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on Business Economics |
| By: | DI IASIO, GIOVANNI; QUAGLIARIELLO, MARIO |
| Abstract: | We use an incentive model in which improvements to fundamentals boost the ability of leveraged financial firms (banks) to expand the balance sheet (as in Adrian and Shin 2010). The rise in asset prices due to the amplified response of procyclical systems distorts bankers' incentives in providing (costly and non observable) monitoring effort. On the one hand, the fundamental value of assets positively affects the optimal effort of the banker, thus allowing supervisory authorities to relax incentive-compatible capital requirements and boosting asset demand and prices. On the other hand, in a macro perspective, high prices positively affect the banker's payoff in the bad state of asset liquidation (via asset prices), jeopardizing incentives. This type of externality follows from a purely “macro” phenomenon à la Borio (2003) and should be taken into account by the regulatory authority in designing capital requirements. In procyclical and advanced (low agency costs and highly liquid) financial systems, incentive compatibility requires a higher capital requirement in the face of an improvement to fundamentals. Our results provide a theoretical foundation to the countercyclical buffer provided for by the Basel Committee. |
| Keywords: | Macroprudential regulation; financial stability; capital requirement. |
| JEL: | D86 G18 E44 |
| Date: | 2011–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28179&r=bec |
| By: | Etro Federico (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive principal-agent contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry. |
| Keywords: | Strategic delegation, Incentive contracts, Screening contracts, Franchising, Tying, Endogenous market structures |
| JEL: | L11 L13 L22 L43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2010_25&r=bec |
| By: | Ester Faia |
| Abstract: | The recent financial crisis has highlighted the limits of the “originate to distribute“ model of banking, but its nexus with the macroeconomy and monetary policy remains unexplored. I build a DSGE model with banks (along the lines of Holmström and Tirole [28] and Parlour and Plantin [39]) and examine its properties with and without active secondary markets for credit risk transfer. The possibility of transferring credit reduces the impact of liquidity shocks on bank balance sheets, but also reduces the bank incentive to monitor. As a result, secondary markets allow to release bank capital and exacerbate the effect of productivity and other macroeconomic shocks on output and in.ation. By offering a possibility of capital recycling and by reducing bank monitoring, secondary credit markets in general equilibrium allow banks to take on more risk |
| Keywords: | credit risk transfer, dual moral hazard, monetary policy, liquidity, welfare |
| JEL: | E3 E5 G3 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1677&r=bec |
| By: | Michela Cella (Department of Economics, University Of Milan, Bicocca); Federico Etro (Department of Economics, University Of Venice, Ca’ Foscari) |
| Abstract: | We analyze the choice of incentive contracts by oligopolistic firms that compete on the product market. Managers have private information and in the first stage they exert cost reducing effort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings. |
| Keywords: | Oligopoly, screening, two way distortion, incentives, RD investment |
| JEL: | D21 D82 D86 L13 L22 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2010_28&r=bec |
| By: | Amil Petrin; T. Kirk White; Jerome P. Reiter |
| Abstract: | We build up from the plant level an "aggregate(d)" Solow residual by estimating every U.S. manufacturing plant's contribution to the change in aggregate final demand between 1976 and 1996. Our framework uses the Petrin and Levinsohn (2010) definition of aggregate productivity growth, which aggregates plant-level changes to changes in aggregate final demand in the presence of imperfect competition and other distortions/frictions. We decompose these contributions into plant-level resource reallocations and plant-level technical efficiency changes while allowing in the estimation for 459 different production technologies, one for each 4-digit SIC code. On average we find positive aggregate productivity growth of 2.2% in this sector during this period of declining share in U.S. GDP. We find that aggregate reallocation made a larger contribution to growth than aggregate technical efficiency. Our estimates of the contribution of reallocation range from 1.7% to 2.1% per year, while our estimates of the average contribution of aggregate technical efficiency growth range from 0.2% to 0.6% per year. In terms of cyclicality, the aggregate technical efficiency component has a standard deviation that is roughly 50% to 100% larger than that of aggregate total reallocation, pointing to an important role for technical efficiency in macroeconomic fluctuations. Aggregate reallocation is negative in only 3 of the 20 years of our sample, suggesting that the movement of inputs to more highly valued activities on average plays a stabilizing role in manufacturing growth. Our results have implications for both the theoretical literature on growth and alternative indexes of aggregate productivity growth based only on technical efficiency. |
