Faculdade de Economia, Universidade de Coimbra, Portugal); Carlos Carreira (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal) |
| Abstract: | Today's shortage of financial resources calls for the attention of researchers to the problem of financial constraints faced by firms. In this paper we analyse firms' financial constraints by estimating both investment-cash flow sensitivities and cash-cash flow sensitivities upon a large unbalanced panel of Portuguese firms in order to obtain robust findings. Additionally, we classify firms according to characteristics that are generally believed to indicate the presence of constraints (size, age and dividend payment). Our results clearly show that Portuguese firms are, in general, financially constrained. Furthermore, we verify that such constraints are more severe for certain groups of firms, in particular those firms that are smaller and do not pay dividends. However, we do not find evidence that age as a good proxy for financial constraints. Finally, we cast some doubts on the direct implementation of the SA index as a measure of financial constraints. |
| Keywords: | Financial constraints; Firm-level studies; Portugal. |
| JEL: | D92 G32 L00 L2 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2010-15&r=bec |
| By: | Pennings, H.P.G. |
| Abstract: | The vertical organization of production entails a range of make-or-buy decisions of intermediate goods that are influenced by the difficulty of writing contracts with a potential supplier. When contracting causes high transaction costs, a firm can decide to vertically integrate the production of the intermediate product. Contract complexity can be measured by decomposing the range of inputs into inputs that are traded on an exchange (low contract complexity), inputs for which reference prices exist (low to medium contract complexity) and other, often relationship-specific inputs (medium to high contract complexity). This inaugural lecture addresses the impact of contract complexity on the growth opportunities of a firm. The present value of growth opportunities are embedded in the market value of a firm, which is a multiple of the firm’ stock price. Examining the relation between the growth opportunities as part of the market value and contract complexity, we find that contract complexity has a negative impact on the growth opportunities of a firm if vertical integration is difficult. Whereas, on average, growth opportunities account for 56% of the market value of a firm, this percentage ranges between 50% and 53% for firms in sectors where contracts are complex and vertical integration is difficult. The difference represents a current market value between € 12 bn. and € 24 bn. only taking into account Dutch listed firms. |
| Keywords: | real options;vertical organization;outsourcing;contract theory;flexibility;firm value |
| Date: | 2010–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:euriar:1765020457&r=bec |
| By: | Heli Koski |
| Abstract: | This study uses a unique survey data from 398 Finnish manufacturing firms to explore how the order of magnitude of mobility and connectivity of a firm’s ICT stock in conjunction with various organizational innovation and HRM practices affect the firm’s performance. The data suggest that mobile connectivity as such does not significantly contribute to the firm’s growth and profitability. However, the empirical results find support for the agency theory based argument : a greater mobility associated with the use of a pertinent economic incentive scheme and a systematic performance monitoring seems to promote the firm’s growth. In addition, re-organization of tasks within an organization is implemented most successfully, boosting profitability, when the firm’s re-organization strategy incorporates the adoption of mobile, Internet-connected IT stock. |
| Keywords: | ICT use, mobility, connectivity, organizational practices, firm performance |
| JEL: | L25 M52 M54 O33 |
| Date: | 2010–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1222&r=bec |
| By: | Bates, Timothy (Wayne State University, Detroit); Lofstrom, Magnus (Public Policy Institute of California); Servon, Lisa (The New School) |
| Abstract: | Small business lending programs designed to move disadvantaged low-income people into business ownership have been difficult to implement successfully in the U.S. context. Based in part on the premise that financing requirements are an entry barrier limiting the ability of aspiring entrepreneurs to create small businesses, these programs are designed to alleviate such barriers for low net-worth individuals with limited borrowing opportunities. Our analysis tracks through time nationally representative samples of adults to investigate the role of financial constraints and other factors delineating self-employment entrants from nonentrants. Paying particular attention to lines of business most accessible to adults lacking college credentials and substantial personal net worth, our analysis yields no evidence that financial capital constraints are a significant barrier to small-firm creation. |
| Keywords: | self-employment, entrepreneurship, micro-lending |
| JEL: | J15 L26 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5212&r=bec |
| By: | Michael B. Devereux (University of British Columbia and National Bureau of Economic Research and Centre for Economic Policy Research and Hong Kong Institute for Monetary Research); James Yetman (Bank for International Settlements and Hong Kong Institute for Monetary Research) |
| Abstract: | Recent macroeconomic experience has drawn attention to the importance of interdependence among countries through financial markets and institutions, independently of traditional trade linkages. This paper develops a model of the international transmission of shocks due to interdependent portfolio holdings among leverage-constrained investors. In our model, without leverage constraints on investment, financial integration itself has no implication for international macro co-movements. When leverage constraints bind however, the presence of these constraints in combination with diversified portfolios introduces a powerful financial transmission channel which results in a positive co-movement of production, independently of the size of international trade linkages. In addition, the paper shows that, with binding leverage constraints, the type of financial integration is critical for international co-movement. If international financial markets allow for trade only in non-contingent bonds, but not equities, then the international co-movement of shocks is negative. Thus, with leverage constraints, moving from bond trade to equity trade reverses the sign of the international transmission of shocks. |
