nep-bec New Economics Papers
on Business Economics
Issue of 2010‒10‒23
24 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Monitoring to Reduce Agency Costs: Examining the Behavior of Independent and Non-Independent Boards By Frank Milne; Lynnette Purda; Anita Anand
  2. The effects of workforce composition, labor turnover, and the qualities of entering and exiting workers on productivity growth By Kronenberg, Kristin; Carree, Martin
  3. Temporary Layoffs with Incomplete Worker Attachment in Search Equilibrium By Anna Zaharieva (Chizhova)
  4. Wage Cyclicality under Different Regimes of Industrial Relations By Gartner, Hermann; Schank, Thorsten; Schnabel, Claus
  5. Inflation, Human Capital and Tobin's q By Parantap Basu; Max Gillman; Joseph Pearlman
  6. Financial constraints: Are there differences between manufacturing and services? By Filipe Silva; Carlos Carreira
  7. Trade Union Membership and Dismissals By Goerke, Laszlo; Pannenberg, Markus
  8. Risk Sharing and Employee Motivation in Competitive Search Equilibrium By Anna Zaharieva (Chizhova)
  9. Competition and cost pass-through in differentiated oligopolies By Zimmerman, Paul R.; Carlson, Julie A.
  10. Horizontal mergers with synergies: first-price vs. profit-share auction By Wei Ding; Cuihong Fan; Elmar G. Wolfstetter
  11. Multimarket linkages, buyer power, and the productivity puzzle By Noriaki Matsushima; Laixun Zhao
  12. Can they beat the Cournot equilibrium? Learning with memory and convergence to equilibria in a Cournot oligopoly By Thomas Vallée; Murat Yildizoglu
  13. Unions, Innovation, and Technology Adoption: New insights from the cross-country evidence By Hristos Doucouliagos; Patrice Laroche
  14. Product Market Competition, Information and Earnings Management By GAREN MARKARIAN; JUAN SANTALO
  15. The impact of the financial crisis on new firm registration By Klapper, Leora; Love, Inessa
  16. Liquidity, risk and occupational choices By Milo Bianchi; Matteo Bobba
  17. An Application of Constant Market Share Analysis for the Study of Firm Profitability By Marini, Giovanni
  18. Price Regulation and the Cost of Capital By Fernando T. Camacho; Flavio M. Menezes
  19. Cross-Border Alliances and Product Market Competition By TAKECHI Kazutaka
  20. Do your volatility smiles take care of extreme events? By L. Spadafora; G. P. Berman; F. Borgonovi
  21. Le traitement comptable des intangibles, ses conséquences et les solutions envisagées By Daniel Zéghal; Anis Maaloul
  22. Predicting recession probabilities with financial variables over multiple horizons By Fabio Fornari; Wolfgang Lemke
  23. Prestigious organizations and heterodox choice in institutionally plural contexts By Durand, Rodolphe; Szostak, Berangere
  24. Inside Organizations: Pricing, Politics, and Path Dependence By Robert S. Gibbons

  1. By: Frank Milne (Queen's University); Lynnette Purda (Queen's University); Anita Anand (University of Toronto)
    Abstract: Berle and Means’s analysis of the corporation—in particular, their view that those in control are not the owners of the corporation—raises questions about actions that corporations take to counter concerns regarding management’s influence. What mechanisms, if any, do corporations implement to balance the distribution of power in the corporation? To address this question, we analyze boards of directors’ propensity to voluntarily adopt recommended corporate governance practices. Because board independence is one way to enhance shareholders’ ability to monitor management, we probe whether firms with independent boards of directors (which we define as boards with either an independent chair or a majority of independent directors) are more likely than firms without independent boards to adopt these practices. We focus on boards’ willingness to monitor their firms’ agents, examining the relationship between board independence and the voluntary adoption of corporate governance guidelines.
    Keywords: Corporate Governance, Agency Costs, Monitoring, Independent Boards
    JEL: D G K L
    Date: 2010–10
  2. By: Kronenberg, Kristin; Carree, Martin
    Abstract: This study identifies and analyzes the effects of firms’ workforce composition, labor turnover, and the qualities of entering and exiting employees on consequent changes in their productivity. Using register data provided by Statistics Netherlands, we examine the productivity dynamics of Dutch manufacturing firms between the years 2002 and 2005. The regression results illustrate that changes in firm productivity are not only determined by the composition of the firm’s current workforce and the degree of labor turnover, but also by the characteristics of the workers who enter and exit the firm. Firms benefit from the inflow of employees previously employed with other firms in the same industry, and with highly productive firms, whereas the inflow of workers from non-employment has a negative effect on their new employers’ productivity growth. Furthermore, the outflow of workers into non-employment, and to highly productive firms positively affects their old employers’ productivity growth, while the exit of workers who leave for firms in the same industry, and of those who simultaneously relocate (across long distances) has a negative effect.
