nep-bec New Economics Papers
on Business Economics
Issue of 2010‒11‒13
sixteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Firm age and performance By Loderer, Claudio; Waelchli, Urs
  2. Private benefits and market competition By Jacques Thépot
  3. Flexible Employment, Job Flows and Labour Productivity By Lorenzo Cappellari; Carlo Dell'Aringa; Marco Leonardi
  4. Trade Union Membership and Influence 1999-2009 By Alex Bryson; John Forth
  5. Do Salaries Improve Worker Performance? By Alex Bryson; Babatunde Buraimo; Rob Simmons
  6. Debt dynamics and excess sensitivity of consumption to transitory wealth changes By Emmanuel De Veirman; Ashley Dunstan
  7. Stability versus Flexibility: The Role of Temporary Employment in Labour Adjustment By Shutao Cao; Danny Leung
  8. The certification role of bank directors on;corporate boards By Giacomo Cau; Massimiliano Stacchini
  9. Dynamic incentives in organizations: Success and inertia By Ruckes, Martin; Rønde, Thomas
  10. Do Higher Wages Come at a Price? By Erling Barth; Alex Bryson; Harald Dale-Olsen
  11. Temporary agency work and the user firm's productivity: First evidence from German Panel Data By Hirsch, Boris; Mueller, Steffen
  12. Globalised Labour Markets? International Rent Sharing across 47 Countries By Martins, Pedro S.; Yang, Yong
  13. Bonus Payments, Hierarchy Levels and Tenure: Theoretical Considerations and Empirical Evidence By Grund, Christian; Kräkel, Matthias
  14. Macroeconomic Shocks and the Business Cycle: Evidence from a Structural Factor Model By Mario Forni; Luca.Gambetti
  15. To Join or Not to Join? Factors Influencing Employee Share Plan Membership in a Multinational Corporation By Alex Bryson; Richard Freeman
  16. The response of firms' leverage to uncertainty: Evidence from UK public versus non-public firms By Mustafa Caglayan; Abdul Rashid

  1. By: Loderer, Claudio; Waelchli, Urs
    Abstract: As firms grow older, their profitability seems to decline. We first document this phenomenon and show that it is very robust. Then we offer two non-exclusive explanations of why firms may age. First, corporate aging could reflect a cementation of organizational rigidities over time. Consistent with that, costs rise, growth slows, assets become obsolete, and investment and R&D activities decline. Second, older age could advance the diffusion of rent-seeking behavior inside the firm. This hypothesis is supported by the poorer governance, larger boards, and higher CEO pay we observe in older firms. Overall, firms seem to face a real senescence problem.
    Keywords: firm age; organizational rigidities; rent-seeking; firm life cycle; corporate governance; firm performance
    JEL: L20 G30
    Date: 2010–04–10
  2. By: Jacques Thépot (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper deals with corporate governance issues and competition policy. The impact of private benefits extraction on the values of oligopolistic firms is analyzed. Private benefits are assumed to generate costs which create price distortion on the product market. For a wide range of industry concentrations, we prove that this may affect the profit (i.e. the value) of the firms in a positive sense since the intensity of rivalry is reduced by the price distortion. Antitrust implications are discussed. In oligopoly, private benefits extraction may enhance the profits while still generating a welfare loss: this suggests that corporate governance cannot be divorced from competiton policy in industries where managerial opportunism generates operating costs.
    Date: 2010
  3. By: Lorenzo Cappellari (DISCE, Università Cattolica); Carlo Dell'Aringa (DISCE, Università Cattolica); Marco Leonardi (Dipartimento di Scienze Economiche, Aziendali e Statistiche Università degli Studi di Milano)
    Abstract: In this paper we provide evidence on the effects of temporary employment on job flows, labour productivity and investment. As a source of identification, we exploit reforms in the legislation of fixed-term and apprenticeships contracts whose implementation varied over regions and industries. Results indicate that the reform of apprenticeship contracts has increased the turnover of workers and has induced capital-labor substitution in favour of labour, with an overall productivity-enhancing effect. The reform of fixed-term contracts instead does not seem to have had the intended results and may have made the use of these contracts more costly rather than less costly. Ineffectiveness of the reform may also depend on firms substituting across different types of labour: we estimate elasticities of substitution that are consistent with this interpretation.