| Keywords: | Leverage, International Transmission, Portfolios |
| JEL: | F3 F32 F34 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:132010&r=bec |
| By: | Matthieu Darracq Pariès (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Diego Rodriguez Palenzuela (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | The financial crisis clearly illuminated the potential amplifying role of financial factors on macroeconomic developments. Indeed, the heavy impairments of banks’ balance sheets brought to the fore the banking sector’s ability to provide a smooth flow of credit to the real economy. However, most existing structural macroeconomic models fail to take into account the crucial role of banks’ balance sheet adjustment in the propagation of shocks to the economy. This paper contributes to fill this gap, analyzing the role of credit market frictions in business cycle fluctuations and in the transmission of monetary policy. We estimate a closed-economy dynamic stochastic general equilibrium (DSGE) model for the euro area with financially-constrained households and firms and embedding an oligopolistic banking sector facing capital constraints. Using this setup we examine the macroeconomic implications of various financial frictions on the supply and demand of credit, and in particular we assess the effects of introducing risk-sensitive and more stringent capital requirements. Finally, we explore the scope for counter-cyclical bank capital rules and the strategic complementarities between macro-prudential tools and monetary policy. JEL Classification: E4, E5, F4. |
| Keywords: | DSGE models, Bayesian estimation, Banking, Financial regulation. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101251&r=bec |
| By: | Henk Kox; George van Leeuwen; Henry van der Wiel |
| Abstract: | The paper empirically investigates whether a lack of competition determines the poor productivity performance of the European business services. It uses detailed panel data for 13 EU countries over the period 2000-2005. We apply parametric and nonparametric methods to estimate the productivity frontier and subsequently explain the distance to the productivity frontier by market characteristics, entry- and exit dynamics and national regulation. We find that the most efficient scale in business services is close to 20 employees. Scale inefficiencies show a hump-shape pattern with strong potential scale economies for the smallest firms. Nonetheless, some 95% of the firms operate at a scale below the minimal optimal scale. While they are competitive in the sense that their productivities are very similar, they have strong scale diseconomies compared to the larger firms. Their scale inefficiency is persistent over time, which points to growth obstacles that hamper the achievement of scale economies. Regulation characteristics explain this inefficiency, particularly regulation-caused exit and labour reallocation costs are found to have a large negative impact on productivity performance. |
| Keywords: | productivity; frontier models; scale efficiency; market selection; regulation |
| JEL: | L1 L5 D2 L8 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:158&r=bec |
| By: | Taher Hamza (Laboratoire Orléanais de Gestion); Faten Lakhal |
| Abstract: | This paper analyses the determinants of earnings management by the acquirer of 60 takeover-bids that occurred between 1998 and 2008 on the French market. Four main findings are shown in this study. First, we find strong evidence that bidder firms manipulate earnings prior to takeovers suggesting that target managers have incentive to detect earnings manipulation to ensure the interests of the target shareholders. Second, managers manipulate their earnings either downward or upward and regardless of the method of payment. Third, bidder toehold influences negatively and significantly the discretionary accruals. Finally, the relationship between discretionary accruals and managerial ownership is negatively significant. This practice favors a resource transfer to the bidder controlling shareholder at the expense of minority shareholders. |
| Keywords: | Corporate takeover, Earnings management, Information asymmetry, Discretionary accruals, Method of payment |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:log:wpaper:2010-3&r=bec |
| By: | Poschke, Markus (McGill University) |
| Abstract: | In contrast to the very large literature on skill-biased technical change among workers, there is hardly any work on the importance of skills for the entrepreneurs who employ those workers, and in particular on their evolution over time. This paper proposes a simple theory of skill-biased change in entrepreneurial technology that fits with cross-country, historical and micro evidence. For this, it introduces two additional features into an otherwise standard occupational choice, heterogeneous firm model à la Lucas (1978): technological change does not benefit all potential entrepreneurs equally, and there is a positive relationship between an individual's potential payoffs in working and in entrepreneurship. If some firms consistently benefit more from technological progress than others, they stay closer to the frontier, and the others fall behind. Because wages rise for all workers, low-productivity entrepreneurs will then at some point exit and become workers. As a consequence, the entrepreneurship rate falls with income per capita, average firm size and firm size dispersion increase with income per capita, and "entrepreneurship out of necessity" falls with income per capita. The paper also documents, for two of the facts for the first time, that these are exactly the relationships prevailing in cross-country data. Quantitatively, the model fits the U.S. experience well. Using the parameters from a calibration to the U.S., the model also explains cross-country patterns quite well. |
| Keywords: | occupational choice, entrepreneurship, firm size, firm entry, growth, skill-biased technical change |