    Keywords: workforce composition; labor turnover; job mobility; employee mobility; productivity growth
    JEL: J62 J63 J61 J24
    Date: 2010
  3. By: Anna Zaharieva (Chizhova) (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper revisits the no-attachment assumption in job search models with random productivity fluctuations and Nash-bargaining. Both workers and firms value the option to remain in attachment: firms profit from a reduced hiring cost, while workers gain from a higher reservation wage when bargaining with a new employer. Ex-post differentiation of workers into attached and unattached unemployed produces endogenous binary wage dispersion. The decentralized equilibrium with a Hosios value of the bargaining power is no longer constrained efficient: when changing attachment workers impose a negative externality on their former employer originating from a loss of the recall option. This inefficiency tends to produce excessive job creation. The paper also investigates returns to job mobility in Germany and shows that being recalled to the previous employer as opposed to the new job is associated with about 8% lower probability of wage improvement.
    Keywords: Search equilibrium, temporary layoff, constrained efficiency, wage dispersion
    JEL: J23 J31 J63 M51
    Date: 2010–10–11
  4. By: Gartner, Hermann (IAB, Nürnberg); Schank, Thorsten (University of Mainz); Schnabel, Claus (University of Erlangen-Nuremberg)
    Abstract: Since there is scant evidence on the role of industrial relations in wage cyclicality, this paper analyzes the effect of collective wage contracts and of works councils on real wage growth. Using linked employer-employee data for western Germany, we find that works councils affect wage growth only in combination with collective bargaining. Wage adjustments to positive and negative economic shocks are not always symmetric. Only under sectoral bargaining there is a (nearly symmetric) reaction to rising and falling unemployment. In contrast, wage growth in establishments without collective bargaining adjusts only to falling unemployment and is unaffected by rising unemployment.
    Keywords: wage cyclicality, wage bargaining, works council, Germany
    JEL: J31 E32 J53
    Date: 2010–10
  5. By: Parantap Basu (Durham University); Max Gillman (Institute of Economics - Hungarian Academy of Sciences, Cardiff University); Joseph Pearlman (London Metropolitan University)
    Abstract: A less well-known empirical finding for the US and UK is a pronounced low frequency negative relationship between inflation and Tobin's q; a normalized market price of capital. This stylized fact is explained within a dynamic stochastic general equilibrium model using three key features: (i) a Lucas and Prescott (1971) physical capital adjustment cost with a rising marginal cost of investment, (ii) production of human capital with endogenous growth and (iii) an inflation tax cash-in-advance economy. The baseline endogenous growth model matches the US inflation and q long term correlation, while comparable exogenous growth are unable to do this, and it outperforms the exogenous growth models in explaining business cycle volatilities of q and of stock returns.
    Keywords: Low frequency, Tobin's q; inflation tax, endogenous growth
    JEL: E31 E44 G12
    Date: 2010–09
  6. By: Filipe Silva (Faculdade de Economia, Universidade de Coimbra, Portugal); Carlos Carreira (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)
    Abstract: This paper is the first to explicitly explore the differences in firms' financial constraints between and within sectors of economic activity, by estimating the sensitivities of cash holdings to cash-flow upon an unique dataset of Portuguese firms. It shows that, not only there are remarkable differences between sectors and, especially, industries, but most importantly, that the commonly accepted inverse relationships between financial constraints and size and age are not robust to sectorial disaggregation.
    Keywords: Services; Financial constraints; Firm-level studies; Portugal.
    JEL: L8 D92 G32 L00 L2
    Date: 2010–07
  7. By: Goerke, Laszlo (University of Tuebingen); Pannenberg, Markus (Bielefeld University of Applied Sciences)
    Abstract: In Germany, there is no trade union membership wage premium, while the membership fee amounts to 1% of the gross wage. Therefore, prima facie, there are strong incentives to free-ride on the benefits of trade unionism. We establish empirical evidence for a private gain from trade union membership which has hitherto not been documented: in West Germany, union members are less likely to lose their jobs than non-members. In particular, using data from the German Socio-Economic Panel we can show that roughly 50% of the observed raw differential in individual dismissal rates can be explained by the estimated average partial effect of union membership.
