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on Business Economics |
| By: | Andrei Shleifer; Robert W. Vishny |
| Abstract: | Fire sales are forced sales of assets in which high-valuation bidders are sidelined, typically due to debt overhang problems afflicting many specialist bidders simultaneously. We overview theoretical and empirical research on asset fire sales, which shows how they can arise, how they can lead to asset under-valuations, how contracts and bankruptcy regimes adjust to the risk of fire sales, how fire sales can lead to downward spirals or cascades in asset prices, how arbitrage fails in the presence of fire sales, and how fire sales can reduce productive investment. We conclude by showing how asset fire sales shed light on several aspects of the recent financial crisis, and can account for the success of the liquidity provision and asset purchase policies of the Federal Reserve. |
| JEL: | E44 E51 G21 G32 G33 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16642&r=bec |
| By: | James D. Hamilton; Michael T. Owyang |
| Abstract: | This paper develops a framework for inferring common Markov-switching components in a panel data set with large cross-section and time-series dimensions. We apply the framework to studying similarities and differences across U.S. states in the timing of business cycles. We hypothesize that there exists a small number of cluster designations, with individual states in a given cluster sharing certain business cycle characteristics. We find that although oil-producing and agricultural states can sometimes experience a separate recession from the rest of the United States, for the most part, differences across states appear to be a matter of timing, with some states entering recession or recovering before others. |
| JEL: | E32 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16657&r=bec |
| By: | Pei, Di |
| Abstract: | This paper provides a new explanation for the relationship between firm scope, agent's effort and corporate risk. I set up a moral hazard in teams model with multiple agents and departments under the assumption that both the principal and the agents are protected by limited liability. Each agent exerts effort to reduce the probability of loss of his department. The two-sided limited liability assumption creates an externality between agents, since the bad performance of an agent could reduce the firm’s expected profit, and decrease the expected payoff of a good performing agent within the same firm. This would lower the incentive for other agents to exert effort, which causes 'Contagious shirking'. I prove for the optimal contract and derive conditions for effort to increase or decrease with scope, and explain why ‘contagious effect’ could better answer this question than diversification when firm scope is large. |
| Keywords: | firm scope; moral hazard in teams; two-sided limited liability |
| JEL: | D21 |
| Date: | 2010–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:27416&r=bec |
| By: | Julien Prat; Boyan Jovanovic |
| Abstract: | We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent's quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent's 'quality', the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates. |
| JEL: | L14 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16649&r=bec |
| By: | Richard Baldwin; Toshihiro Okubo |
| Abstract: | Recent trade models determine the equilibrium distribution of firm-level efficiency endogenously and show that freer trade shifts the distribution towards higher average productivity due to entry and exit of firms. These models ignore the possibility that freer trade also alters the firm-size distribution via international firm migration (offshoring); firms must, by assumption, produce in their ’birth nation.’ We show that when firms are allowed to switch locations, new productivity effects arise. Freer trade induces the most efficient small-nation firms to move to the large nation. The big country gets an ‘extra helping’ of the most efficient firms while the small nation’s firm-size distribution is truncated on both ends. This reinforces the big-nation productivity gain while reducing or even reversing the small-nation productivity gain. The small nation is nevertheless better off allowing firm migration. |
| JEL: | F1 F12 F2 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16660&r=bec |
| By: | Elena Andreou (Department of Economics, University of Cyprus, Nicosia, Cyprus); Eric Ghysels (Department of Economics, University of North Carolina, Chapel Hill, NC, USA; Department of Finance, Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC, USA); Andros Kourtellos (Department of Economics, University of Cyprus, Nicosia, Cyprus; The Rimini Centre for Economic Analysis (RCEA), Rimini, Italy) |
| Abstract: | We introduce easy to implement regression-based methods for predicting quarterly real economic activity that use daily financial data and rely on forecast combinations of MIDAS regressions. Our analysis is designed to elucidate the value of daily information and provide real-time forecast updates of the current (nowcasting) and future quarters. Our findings show that while on average the predictive ability of all models worsens substantially following the financial crisis, the models we propose suffer relatively less losses than the traditional ones. Moreover, these predictive gains are primarily driven by the classes of government securities, equities, and especially corporate risk. |
| Keywords: | MIDAS; macro forecasting, leads; daily financial information; daily factors |
| JEL: | C22 C53 G10 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:42_10&r=bec |
| By: | Saroj Bhattarai (Pennsylvania State University); Raphael Schoenle (Department of Economics, Brandeis University) |
| Abstract: | In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can explain our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchronization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend inflation, the model matches the empirical findings. |
| Keywords: | Multi-Product Firms, Number of Goods, State-Dependent Pricing, U.S. Producer Prices |
| JEL: | E30 E31 L11 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:15&r=bec |
| By: | Francesco Furlanetto (Norges Bank (Central Bank of Norway)); Martin Seneca (Norges Bank (Central Bank of Norway)) |
