nep-bec New Economics Papers
on Business Economics
Issue of 2011‒02‒05
twenty-six papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Competition and Critical Mass By Bos Jaap W.B.; Ling Chan Yee; Kolari James W; Yuan Jiang
  2. Cross country differences in job reallocation: the role of industry, firm size and regulations By John Haltiwanger; Stefano Scarpetta; Helena Schweiger
  3. Firm Failure and Relationship Lending: New Evidence from Small Businesses By José Eduardo Gómez-González; Nidia Ruth Reyes
  4. Opening the Black Box: Internal Capital Markets and Managerial Power By Glaser, Markus; Lopez-de-Silanes, Florencio; Sautner, Zacharias
  5. Efficient Firm Dynamics in a Frictional Labor Market By Kaas, Leo; Kircher, Philipp
  6. A Bayesian multi-factor model of instability in prices and quantities of risk in U.S. financial markets By Massimo Guidolin; Francesco Ravazzolo; Andrea Donato Tortora
  7. Renegotiation-Proof Contracts with Moral Hazard and Persistent Private Information By Bruno Strulovici
  8. Dynamics of Rate-of-Return Regulation By Nezlobin, Alexander; Rajan, Madhav V.; Reichelstein, Stefan
  9. Outsourcing motives, competitiveness and taxation By König, Jan
  10. Gambling on the stock market: the case of bankrupt companies By Luís Miguel Serra Coelho; Kose John; Richard J. Taffler
  11. Global banking and international business cycles By Robert Kollmann; Zeno Enders; Gernot J. Mueller
  12. U.S. trade and inventory dynamics By George Alessandria; Joseph P. Kaboski; Virgiliu Midrigan
  13. Workplace Performance, Worker Commitment and Loyalty By Brown, Sarah; McHardy, Jolian; McNabb, Robert; Taylor, Karl
  14. Internal sources of finance and the Great Recession By Michelle L. Barnes; N. Aaron Pancost
  15. Verifying the state of financing constraints: evidence from U.S. business credit contracts By Ralf R. Meisenzahl
  16. Financial Spillovers Across Countries: The Case of Canada and the United States By Kimberly Beaton; Brigitte Desroches
  17. Private Equity in the 21st Century: Cash Flows, Performance, and Contract Terms from 1984-2010 By Robinson, David T.; Sensoy, Berk A.
  18. Dynamics of Industrial Districts and Business Groups: the Case of the Marche Region By Filippo Randelli; Ron Boschma
  19. Welfare effects of outsourcing in duopolistic markets By König, Jan
  20. Business Cycle Synchronization Since 1880 By Michael Artis; George Chouliarakis; Pkg Harischandra
  21. Demand Shocks, Capacity Coordination and Industry Performance: Lessons from Economic Laboratory By Kyle Hampton; Katerina Sherstyuk
  22. Sale Rates and Price Movements in Art Auctions By Orley Ashenfelter; Kathryn Graddy
  23. The crisis as a wake-up call: do banks tighten screening and monitoring during a financial crisis? By Ralph de Haas; Neeltje van Horen
  24. Corporate governance, market competition and investment decisions in Mexican manufacturing firms By Ruiz-Porras, Antonio; Lopez-Mateo, Celina
  25. Information and Communication Technologies and Skill Upgrading: the Role of Internal vs External Labour Markets By Luc Behaghel; Eve Caroli; Emmanuelle Walkowiak
  26. Job Creation by Firms in Denmark By Ibsen, Rikke; Westergård-Nielsen, Niels

  1. By: Bos Jaap W.B.; Ling Chan Yee; Kolari James W; Yuan Jiang (METEOR)
    Abstract: Empirical literature and related legal practice using concentration as a proxy for competition measurement are prone to a fallacy of division, as concentration measures are appropriate for perfect competition and perfect collusion but not intermediate levels of competition. Extending the classic Cournot-type competition model of Cowling and Waterson (1976) and Cowling (1976) used to derive the Hirschman-Herfindahl Index (HHI) of market concentration, we propose an adaptation of this model that allows collusive rents for all, none, or some of the firms in a market. Application of our model and new critical mass measures to data for U.S. commercial banks in the period 1984-2004 confirms that concentration measures are unreliable competition metrics. Our results lead us to conclude that critical mass is a promising new market power metric for competition analyses. Policy and future research implications are briefly discussed.