    Keywords: dismissal, free-riding, trade union membership, survey data
    JEL: C23 H41 J51 J63
    Date: 2010–09
  8. By: Anna Zaharieva (Chizhova) (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper incorporates a classical moral hazard problem with unobserved worker effort and bonus payments into a competitive search equilibrium environment with risk averse workers. The resulting framework permits an analysis of the effects of labour market competition and search frictions on individual contract setting. The paper demonstrates that the classical model of moral hazard with an ex-post wage setting regime may underestimate the optimal values of wages and bonus payments in competitive labour markets. The baseline model is extended to account for employer heterogeneity with respect to capital endowments. In the extended model, wage competition between employers serves as a source of positive correlation between wages and bonus payments reported in a number of empirical studies.
    Keywords: Effort, bonus, risk aversion, competitive search, equilibrium efficiency
    JEL: J33 J64 M52
    Date: 2010–10–11
  9. By: Zimmerman, Paul R.; Carlson, Julie A.
    Abstract: The impact that competition exerts on the incentives of firms to pass through reductions in their marginal costs is an important consideration in assessing the performance of alternate market structures. This paper examines the role of product differentiation on firm-specific and industry-wide pass-through rates. Relying on Shubik’s (1980) model of differentiated Cournot competition with linear demand, we show that there exists an initial critical range over which the firm-specific cost pass-through rate decreases in the number of firms. Beyond this range the rate continually increases – approaching 50 percent as the number of firms goes to infinity. This contrasts with a model of differentiated Bertrand competition in which cost pass through monotonically decreases in the number of firms. The disparate effects across the Cournot and Bertrand models are shown to stem from the influence of competition and product differentiation on the respective firm reaction functions. Suggestions for future empirical work based upon the models’ predictions and implications for antitrust policy are also discussed.
    Keywords: Competitive effects; Oligopoly; Merger; Pass-through; Product differentiation
    JEL: L13 L40
    Date: 2010–10–15
  10. By: Wei Ding (University of Bonn); Cuihong Fan (Shanghai University of Finance and Economics); Elmar G. Wolfstetter (Humboldt University of Berlin)
    Abstract: We consider takeover bidding in a Cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target. Two auction rules are considered: standard first-price and profit-share auctions, supplemented by entry fees. Since non-merged firms benefit from a merger if the synergies are low, bidders are subject to a positive externality. Nevertheless, pooling does not occur; and the profit-share auction is strictly more profitable than the first-price auction, regardless of whether firms observe the synergy parameter or only the winning bid before they play the oligopoly game.
    Keywords: Horizontal mergers, takeovers, auctions, externalities, oligopoly
    JEL: G34 D44 H23 L13 D43
    Date: 2010–10
  11. By: Noriaki Matsushima; Laixun Zhao
    Abstract: This paper examines the relationship between firms' productivity improvement and the volume of exports, and shows that it can be sometimes negative. Specifically, we simultaneously take into account intermediate retailers (i.e., vertically) and multimarket linkages (i.e., horizontally). We find that an improvement of the manufacturing productivity affects the bargained wholesale prices in opposite directions in asymmetric markets, causing retailers to make corresponding changes that look surprising. This result can explain for the empirical "left productivity puzzle" found in Ghemawat et al. (2010). Related to this issue is the relationship between buyer power (caused by a retail merger) and profitability. Contrary to the existing literature, in an extended setup, we find that the merger between the downstream duopolists does not improve their profits if their bargaining power is strong vs. upstream suppliers.
    Date: 2010–10
  12. By: Thomas Vallée (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272); Murat Yildizoglu (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: This article analyses the possibility of firms learning collusive solutions in a Cournot quantity game. Starting from the results of Vallée and Yildizoglu (2009) and of Alos-Ferrer (2004), we study the role of random experimenting, social learning (imitation), and (updated) memory in helping firms to discover more collusive market configurations than those of the Cournot equilibrium (CE). We show that long memory and its update is necessary to achieve such configurations.
    Keywords: Cournot oligopoly; Learning; Evolution; Selection; Evolutionary stability; Nash Equilibrium; Collusion
    Date: 2010–10–15
  13. By: Hristos Doucouliagos; Patrice Laroche
    Abstract: There is currently no consensus regarding the effect of unions on technology. We apply meta-regression analysis to the extant econometric studies and find that unions depress investment in new technology. However, this adverse effect has been declining over time and is moderated by country differences in industrial relations and regulations: The adverse effect appears to increase with labor market flexibility. Unions also have an adverse effect on technology adoption. The paper considers both the direct and indirect effects of unions and shows that their effect on technology is larger than their effect on profitability and physical capital. The size of the union effect on technology is compared to the effects of human capital, industry concentration, firm size, growth, profitability, and physical capital.