| JEL: | E24 J24 L11 L26 O30 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5202&r=bec |
| By: | Steven Ongena (Tilburg University, Warandelaan 2 5037 AB Tilburg, Netherlands.); Alexander Popov (European Central Bank, Financial Research Division, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | We study the effect of interbank market integration on small firm finance in the build-up to the 2007-2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6,047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis. JEL Classification: E51, G15, G21, G34. |
| Keywords: | interbank markets, selection, loan rates, bank competition, firm leverage. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101252&r=bec |
| By: | Ana María Sabater (Universidad de Alicante); Araceli Mora (Universitat de València); Beatriz García Osma (Universidad Autónoma de Madrid) |
| Abstract: | We study accounting choice around firm-level collective agreement negotiations. Prior literature argues that managers make income-decreasing accounting choices to limit the concessions made to trade unions. However, empirical research to date fails to find evidence in support of this hypothesis. We expect that this lack of evidence is driven by the confounding effects of (i) methodological concerns and (ii) influential institutional factors. Using a sample of US firms that engage in firm-level labor bargaining during the period 1994-2007, we study whether managers act strategically in an attempt to reduce the proportion of firm wealth that is accrued to employees. Our findings suggest that managers take real rather than accounting actions to minimize payments. In particular, we find evidence consistent with (i) managerial strategic timing of the negotiation, and with (ii) increased conditional conservatism in the year of labor bargaining. We do not find evidence of earnings manipulation. This potentially signals that accounting choice around labor negotiations is informative rather than opportunistic. Keywords: accounting choice, earnings quality, collective bargaining. En el presente trabajo se estudia la elección de políticas contables en torno a la negociación de convenios colectivos. La literatura previa predice que los gerentes tratan de reducir el resultado contable para minimizar las concesiones realizadas a los sindicatos. Sin embargo, no hay evidencia empírica clara hasta la fecha que ratifique esta hipótesis. Esperamos que esta falta de evidencia se justifique por (i) problemas metodológicos de estudios previos, y (ii) la influencia de factores institucionales. Empleando una muestra de empresas de EEUU que negocian un convenio colectivo entre 1994 y 2007, se estudia si los gerentes actúan estratégicamente para reducir el porcentaje de renta empresarial que se transfiere a los trabajadores. Nuestros resultados sugieren que los gerentes se valen de decisiones operativas en lugar de contables para minimizar los pagos a empleados. En particular, encontramos evidencia de (i) elección estratégica de cuándo negociar, y (ii) mayor conservadurismo contable en el año del evento. No encontramos evidencia de gestión oportunista del resultado, lo que potencialmente indica que las decisiones contables en torno a la negociación colectiva son informativas. |
| Keywords: | elección contable, calidad del resultado, negociación colectiva |
| JEL: | M41 J30 J51 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasec:2010-09&r=bec |
| By: | Marczak, Martyna (University of Hohenheim); Beissinger, Thomas (University of Hohenheim) |
| Abstract: | This paper establishes stylized facts about the cyclicality of real consumer wages and real producer wages in Germany. As detrending methods we apply the deterministic trend model, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter, the Baxter-King filter and the structural time series model. The detrended data are analyzed both in the time domain and in the frequency domain. The great advantage of an analysis in the frequency domain is that it allows to assess the relative importance of particular frequencies for the behavior of real wages. In the time domain we find that both real wages display a procyclical pattern and lag behind the business cycle. In the frequency domain the consumer real wage lags behind the business cycle and shows an anticyclical behavior for shorter time periods, whereas for longer time spans a procyclical behavior can be observed. However, for the producer real wage the results in the frequency domain remain inconclusive. |
| Keywords: | real wages, business cycle, frequency domain, time domain, Germany, trend-cycle decomposition, structural time series model, phase angle |
| JEL: | E32 C22 C32 J30 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5199&r=bec |
| By: | Galina Hale (Federal Reserve Bank of San Francisco and Hong Kong Institute for Monetary Research); Cheryl Long (Colgate University) |
| Abstract: | It appears to be common knowledge that external financing in China is mostly limited to state-owned firms and is hard to obtain for smaller private firms. In this paper we take a closer look at internal and external, formal and informal, financing sources of Chinese firms during the period of rapid economic reform in 1997-2006. To this end we analyze balance-sheet data from Chinese Industrial Surveys of Medium-sized and Large Firms for 2000-2006 and survey data from the Large-Scale Survey of Private Enterprises in China that was conducted in 1997, 2000, 2002, 2004, and 2006. The following stylized facts emerge from our analysis: (1) State-owned firms continue to enjoy significantly more generous external finances than other types of Chinese firms; (2) Chinese private firms have resorted to various ways to overcome financial constraints, including increasingly more mature informal financial markets, cost-saving through lower inventory and other working capital requirements, and greater reliance on retained earnings; (3) There are substantial variations in financial access among private firms: While the small private firms face more financial constraints, the more established large private firms seem to have access to finances that are more equal to their SOE counterparts; and, (4) There is some evidence that financial access of small private firms, especially to formal bank loans, has improved moderately in the past decade. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:192010&r=bec |