| Abstract: | Current business cycle models systematically underestimate the correlation between consumption and investment. One reason for this failure is that a positive investment-specific technology shock generally induces a negative consumption response. The objective of this paper is to investigate whether positive consumption responses to investment-specific technology shocks can be obtained in a modern business cycle model. We find that the answer to this question is yes. With a combination of nominal rigidities and non-separable preferences, the consumption response is positive for general parameterisations of the model. |
| Keywords: | Investment-specific technology shocks, Consumption, GHH preferences, Nominal rigidities, Comovement. |
| JEL: | E32 |
| Date: | 2010–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2010_30&r=bec |
| By: | Costas Arkolakis; Marc-Andreas Muendler |
| Abstract: | We use a panel of Brazilian exporters, their products, and destination markets to document a set of regularities for multi-product exporters: (i) few top-selling products account for the bulk of a firm's exports in a market, (ii) the distribution of exporter scope (the number of products per firm in a market) is similar across markets, and (iii) within each market, exporter scope is positively associated with average sales per product. Our data also show that firms systematically export their highest-sales products across multiple destinations. To account for these regularities, we develop a model of firm-product heterogeneity with entry costs that depend on exporter scope. Estimating this model for the within-firm sales distribution we identify the nature and components of product entry costs. We find that firms face a strong decline in product sales with scope but also that market-specific entry costs drop fast. Counterfactual experiments with globally falling entry costs indicate that a large share of the simulated increase in trade is attributable to declines in the firm's entry cost for the first product. |
| JEL: | F12 F14 L11 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16641&r=bec |
| By: | Ralph S.J. Koijen; Stijn Van Nieuwerburgh |
| Abstract: | We review the literature on return and cash flow growth predictability form the perspective of the present-value identity. We focus predominantly on recent work. Our emphasis is on U.S. aggregate stock return predictability, but we also discuss evidence from other asset classes and countries. |
| JEL: | G1 G11 G12 G14 G35 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16648&r=bec |
| By: | Sai Ding; Alessandra Guariglia; John Knight |
| Abstract: | We use a panel of over 120,000 Chinese firms of different ownership types over the period 2000-2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that good working capital management may help firms to alleviate the effects of financing constraints on fixed investment. |
| Keywords: | Investment; Cash flow; Financing constraints; Working capital |
| JEL: | D92 E22 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2010_33&r=bec |
| By: | Dewenter, Ralf; Haucap, Justus; Wenzel, Tobias |
| Abstract: | This paper explores the effects that collusion can have in newspaper markets where firms compete for advertising as well as for readership. We compare three modes of competition: i) competition in the advertising and the reader market, ii) semi-collusion over advertising (with competition in the reader market), and iii) (full) collusion in both the advertising and the reader market. We find that semi-collusion leads to less advertising (but higher advertising prices) and lower copy prices which is beneficial for readers. Under certain circumstances, semi-collusion may even benefit advertisers as newspaper circulation is higher. In addition, total welfare may rise due to semi-collusion. Results under full collusion are ambiguous. However, even under full collusion newspaper copy prices may decrease and welfare may increase. -- |
| Keywords: | Media Markets,Collusion,Two-Sided Markets |
| JEL: | L40 L82 D43 K21 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:11&r=bec |
| By: | Lai, Chung-Hui; Wang, Vey |
| Abstract: | This paper extends an R&D-based growth model of the Rivera-Batiz and Romer-type [Quarterly Journal of Economics 106 (1991) 531] endogenous growth model by embodying a union with elastic labor to investigate the effects of unionization on employment and growth by highlighting the essence of internal conflict within the union. It is shown that an increase in the union’s bargaining power or a union which is more employment-oriented boosts employment and economic growth when the balanced growth equilibrium is determinate. On the other hand, if the union is more wage-oriented, employment and economic growth are enhanced when the balanced growth equilibrium is indeterminate. |
| Keywords: | Union; Collective bargaining; R&D; Indeterminacy; Economic growth |
| JEL: | O30 O40 J50 |
| Date: | 2010–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:27748&r=bec |
| By: | Obashi, Ayako; Hayakawa, Kazunobu; Matsuura, Toshiyuki; Motohashi, Kazuyuki |
| Abstract: | This paper empirically investigates two areas of changes in firm behavior and performance at home before and after investing abroad. The first change is dependent upon the type of foreign direct investment (FDI): horizontal FDI or vertical FDI. The second change is dependent upon the firm’s domestic activities: production activities or non-production activities. From a theoretical standpoint, the impact of outward FDIs differs not only by type, but according to the firm’s activities. By exploiting two types of firm-level data that enable us to distinguish between production and non-production activities, our paper provides a detailed picture of the intra-firm changes in behavior and performance that occur as a result of production globalization. |
| Keywords: | FDI, Multinational enterprises, Propensity score matching, International business enterprises, Manufacturing industries, Foreign investments, Industrial management |
| JEL: | F21 F23 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper273&r=bec |
| By: | Mazur, M. (Tilburg University) |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ner:tilbur:urn:nbn:nl:ui:12-4378360&r=bec |