    Keywords: microeconomics ;
    Date: 2010
  2. By: John Haltiwanger (University of Maryland, NBER, IZA); Stefano Scarpetta (OECD, IZA); Helena Schweiger (EBRD)
    Abstract: Somewhat surprisingly, cross-country empirical evidence (at least in the cross section) does not seem to support the predictions of standard models that economies with stricter regulations on hiring and firing should have a lower pace of job reallocation. One problem in exploring these issues empirically has been the difficulty of comparing countries on the basis of harmonised measures of job reallocation. A related problem is that there may be unobserved measurement or other factors accounting for differences in job reallocation across countries. This paper overcomes these challenges by using harmonised measures of job creation and destruction in a sample of 16 developed and emerging economies (including four transition economies), exploiting the country, industry and firm size dimensions. The analysis of variance in the paper shows that firm size effects are a dominant factor in accounting for the variation in the pace of job reallocation across country, industry and size cells. However, even after controlling for industry and size effects there remain significant differences in job flows across countries that could reflect differences in labour market regulations. We use the harmonised data to explore this hypothesis with a difference-in-difference approach. We find strong and robust evidence that stringent hiring and firing regulations tend to reduce the pace of job reallocation.
    JEL: O1 P2 P5
    Date: 2010–07
  3. By: José Eduardo Gómez-González; Nidia Ruth Reyes
    Abstract: We study the effect of relationship lending on small firms´ failure probability using a uniquely rich data set comprised of information on individual loans of a large number of small firms in Colombia. We control for firm-specific variables and find that small firms involved in long-term liaisons with commercial banks have a significantly lower probability of becoming bankrupt than otherwise identical firms not involved in a long-term credit relationship. We also find that small firms with multiple banking relationships face a lower failure hazard than otherwise identical firms involved in a unique long-term relationship.
    Date: 2011–01–23
  4. By: Glaser, Markus; Lopez-de-Silanes, Florencio; Sautner, Zacharias
    Abstract: We analyze the internal capital markets of a multinational conglomerate to determine whether more powerful unit managers enjoy larger allocations. We use a new dataset of planned and actual allocations to business units to show that, although all unit managers systematically over-budget capital expenditures, more powerful and better connected managers obtain larger shares of cash windfalls and increase investment about 40% more than their less powerful peers. Results survive robustness tests and are not explained by differences in managerial abilities or an endogenous allocation of managers across units. Our findings support bargaining-power theories and provide direct evidence of a source of capital allocation frictions.
    Keywords: Internal Capital Markets; Corporate Investment; Capital Budgeting; Managerial Power; Agency; Influence Activities; Corporate Politics
    JEL: D21 G31 G34 L22
    Date: 2010–12
  5. By: Kaas, Leo (University of Konstanz); Kircher, Philipp (London School of Economics)
    Abstract: The introduction of firm size into labor search models raises the question how wages are set when average and marginal product differ. We develop and analyze an alternative to the existing bargaining framework: Firms compete for labor by publicly posting long- term contracts. In such a competitive search setting, firms achieve faster growth not only by posting more vacancies, but also by offering higher lifetime wages that attract more workers which allows to fill vacancies with higher probability, consistent with empirical regularities. The model also captures several other observations about firm size, job flows, and pay. In contrast to bargaining models, efficiency obtains on all margins of job creation and destruction, both with idiosyncratic and aggregate shocks. The planner solution allows a tractable characterization which is useful for computational applications.