| JEL: | E32 L6 O47 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16700&r=bec |
| By: | Stefan Erdorf (University of Cologne); Thomas Hartmann-Wendels (University of Cologne); Nicolas Heinrichs (University of Cologne) |
| Abstract: | We introduce a new discounted cash flow model which adopts the diversification effect of multi-business firms. We face two challenges: One is examining how different diversification extents can affect the firm value due to risk reduction, and the other is modeling segment-specific cash flows and discount rates to reflect the differences in risk and growth characteristics across the different businesses that a firm operates in. Since the co-movement of business segments depends on the state of the economy, we use a multivariate copula approach taking the state-varying dependence of business segments explicitly into account. A high level of a firm's diversification determined by a low dependence between the firm's business segments leads to a lower probability of firm default which results in a higher firm value through reduced bankruptcy costs. We demonstrate this effect by comparing the values of three U.S. firms when modeling independence, dependence with copulas, and perfect dependence between businesses. |
| Keywords: | diversification, firm valuation, dependence modeling, multi-business firm, bankruptcy costs, default probability, copulas, Monte Carlo simulation, discounted cash flow model |
| JEL: | G11 G33 L25 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:02-01&r=bec |
| By: | Wolthoff, Ronald (University of Toronto) |
| Abstract: | A large part of the literature on frictional matching in the labor market assumes bilateral meetings between workers and firms. This ignores the frictions that arise when workers and firms meet in a multilateral way and cannot coordinate their application and hiring decisions. I analyze the magnitude of these frictions. For this purpose, I present an equilibrium search model of the labor market with an endogenous number of contacts between workers and firms. Workers contact firms by applying to vacancies, whereas firms contact applicants by interviewing them. Sending more applications and interviewing more applicants are both costly activities but increase the probability to match. In equilibrium, contract dispersion arises endogenously and workers spread their applications over the different types of contracts. Estimation of the model on the Employment Opportunities Pilot Projects data set provides values for the fundamental parameters of the model, including the cost of an application, the cost of an interview, and the value of non-market time. These estimates are used to determine the loss in social surplus compared to a Walrasian world. Frictions on the worker and the firm side each cause approximately half of the 4.7% loss. There is a potential role for activating labor market policies, because I show that for the estimated parameter values welfare is improved if unemployed workers increase their search intensity. |
| Keywords: | labor, search, recruitment, frictions, efficiency |
| JEL: | J64 J31 E24 D83 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5416&r=bec |
| By: | Paolo Balduzzi (Università Cattolica Milano); Clara Graziano (Università degli Studi di Udine); Annalisa Luporini (Università degli Studi di Firenze, Dipartimento di Scienze Economiche) |
| Abstract: | We analyze the voting behavior of a board of directors that has to approve (or reject) an investment proposal with uncertain return. We consider three types of directors: insiders, who are biased toward acceptance of the project, independent outsiders who want to maximize the firm's profit and independent outsiders who care about their reputation. We show that the presence of members with heterogeneous preferences can be beneficial and that the partisan behavior of insiders can be used as a sort of coordinating device by uninformed outsiders. Provided that the size of the board is optimal, there is no gain from increasing the number of outsiders above the strict majority despite the fact that each outsider is informed with positive probability. Substituting profit-maximizing directors with directors concerned about their reputation is not an obstacle to profit maximization provided that an appropriate sequential voting protocol is followed. We also show that a proper board composition makes communication between directors irrelevant in the sense that the same outcome is obtained with and without communication. Finally, as information is costly, our model provides some suggestions on the optimal size of boards. |