    Keywords: employment contracts, productivity, institutional changes
    JEL: J24 J41
    Date: 2010–10
  4. By: Alex Bryson; John Forth
    Abstract: This paper analyses the continued decline of trade unions in Britain and examines thepossible implications for workers, employers, and unions themselves. Membership of tradeunions declined precipitously in the 1980s and 1990s. The rate of decline has slowed in themost recent decade, but we find that unions remain vulnerable to further erosion of theirmembership and influence.
    Keywords: trade unions, wages, holidays, workplace performance
    JEL: J51 J31 L25
    Date: 2010–09
  5. By: Alex Bryson; Babatunde Buraimo; Rob Simmons
    Abstract: We establish the effects of salaries on worker performance by exploiting a natural experimentin which some workers in a particular occupation (football referees) switch from short-termcontracts to salaried contracts. Worker performance improves among those who move ontosalaried contracts relative to those who do not. The finding is robust to the introduction ofworker fixed effects indicating that it is not driven by better workers being awarded salarycontracts. Nor is it sensitive to workers sorting into or out of the profession. Improvedperformance could arise from the additional effort workers exert due to career concerns, thehigher income associated with career contracts (an efficiency wage effect) or improvementsin worker quality arising from off-the-job training which accompanies the salaried contracts.
    Keywords: incentives, salaries, productivity, sports
    JEL: J33 M52
    Date: 2010–10
  6. By: Emmanuel De Veirman; Ashley Dunstan (Reserve Bank of New Zealand)
    Abstract: We analyse the consumption-wealth relationship using a framework that accounts for transitory variation in wealth, and in a setting where transitory variation in household net worth is not dominated by boom and bust cycles in stock markets. We find that transitory variation in consumption depends positively on recent transitory changes in wealth. In addition, we find that gross asset wealth and household debt are positively related. Both findings constitute departures from standard lifecycle/ permanent income hypothesis theory with complete financial markets, but can be explained by the introduction of liquidity constraints.
    JEL: C22 C32 E21
    Date: 2010–10
  7. By: Shutao Cao; Danny Leung
    Abstract: In Canada, temporary workers account for 14 per cent of jobs in the non-farm business sector, are present in a range of industries, and account for 40 per cent of the total job reallocation. Yet most models of job reallocation abstract from temporary workers. This paper evaluates the importance of temporary workers in job reallocation in a multi-sector model with costly labour adjustment and temporary workers. The calibrated model captures some features of job reallocation in Canada. The paper shows that the adjustment cost parameters for permanent workers are underestimated if temporary workers are ignored. It also shows that when a shock occurs where permanent workers bear the brunt of reallocation (e.g. the 2005-2008 commodity price boom and the appreciation of the Canadian dollar), aggregate adjustment costs are underestimated if temporary workers are not accounted for.
    Keywords: Labour markets; Productivity
    JEL: D24 J32
    Date: 2010
  8. By: Giacomo Cau (Banca d'Italia); Massimiliano Stacchini (Banca d'Italia, Economics and International Relations Area)
    Abstract: There is a large literature on the effects of the presence of bankers on firms'boards as these bankers may reduce monitoring costs by facilitating information flows between the lender and the borrower, may credibly certify the financial soundness of the firm to other creditors who are not represented in the board and may act as financial experts for the management. At the same time, lending bankers on boards may have a conflict of interests. In this paper, we study the impact of the presence of bankers on firms' boards on interest rates charged to firms. We have two results.;First, as interest rates on loans from the board director's bank and from other banks are very similar we do not find evidence of a conflict of interests effect. Second, we have strong evidence of certification effects played by bank directors as rates charged by all banks on loans to firms with bankers on boards are lower than those charged by all banks to firms without bankers. The certification effect is even stronger if the banker on board has itself loaned to the firm.