    Keywords: labor market search, multi-worker firms, job creation and job destruction
    JEL: E24 J64 L11
    Date: 2011–01
  6. By: Massimo Guidolin; Francesco Ravazzolo; Andrea Donato Tortora
    Abstract: This paper analyzes the empirical performance of two alternative ways in which multi-factor models with time-varying risk exposures and premia may be estimated. The first method echoes the seminal two-pass approach advocated by Fama and MacBeth (1973). The second approach extends previous work by Ouysse and Kohn (2010) and is based on a Bayesian approach to modelling the latent process followed by risk exposures and idiosynchratic volatility. Our application to monthly, 1979-2008 U.S. data for stock, bond, and publicly traded real estate returns shows that the classical, two-stage approach that relies on a nonparametric, rolling window modelling of time-varying betas yields results that are unreasonable. There is evidence that all the portfolios of stocks, bonds, and REITs have been grossly over-priced. On the contrary, the Bayesian approach yields sensible results as most portfolios do not appear to have been misspriced and a few risk premia are precisely estimated with a plausibile sign. Real consumption growth risk turns out to be the only factor that is persistently priced throughout the sample.>
    Keywords: Econometric models ; Stochastic analysis ; Financial markets
    Date: 2011
  7. By: Bruno Strulovici
    Abstract: How does renegotiation affect contracts between a principal and an agent subject to persistent private information and moral hazard? This paper introduces a concept of renegotiation-proofness, which adapts to stochastic games the concepts of weak renegotiation-proofness and internal consistency by exploiting natural comparisons across states. When the agent has exponential utility and cost of effort, each separating renegotiation-proof contract is characterized by a single “sensitivity" parameter, which determines how the agent's promised utility varies with reported cash flows. The optimal contract among those always causes immiserization. Reducing the agent's cost of effort can harm the principal by increasing the tension between moral hazard and reporting problems. Truthfulness of the constructed contracts is obtained by allowing jumps in cash flow reports and turning the agent's reporting problem into an impulse control problem. This approach shows that self-correcting reports are optimal off the equilibrium path. The paper also discusses the case of partially pooling contracts and of permanent outside options for the agent, illustrating the interaction between cash-flow persistence, renegotiation, moral hazard, and information revelation.
    Keywords: Repeated Agency, Asymmetric Information, Persistent Information, Contract Theory, Principal Agent, Limited Commitment, Renegotiation, Recursive Contracts JEL Classification Numbers: D82, D86, C73, G30
    Date: 2011–01–20
  8. By: Nezlobin, Alexander (New York University); Rajan, Madhav V. (Stanford University); Reichelstein, Stefan (Stanford University)
    Abstract: Under Rate-of-Return regulation, a firm's product prices are constrained by the requirement that investors do not earn more an allowable return on the firm's assets. This paper examines the dynamic properties of the Rate-of-Return regulation process when the regulated firm periodically undertakes new capacity investments. Our analysis identifies prices that correspond to stationary values of the regulation process. It is shown that the underlying depreciation rules for property, plant and equipment determine whether these stationary prices will be above, equal to, or below the long-run marginal cost of providing the regulated service. We provide conditions under which the Rate-of-Return regulation process is dynamically stable so that prices indeed converge to their stationary values. The overall efficiency of this regulation method is shown to depend on how well the applicable depreciation schedule matches the productivity pattern of the assets in use.