    Keywords: unions, R&D, innovation, technology adoption, regulation, meta-regression analysis
    JEL: J51 O31 O33
    Date: 2010–10–18
  14. By: GAREN MARKARIAN (Instituto de Empresa); JUAN SANTALO (Instituto de Empresa)
    Abstract: Abstract: We study the effect of product market competition on the incentives to engage in earnings manipulation and we find that they crucially depend on the level of visibility of firm real activity in the marketplace. If investors can perfectly observe real firm output and sales, then CEOs are forced to act in the marketplace in a consistent manner with the earnings they are reporting. We show in a simple model how this is too expensive in more competitive markets and therefore competition should reduce rather than increase earnings manipulation. On the contrary, if investors and analysts cannot observe firm real output in the marketplace we show how manipulating earnings might be particu
    Date: 2010–05
  15. By: Klapper, Leora; Love, Inessa
    Abstract: The authors use panel data on the number of new firm registrations in 95 countries to study the impact of the business environment and 2008 financial crisis on new firm registration. The data show that more dynamic formal business creation occurs in countries that provide entrepreneurswith a stable legal and regulatory regime, fast and inexpensive business registration process, more flexible employment regulations, and low corporate taxes. The data also show that nearly all countries experienced a sharp drop in business entry during the crisis. This drop is more pronounced in countries with higher levels of financial development and countries more affected by the crisis.
    Keywords: Governance Indicators,E-Business,Emerging Markets,Environmental Economics&Policies,Economic Theory&Research
    Date: 2010–10–01
  16. By: Milo Bianchi; Matteo Bobba
    Abstract: We explore whether financial constraints matter and which financial constraints matter the most in the choice of becoming an entrepreneur. We exploit a randomly assigned welfare program in rural Mexico to show that cash transfers significantly increase entry into entrepreneurship, thereby providing evidence of financial constraints. We then develop a simple model to highlight how liquidity and insurance constraints respond differently to the time profile of expected cash transfers. Exploiting the cross-households variation in the timing of these transfers, we find that current occupational choices are significantly more responsive to the amount of transfers expected for the future than to the amount of transfers currently received. We interpret these findings as evidence that the program has been effective in promoting micro-entrepreneurship by enhancing the willingness to bear risk.
    Date: 2010
  17. By: Marini, Giovanni
    Abstract: We propose a new decomposition of the return on investment (ROI) – the main accounting measure of firm profitability – to evaluate the contributions of its three components: the return on sales (ROS), the utilization (rotation) of working capital (RCC), and the utilization (rotation) of fixed capital (RCF). By using this decomposition we develop an original variant of the constant market share (CMS) analysis specifically for comparisons of firm average profitability between countries and over time. The proposed CMS methodology allows us to separate the variation of the average ROI over time (or its difference between two countries) in three components: a competitiveness effect – the difference of average ROI assuming the same reference structure for the two terms of comparison – a structure effect – the result of the difference in the internal articulation of the ROI by sector and by size structure within the two terms of comparison – and an adaptation effect, which takes into account the synergies between the two previous components. The decomposition of the ROI in the product of the three terms, ROS, RCC and RCF, plays an original role in the interpretation of the competitiveness effect. An application of the proposed methodology is carried out for the comparison of the average ROI in the industrial sector among Germany, Italy and France and over the years 2006-2008.
    Keywords: constant market share analysis; return on investment; return on sales; rotation of invested capital; comparison over time; comparison over countries
    JEL: C43 M41 L60 L70
    Date: 2010–09–28
  18. By: Fernando T. Camacho; Flavio M. Menezes (School of Economics, The University of Queensland)
    Abstract: This paper investigates how price regulation under moral hazard can affect a regulated firm’s cost of capital. We consider stylised versions of the two most typical regulatory frameworks that have been applied over the last decades by regulators: Price Cap and Cost of Service. We show that there is a trade-off between lower operational costs and a higher cost of capital under Price Cap regulation and higher operational costs and lower cost of capital under Cost of Service regulation. As a result, when the extent of moral hazard is not significant, Price Cap regulation generates lower welfare than the Cost of Service regulation.
    Date: 2010
  19. By: TAKECHI Kazutaka
    Abstract: Foreign manufacturers have the option of using sales networks of domestic rival firms to save local distribution costs. Such alliances may lead to collusion or create greater distortions because of the additional margins imposed by foreign firms, as shown in the theoretical literature. This paper empirically examines whether these outcomes are realized by alliances using Japanese antibiotics market data, where cross-border alliances are common. Empirical results show that the marginal costs of products supplied through cross-border alliances are lower than those supplied by foreign firms, suggesting that alliances are effective devices to reduce local distribution costs for foreign firms. Furthermore, my test results reveal little evidence of collusion or high markups caused by cross-border alliances.