| Keywords: | Board of directors, Voting, Corporate Governance |
| JEL: | G30 D71 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2011_02.rdf&r=bec |
| By: | Nicholas Bloom; Mirko Draca; John Van Reenen |
| Abstract: | We examine the impact of Chinese import competition on patenting, IT, R&D and TFP using a panel of up to half a million firms over 1996-2007 across twelve European countries. We correct for endogeneity using the removal of product-specific quotas following China’s entry into the World Trade Organization. Chinese import competition had two effects: first, it led to increases in R&D, patenting, IT and TFP within firms; and second it reallocated employment between firms towards more innovative and technologically advanced firms. These within and between effects were about equal in magnitude, and appear to account for around 15% of European technology upgrading between 2000-2007. Rising Chinese import competition also led to falls in employment, profits, prices and the skill share. By contrast, import competition from developed countries had no effect on innovation. We develop a simple “trapped factor” model of innovation that is consistent with these empirical findings. |
| JEL: | F14 L25 L60 O33 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16717&r=bec |
| By: | Illtae Ahn (Department of Economics, Chung-Ang University, Seoul, Republic of Korea); Kiho Yoon (Department of Economics, Korea University, Seoul, Republic of Korea) |
| Abstract: | We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. Further, when the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease but social welfare and consumer surplus increase. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates. |
| Keywords: | mixed bundling, vertical differentiation, quality advantage, competitive bundling |
| JEL: | D43 L13 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:1101&r=bec |
| By: | Marcin Kolasa (National Bank of Poland, Economic Institute; Warsaw School of Economics); Michal Rubaszek (National Bank of Poland, Economic Institute; Warsaw School of Economics); Daria Taglioni (European Central Bank) |
| Abstract: | This paper investigates the channels through which the global crisis of 2008- 2009 spread to economic activity of an emerging, fast growing economy with sound macroeconomic fundamentals. On the basis of Polish firm-level data we find that a number of individual f irm characteristics account for a heterogeneous response. In p articular, foreign ownership appears to have provided a higher degree of resilience to the crisis. Our results indicate that this effect might be due to intra-group lending mechanisms supporting affiliates facing external credit constraints. |
| Keywords: | global crisis, firm-level data, foreign ownership, financial constraints, internal capital market |
| JEL: | C23 E44 F23 G32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:77&r=bec |
| By: | Tamm, Katrin (University of Tartu); Eamets, Raul (University of Tartu); Mõtsmees, Pille (University of Tartu) |
| Abstract: | The growing awareness of the issue of corporate social responsibility (CSR) has raised the questions about how responsible behavior of firms would impact employees’ well-being. This paper investigates the link between corporate social responsibility and job satisfaction, which is a more widely recognized measure to assess well-being at work. Based on the survey of 3637 employees in Estonia, Latvia and Lithuania, measures of internal and external social responsibility are found to be positively associated with job satisfaction. Findings of the study indicate that employees’ assessments on various aspects of their job are noticeably higher in firms that are perceived as more engaged in CSR activities both towards their internal and external stakeholders. A further outcome of the study emphasizes the negative link between firm size and corporate social responsibility thus reflecting that smaller firms tend to show higher assessments regarding CSR. Similar relationships are also found between firm size and job satisfaction. |
| Keywords: | corporate social responsibility, stakeholder view, employee engagement, job satisfaction |
| JEL: | M14 M52 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5407&r=bec |
| By: | Federico Etro (Department of Economics, University Of Venice, Ca’ Foscari) |
| Abstract: | One of the pioneering works on endogenous market structures, by Tandon (1984), has extended the standard Cournot model with linear demand to endogenous entry and sunk R&D costs to show that the endogenous number of firms is independent from the size of the market. I generalize the model in many directions and show that, as long as the exogenous fixed costs are positive, the endogenous market structure is naturally characterized by an inverted-U relation between market size and number of firms, in line with the celebrated hypothesis of Sutton (1991). |