    Date: 2011–01
  9. By: König, Jan
    Abstract: This paper shows the strategic aspects of international outsourcing in an oligopolistic market, if outsourcing is attractive because of fixed cost savings. We show that outsourcing decisions are strategic substitutes. Furthermore, we demonstrate that due to decreasing individual output, intensified competition increases the incentive to save fixed costs of integrated production and thus leads to more outsourcing. Additionally, we analyse how domestic costs and taxation affect the equilibrium level of outsourcing and employment. Here, we find that lower domestic costs decrease the proportion of outsourcing and therefore, increase employment. Concerning the impact of taxation, we find that a lower consumption tax on output decreases outsourcing. In case of a reversed outsourcing motivation, where outsourcing is associated with lower marginal costs but higher fixed costs than the domestic production, we show that the opposite effects concerning competition and taxation occur. --
    Keywords: outsourcing,cost structure,Cournot-competition,taxation
    JEL: D20 L13 L22 L23 L24
    Date: 2010
  10. By: Luís Miguel Serra Coelho (University of the Algarve and CEFAGE); Kose John (New York University); Richard J. Taffler (Warwick Business School)
    Abstract: This paper asks whether the stocks of bankrupt firms are correctly priced, and explores who trades the stocks of these firms, and why. Our sample consists of firms that enter into Chapter 11 and remain listed on the NYSE, AMEX, and NASDAQ post-filing. We show that these stocks are heavily traded by retail investors who are also their main stockholders. We further document that these stocks have unique lottery-like characteristics, and that retail investors trade in such stocks as if they were gambling on the market. Buying and holding such securities leads, on average, to a negative realized abnormal return of at least -28% over the 12-month post-announcement period. We find that arbitrageurs are not able to exploit this market-pricing anomaly due to implementation costs, and risks that are simply too high. We thus conclude that a combination of gambling-motivated trading by retail investors and limits to arbitrage seems to lead to the anomalous results we document. Our paper thus provides a clear answer to Eugene Fama and Kenneth French’s recent question on their blog – “Bankrupt Firms: Who’s Buying?”.
    Keywords: Chapter 11 filing; Post-bankruptcy trading; Gambling; Lottery stocks; Limits to arbitrage; Retail investors.
    JEL: G14 G33
    Date: 2011
  11. By: Robert Kollmann; Zeno Enders; Gernot J. Mueller
    Abstract: This paper incorporates a global bank into a two-country business-cycle model. The bank collects deposits from households and makes loans to entrepreneurs, in both countries. It has to finance a fraction of loans using equity. We investigate how such a bank capital requirement affects the international transmission of productivity and loan default shocks. Three findings emerge. First, the bank's capital requirement has little effect on the international transmission of productivity shocks. Second, the contribution of loan default shocks to business cycle fluctuations is negligible under normal economic conditions. Third, an exceptionally large loan loss originating in one country induces a sizeable and simultaneous decline in economic activity in both countries. This is particularly noteworthy, as the 2007–09 global financial crisis was characterized by large credit losses in the US and a simultaneous sharp output reduction in the U.S. and the euro Area. Our results thus suggest that global banks may have played an important role in the international transmission of the crisis.
    Keywords: Equity ; Bank capital ; Productivity ; Default (Finance) ; Loans
    Date: 2011
  12. By: George Alessandria; Joseph P. Kaboski; Virgiliu Midrigan
    Abstract: The authors examine the source of the large fall and rebound in U.S. trade in the recent recession. While trade fell and rebounded more than expenditures or production of traded goods, they find that relative to the magnitude of the downturn, these trade fluctuations were in line with those in previous business cycle fluctuations. The authors argue that the high volatility of trade is attributed to more severe inventory management considerations of firms involved in international trade. They present empirical evidence for autos as well as at the aggregate level that the adjustment of inventory holdings helps explain these fluctuations in trade.
    Keywords: Trade ; Financial crises ; Inventories
    Date: 2011
  13. By: Brown, Sarah (University of Sheffield); McHardy, Jolian (University of Sheffield); McNabb, Robert (Cardiff University); Taylor, Karl (University of Sheffield)
    Abstract: Using matched employer-employee level data drawn from the 2004 UK Workplace and Employee Relations Survey, we explore the determinants of a measure of worker commitment and loyalty (CLI) and whether CLI influences workplace performance. Factors influencing employee commitment and loyalty include age and gender, whilst workplace level characteristics of importance include human resource practices. With respect to the effects of employee commitment and loyalty upon the workplace, higher CLI is associated with enhanced workplace performance. Our findings that workplace human resources influence CLI suggest that employers may be able to exert some influence over the commitment and loyalty of its workforce, which, in turn, may affect workplace performance.