    Date: 2010–11
  9. By: Ruckes, Martin; Rønde, Thomas
    Abstract: We present a dynamic model in which an employee of a firm searches for business projects in a changing environment. It is costly to induce the employee who found a successful project in the past period to search for a new project. Past success can therefore result in profitreducing corporate inertia. Still, when the firm chooses to counteract the reluctance to search by increasing the power of the incentives, it stimulates initial search efforts and results in higher profits. Corporate restructuring and increasing the employee's authority over time are means to alleviate inertia but may undermine initial search incentives. --
    Keywords: incentives in organizations,inertia,innovation,restructuring
    JEL: L2 M12 M54 O31 O32
    Date: 2010
  10. By: Erling Barth; Alex Bryson; Harald Dale-Olsen
    Abstract: Using linked employer-employee data for Britain we find job satisfaction and job anxiety arenegatively correlated but higher wages are associated with higher job satisfaction and higher jobanxiety. However, we observe a positive association between higher wages and non-pecuniary jobsatisfaction, which disappears with the inclusion of our effort measures. Thus high effort levelsprovide high levels of non-pecuniary job satisfaction and higher wages, in contrast to whatcompensating wage differentials predicts. On the other hand, the positive association between wagesand pay satisfaction and the positive association between wages and job anxiety are both robust to theinclusion of our effort measures and rich job controls. Mean wages of co-workers are positivelyassociated with pay satisfaction but there is no significant association with non-pecuniary jobsatisfaction or job anxiety. Thus there is a positive spill-over to workers from being in a high-wageworkplace and there is no support for the proposition that within-workplace wage differentials are asource of job anxiety.
    Keywords: worker wellbeing, job stress, job anxiety, job satisfaction, wages, compensatingdifferentials
    JEL: J28 J31 J81
    Date: 2010–10
  11. By: Hirsch, Boris; Mueller, Steffen
    Abstract: This paper investigates the relationship between the use of temporary agency work and the user firm's productivity. We hypothesise that modest use enhances numerical flexibility and thus productivity, while excessive use mirrors lowproductivity strategies utilising less social and human capital and primarily aims at circumventing labour market regulations. In contrast to the sparse existing literature on this issue, we apply a large panel data set and fixed effects techniques. We find a robust hump-shaped relationship between the extent of temporary agency work use and the user firm's productivity, which corroborates our hypotheses. -- Das vorliegende Papier untersucht den Zusammenhang zwischen Leiharbeitseinsatz und der Produktivität der Entleihfirma. Ausgangspunkt ist die Überlegung, dass moderater Leiharbeitseinsatz die numerische Flexibilität und damit Produktivität des Entleihers erhöht, während exzessive Nutzung von Leiharbeit eine Niedrigproduktivitätsstrategie mit geringem Einsatz von Human- und Sozialkapital widerspiegeln dürfte, die in erster Linie auf die Umgehung von Arbeitsmarktregulierungen abzielt. Im Gegensatz zur spärlichen Literatur zu den Produktivitätseffekten von Leiharbeit nutzen wir einen großen Paneldatensatz und Fixe-Effekte-Schätzungen. Im Einklang mit unseren Hypothesen finden wir einen robusten buckelförmigen Zusammenhang zwischen der Produktivität des Entleihers und dem Anteil an Leiharbeitnehmern in seiner Belegschaft.
    Keywords: temporary agency work,firm productivity,flexible labour
    JEL: J50 L22 L23
    Date: 2010
  12. By: Martins, Pedro S. (Queen Mary, University of London); Yang, Yong (University of Essex)
    Abstract: We present evidence about the role of rent sharing in fostering the interdependence of labour markets around the world. Our results draw on a firm-level panel of more than 2,000 multinationals and more than 5,000 of their affiliates, covering 47 home and host countries. We find considerable evidence that multinationals share profits internationally, by paying higher wages to their workers in foreign affiliates in periods of higher profits. This occurs even across continents, and not only within Europe, as shown in earlier research. The results are robust to different tests, including a falsification exercise based on 'matched' parents. Finally, we show that different measures of the heterogeneity between parents and affiliates tend to increase rent sharing while the number of affiliates tends to decrease rent sharing, results we argue are consistent with bargaining views.