| Keywords: | Oligopoly, Endogenous entry, Sunk costs, RD investment |
| JEL: | L1 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2010_29&r=bec |
| By: | Joseph E. Harrington, Jr. |
| Abstract: | A corporate leniency program provides relief from government penalties to the first member of a cartel to come forward and cooperate with the authorities. This study explores the incentives to apply for leniency when each cartel member has private information as to the likelihood that the competition authority will be able to convict them without a cooperating firm. A firm may apply for leniency because it fears being convicted or because it fears another firm will apply. Policies by the competition authority to magnify concerns about pre-emption - and thereby induce greater use of the leniency program - are explored. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:jhu:papers:573&r=bec |
| By: | Jarle Kind, Hans (NHH); Nilssen, Tore (Dept. of Economics, University of Oslo); Sørgard, Lars (NHH) |
| Abstract: | Under the current market structure in the TV industry advertising prices are typically set by TV channels while viewer prices are set by distributors (e.g., cable operators). The latter implies that the distributors partly internalize the competition between the TV channels, since they take into account the fact that a lower viewer price at one channel will reduce the willingness to pay for rival channels. We …find that a shift to a market structure where advertising prices as well as viewer prices are set competitively by the TV channels might increase joint industry pro…ts. The reason is that this market structure, in contrast to the one we observe today, directly addresses the two-sidedness of the market. We also show that this is to the bene…t of the viewers. |
| Keywords: | Two-sided markets; advertising; media economics |
| JEL: | L13 L22 L82 |
| Date: | 2010–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2010_018&r=bec |
| By: | Kessides, Ioannis N.; Tang, Li |
| Abstract: | This paper offers a new economic explanation for the observed inter-industry differences in the size distribution of firms. The empirical estimates--based on three temporal (1982, 1987, and 1992) cross-sections of the four-digit United States manufacturing industries--indicate that increased market contestability, as signified by low sunk costs, tends to reduce the dispersion of firm sizes. These findings provide support for one of the key predictions of the theory of contestable markets: that market forces under contestability would tend to render any inefficient organization of the industry unsustainable and, consequently, tighten the distribution of firms around the optimum. |
| Keywords: | Markets and Market Access,Economic Theory&Research,Water and Industry,Access to Markets,Debt Markets |
| Date: | 2011–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5540&r=bec |
| By: | Claude Ménard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This paper focuses on forms that involve multiple partners pooling some strategic decision rights and even some property rights while keeping distinct ownership over key assets, so that they require specific governance to monitor and discipline their interactions. I identify these arrangements as ‘hybrid organisations', in line with the terminology proposed by Oliver Williamson (1996). In the second section I go farther in identifying and delineating these arrangements. The third section discusses the forces at work that may explain why parties accept to share strategic rights. The fourth section exhibits different mechanisms of coordination that may play distinctly or in combination. The fifth section suggests a typology of hybrid organisations based on the prevalence of each different mechanism. The final section concludes by emphasising problems raised by the very existence of hybrids, particularly with respect to competition policies. |
| Keywords: | Hybrid organizations; hierarchies; coordination; rent sharing |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00556728&r=bec |
| By: | Freye, Saskia |
| Abstract: | Against the background of an observed strategic realignment of corporations in Germany towards the financial markets and the interests of shareholders, attention is also increasingly drawn to the top managers. Yet recent studies on the recruitment and career patterns of the German corporate elite present ambiguous results. While some studies suggest that career paths remain stable, others find evidence that patterns are changing. Drawing on these different results, scholars either highlight or reject a linkage between the career patterns of top managers and the realignment of corporate strategies. Against the background of these contradictory findings, this paper investigates the changing composition of the German corporate elite. It is based upon a unique