    Keywords: commitment, financial performance, labor productivity, loyalty
    JEL: J20 J50
    Date: 2011–01
  14. By: Michelle L. Barnes; N. Aaron Pancost
    Abstract: The rising stockpile of cash as a share of total assets at U.S. firms has intrigued economists since at least the paper of Bates, Kahle, and Stulz (2006), yet there has been relatively little work on where this cash has come from and how it is related to investment performance. We exploit Statement of Cash Flows data from Compustat to decompose firms' cash stocks and show that the rise in cash holdings has coincided with an increased willingness to save internally generated cash. We show that although investment is normally sensitive to externally generated cash, the increased sensitivity of investment to cash during the Great Recession is driven by cash from internal sources. Smaller firms were also more affected by the recent downturn than larger firms. Our results agree with the findings of Almeida, Campello, and Weisbach (2004) on cash hoarding and financial constraints, as well as the estimates in Duchin, Ozbas, and Sensoy (2010) on the important role of saved cash during the financial crisis.
    Keywords: Global financial crisis ; Recessions ; Corporations - Finance
    Date: 2010
  15. By: Ralf R. Meisenzahl
    Abstract: Which of the strategies for financing constraints in economic models is the most empirically plausible? This paper tests two commonly used models of financing constraints, costly state verification (Townsend, 1979) and moral hazard (Holmstrom and Tirole, 1997), using a comprehensive data set of US small business credit contracts. The data include detailed information about the business, its owner, bank balance sheet information, and the terms of credit. In line with the predictions of models of financing constraints, I find that an additional dollar of net worth accounts for about 30 cents of external finance. More than two thirds of the business credit contracts can be rationalized by one period debt contracts with costly state verification. The parameter values obtained in the costly state verification model imply bankruptcy costs of 28% of expected output and a rate of return ranging between 5% and 8% annually, which are consistent with studies on bankruptcy incidences and returns to entrepreneurial investment. The moral hazard model, however, performs poorly. The correlation between model implied interest rates and actual interest rates paid is close to zero because the bank variables emphasized by this model do not explain loan interest rates.
    Date: 2011
  16. By: Kimberly Beaton; Brigitte Desroches
    Abstract: The authors investigate financial spillovers across countries with an emphasis on the effect of shocks to financial conditions in the United States on financial conditions and economic activity in Canada. These questions are addressed within a global vector autoregression model. The framework links individual country vector autoregression models in which the domestic variables are related to the country-specific foreign variables. The authors' results highlight the importance of financial variables in the transmission of shocks to real activity and financial conditions in the United States to Canada. First, they show that shocks to U.S. output are transmitted quickly to Canada, with important implications for financial conditions. Second, they show that the most important source of financial transmission between the United States and Canada is through shocks to U.S. equity prices. Financial transmission through movements in the quantity of U.S. credit is also important for Canada.