    Date: 2010–10
  20. By: L. Spadafora; G. P. Berman; F. Borgonovi
    Abstract: In the Black-Scholes context we consider the probability distribution function (PDF) of financial returns implied by volatility smile and we study the relation between the decay of its tails and the fitting parameters of the smile. We show that, considering a scaling law derived from data, it is possible to get a new fitting procedure of the volatility smile that considers also the exponential decay of the real PDF of returns observed in the financial markets. Our study finds application in the Risk Management activities where the tails characterization of financial returns PDF has a central role for the risk estimation.
    Date: 2010–10
  21. By: Daniel Zéghal (CGA - Centre de Recherche en Comptabilité - Université d'Ottawa); Anis Maaloul (CGA - Centre de Recherche en Comptabilité - Université d'Ottawa)
    Abstract: Dans la nouvelle économie, les actifs intangibles sont devenus les principaux créateurs de la valeur par l'entreprise. Cependant, l'évaluation de ces actifs dans le cadre de la comptabilité soulève plusieurs problèmes liés à leur identification, mesure et contrôle. Selon les normes comptables en vigueur, la plupart des investissements intangibles sont passés immédiatement en charges lorsqu'ils sont encourus. La relative méconnaissance comptable des intangibles comme actifs bilanciels a conduit plusieurs chercheurs à s'interroger sur les conséquences de ce traitement comptable inadéquat sur 1) la pertinence de l'information comptable, 2) l'allocation des ressources sur le marché financier, 3) la croissance des investissements intangibles, et 4) leurs financements. L'objectif principal de notre article est donc de procéder à une revue critique de ces études antérieures tout en fournissant les arguments nécessaires pour avancer dans ce domaine de recherche. En effet, nos arguments semblent appuyer, à travers les récentes études sur le sujet, le rôle et les avantages de la divulgation volontaire d'informations relatives aux intangibles en tant que solution pour atténuer les conséquences négatives résultant de leur traitement comptable inadéquat.
    Keywords: actifs intangibles ; pertinence ; allocation des ressources ; croissance ; financement ; divulgation ; capital immatériel.
    Date: 2010–06–18
  22. By: Fabio Fornari (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Wolfgang Lemke (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: We forecast recession probabilities for the United States, Germany and Japan. The predictions are based on the widely-used probit approach, but the dynamics of regressors are endogenized using a VAR. The combined model is called a ‘ProbVAR’. At any point in time, the ProbVAR allows to generate conditional recession probabilities for any sequence of forecast horizons. At the same time, the ProbVAR is as easy to implement as traditional probit regressions. The slope of the yield curve turns out to be a successful predictor, but forecasts can be markedly improved by adding other financial variables such as the short-term interest rate, stock returns or corporate bond spreads. The forecasting performance is very good for the United States: for the out-of-sample exercise (1995 to 2009), the best ProbVAR specification correctly identifies the ex-post classification of recessions and non-recessions 95% of the time for the one-quarter forecast horizon and 87% of the time for the four-quarter horizon. Moreover, the ProbVAR turns out to significantly improve upon survey forecasts. Relative to the good performance reached for the United States, the ProbVAR forecasts are slightly worse for Germany, but considerably inferior for Japan. JEL Classification: C25, C32, E32, E37.
    Keywords: Recessions, forecasting, probit, VAR.
    Date: 2010–10
  23. By: Durand, Rodolphe; Szostak, Berangere
    Abstract: In unsettled fields with multiple ideal-typical institutional logics, why do organizations tend to weaken or conform to prevalent logic order? The authors argue that prestige, defined as a tribute paid by field members to a select few with valued distinctive traits, plays a determinant role in explaining institutional heterodoxy (i.e., the choice to stop instantiating dominant logics or start instantiating less prevalent logics). In unsettled fields, prestigious organizations adopt institutional heterodoxy to maintain their distinctiveness because they consider logics as means rather than constraining ends and because awarding bodies cannot impose strict obedience rules. Controlling for alternative explanations, a study of 165 French industrial design agencies (1989 to 2003) provides evidence that prestige favors the decision to undertake heterodox choices. This relationship is weakened when organizations diversify their expertise, is marginally reinforced when organizations have high-status clients, and is influenced by peers’ heterodox choices. The authors discuss contributions to the neo-institutional theory of organizational choices, the socio-cultural analysis of field’s evolution, and the strategic perspective of the firm.
    Keywords: strategy; organizational choices logistics; industrial design
    JEL: L10 L60
    Date: 2010–10–15
  24. By: Robert S. Gibbons
    Date: 2010–10–08

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