dataset capturing the career paths of the CEOs of the fifty largest industrial companies in Germany for every five years between 1960 and 2005. For the first time the development of the career paths of German top managers can be analyzed over a period of 45 years. The analysis focuses on four career patterns which are commonly associated with German managers. Although these patterns appear stable at first sight, closer examination reveals substantial changes. Building on insights from the sociological management literature and economic sociology, the results of this study indicate a link between career patterns and the observed change in corporate strategies. Therefore it is argued that the changing composition of the German corporate elite may be relevant to the discussion on the unwinding of Deutschland AG, the specific corporate governance system of postwar Germany. -- Im Zusammenhang mit einer stärkeren strategischen Ausrichtung deutscher Unternehmen an den Finanzmärkten sowie den Interessen der Anteilseigner geraten Topmanager zunehmend ins Zentrum des Interesses. Bei der Analyse der Rekrutierungsmuster und Zusammensetzung der deutschen Wirtschaftselite kommen jüngste Studien zu keinem eindeutigen Ergebnis. Es ist zum einen umstritten, ob sich die Rekrutierungsmuster des Topmanagements verändert haben. Zum anderen gibt es widersprüchliche Analysen zum Zusammenhang zwischen den Rekrutierungsmustern und der strategischen Neuausrichtung von Unternehmen. Vor dem Hintergrund dieser unterschiedlichen Beurteilungen untersucht das Papier Veränderungen in der Zusammensetzung und den Rekrutierungsmustern der deutschen Wirtschaftselite. Die Grundlage dafür bildet eine Datenbank, in der die Karriereverläufe von Vorstandsvorsitzenden der deutschen Industrie zu zehn Zeitpunkten zwischen 1960 und 2005 erfasst sind. Erstmals können die Karrieremuster der Topmanager in Deutschland über einen Zeitraum von 45 Jahren analysiert werden. Untersucht werden einige Karrieremerkmale, die im internationalen Vergleich als typisch für deutsche Manager gelten. Auf den ersten Blick scheinen sich die Karriereverläufe der Manager durch hohe Kontinuität auszuzeichnen. In einer differenzierteren Analyse werden hingegen substanzielle Veränderungen sichtbar. Auf Erkenntnisse der soziologischen Managementliteratur und der Wirtschaftssoziologie aufbauend deuten die Ergebnisse der Studie auf eine Verbindung zwischen den Karrieremerkmalen der Manager und dem beobachteten Strategiewandel in der Wirtschaft hin. Vor diesem Hintergrund sollte die veränderte Zusammensetzung der deutschen Wirtschaftselite auch für die Literatur zur Auflösung der Deutschland AG von Interesse sein. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:mpifgd:1010&r=bec |
| By: | Billand, Pascal; Bravard, Christophe; Chakrabarti, Subhadip; Sarangi, Sudipta |
| Abstract: | The result that firms competing in a Cournot oligopoly with pairwise collaboration form a complete network under zero or negligible link formation costs provided by Goyal and Joshi (2003) no longer hold in multi-market oligopolies. Link formation in one market affects a firm’s profitability in another market in a possibly negative way resulting in the fact that it is no longer always profitable in an unambiguous manner. With non-negative link formation costs, the stable networks have a dominant group architecture and efficient networks are charecterized by at most one non-singleton component with a geodesic distance between players that is less than three. |
| Keywords: | networks; collaboration; R & D |
| JEL: | L13 L20 C70 |
| Date: | 2010–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28188&r=bec |
| By: | Admasu Shiferaw (Georg-August-University Göttingen) |
| Abstract: | This paper analyzes firm level adjustment of the product mix and its implications for aggregate output growth. Using firm level panel data from Ethiopian manufacturing during the period 1996-2007, it shows that about 30% of firms adjust their ‘extensive margin’ annually by adding and/or dropping at least one product and about half of those firms undertake such adjustment only through product adding. At the aggregate level, about 30% of annual growth in sales is accounted for by the adjustment of the extensive margin which is more than four times the net contribution of firm entry and exit. The paper also shows that the likelihood of adding a product tends to decline with firm size and increases dramatically with the incidence of large investment outlays. While the level of productivity does not seem to increase the probability of adding a product, a net increase in the number of products is strongly associated with subsequent growth in sales, productivity and capital stock at the firm level. |
| Keywords: | Product Switching; Multiproduct Firms; Extensive Margin; Intensive Margin; Ethiopian Manufacturing |
| JEL: | D21 E23 L11 L60 |
| Date: | 2010–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:056&r=bec |