    Keywords: multinationals, profit sharing, wage determination
    JEL: J31 J41 J50
    Date: 2010–10
  13. By: Grund, Christian (University of Würzburg); Kräkel, Matthias (University of Bonn)
    Abstract: Using data on executive compensation for the German chemical industry, we investigate the relevance of two theoretical approaches that focus on bonuses as part of a long term wage policy of a firm. The first approach argues that explicit bonuses serve as substitutes for implicit career concerns. The second approach claims that bonuses are used as complements to an executive's internal career. Our data show that bonus payments are mostly prevalent among senior executives at higher hierarchy levels and rather for management jobs than for jobs in research and development. This is true for the whole chemical sector as well as for single large corporations. The findings indicate that the two theoretical views are not mutually exclusive, but are both relevant in practice.
    Keywords: bonus payments, chemical sector, hierarchy, tenure, wage policy
    JEL: M52 J33
    Date: 2010–10
  14. By: Mario Forni; Luca.Gambetti
    Abstract: We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and six. Focusing on the four-shock specification, we identify, using sign re- strictions, two non-policy shocks, demand and supply, and two policy shocks, monetary and fiscal. We obtain the following results. (ii) Both supply and demand shocks are important sources of fluc- tuations; supply prevails for GDP, while demand prevails for employment and inflation. (ii) Policy matters, Both monetary and fiscal policy shocks have sizeable effects on output and prices, with little evidence of crowding out; both monetary and fiscal authorities implement important system- atic countercyclical policies reacting to demand shocks. (iii) Negative demand shocks have a large long-run positive effect on productivity, consistently with the Schumpeterian "cleansing" view of recessions.
    Keywords: structural factor model, sign restrictions, monetary policy, fiscal policy, demand, supply
    JEL: C32 E32 E52 F31
    Date: 2010–03–22
  15. By: Alex Bryson; Richard Freeman
    Abstract: Many firms encourage employees to own company stock through share plans that subsidizethe price at favorable rates, but even so many employees do not buy shares. Using a newsurvey of employees in a multinational with a share ownership plan, we find considerablevariation in joining among observationally equivalent workers and explore the reasons for thevariation. Participation in the plan is higher the greater the potential pay-off from joining theshare plan, which indicates that rational economic calculations affect the decision to join. Butthere is also evidence that psychological factors affect the decision to join. Some nonmemberssay they intend to join in the future, which means they forgo the benefits ofimmediate membership. The proportion of workers who purchase shares varies acrossworkplaces beyond what we predict from worker characteristics. This suggests that coworkerbehavior influences decisions. Indeed, workers say that they pay most attention toother workers and little attention to company HR management in their decision on joining.
    Keywords: share plans, share contributions, risk aversion, peer effects, social norms
    JEL: D83 H3 I22 J33 J54
    Date: 2010–09
  16. By: Mustafa Caglayan (Department of Economics, The University of Sheffield); Abdul Rashid
    Abstract: This paper empirically investigates the effects of uncertainty on firms' leverage. The analysis is carried out for a large panel of public and non-public UK manufacturing firms over 1999-2008. The empirical results provide evidence that firms use less short-term debt as they go through periods of high uncertainty. The leverage of non-public firms is more sensitive to idiosyncratic uncertainty in comparison to their public counterparts, yet macroeconomic uncertainty affects both types of frms similarly. We fnally end our investigation showing that the total impact of either type of uncertainty on firms' leverage is related to the amount of the cash buer each firm carries.
    JEL: C23 D81 G32
    Date: 2010–10

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