    Keywords: Business fluctuations and cycles; Economic models; Financial stability; International topics
    JEL: E27 E32 F36 F40
    Date: 2011
  17. By: Robinson, David T. (Duke University); Sensoy, Berk A. (Ohio State University)
    Abstract: Using detailed quarterly cash flow data for a large sample of private equity funds from 1984-2010, we examine cross-sectional and time-series cash flow performance of private equity funds across a range of asset classes, including venture capital, buyout, real estate, distressed debt, and funds-of-funds. Our data also include key features of the management contracts, specifically carried interest, management fees, and general partner capital commitments, allowing us to investigate the determinants of contractual terms and to link contractual terms to performance. The data reveal important facts about the private equity market in the 21st century. On average, our sample pri-vate equity funds have outperformed the S&P 500 on a net-of-fee basis by about 15%, or about 1.5% per year. Performance varies considerably across fund types and over time. Larger funds require larger percentage capital commitments from the general partners (GPs), consistent with concerns about GP incentives in large funds. Larger funds also charge lower management fees, and obtain higher carried interest, consistent with learning about GP ability. Management fees, but not carried interest, are higher during fundraising boom periods, even controlling for fund size, suggesting that the fixed/variable mix of GP compensation shifts toward fixed components during fundraising booms, consistent with increased GP bargaining power in booms. In marked contrast to the mutual fund literature, there is no relation between management fee and carry terms and net-of-fee performance, suggesting that GPs with higher fees earn them in the form of higher gross-of-fee performance. There is some evidence that funds with lower GP capital commitments outperform. Conclusions about private equity performance over time differ markedly depending on whether performance is measured in absolute terms (IRR) or adjusted for the performance of the S&P 500 (PME). In particular, funds raised during hot markets underperform in terms of IRR, but not in terms of PME. Capital calls and distributions are both more likely and larger when public equity valuations rise and when liquidity conditions tighten. During the financial crisis and ensuing recession of 2007-2009, the component of calls unexplained by macroeconomic factors spiked, distributions plummeted, and the sensitivity of calls and distributions to underlying macroeconomic conditions changed considerably.
    Date: 2010–12
  18. By: Filippo Randelli (Università degli Studi di Firenze,); Ron Boschma (Department of Economic Geography, Utrecht University)
    Abstract: Italian industrial districts are undergoing fundamental changes due to globalization. Taking a firm perspective, we argue that the analysis of firm strategies, in particular the rise of business groups, is key to understand the organizational adjustments industrial districts have recently gone through. Due to the typical family structure of industrial district firms in the Marche region, as in other fragmented Italian districts, the organizational form adopted by firms to manage growth is that of the business group. We evaluate the empirical relevance of business groups in the Marche region, and we describe different transition strategies that turned firms into business groups.
    Keywords: Industrial Districts, Business Groups, Globalization, Marche Region
    JEL: L22 R12
    Date: 2011
  19. By: König, Jan
    Abstract: This paper shows the strategic aspects of international outsourcing in a duopolistic market. Due to different costs of integrated production and outsourcing, the choice of a firm influences the strategy of the competitor via the output price. Therefore, the resulting market constellation depends on the fixed costs and the difference between marginal costs. We show that the three market constellations, both firms produce integrated, both use outsourcing and the firms operate with different strategies are possible. Also the welfare effects of the different outcomes are analysed. If the optimal firms decision is characterized by different strategies, this constellations for given costs is pareto superior to a constellation with equal strategies. On the other hand, for given costs, a resulting constellation of equal strategies can be pareto inferior or pareto superior to a constellation with different strategies. --
    Keywords: strategic outsourcing,oligopoly,welfare effects
    JEL: D43 L13 L22 L23 L24
    Date: 2010
  20. By: Michael Artis; George Chouliarakis; Pkg Harischandra
    Abstract: This paper studies the international business cycle behaviour across 25 advanced and emerging market economies for which 125 years of annual GDP data are available. The picture that emerges is more fragmented than the one drawn by studies that focused on a narrower set of advanced market economies. The paper offers evidence in favour of a secular increase in international business cycle synchronization within a group of European and a group of English-speaking economies that started during 1950-1973 and accelerated since 1973. Yet, in other regions of the world, country-specific shocks are still the dominant forces of business cycle dynamics.
    Date: 2011
  21. By: Kyle Hampton (University of Alaska, Anchorage, Economics Department); Katerina Sherstyuk (University of Hawaii at Manoa, Economics Department)
    Abstract: Antitrust exemptions granted to businesses under extenuating circumstances are often justified by the argument that they benefit the public by helping producers adjust to otherwise difficult economic circumstances. Such exemptions may allow firms to coordinate their capacities, as was the case of post-September 11, 2001 antitrust immunity granted to Aloha and Hawaiian Airlines. We conduct economic laboratory experiments to determine the effects of explicit capacity coordination on oligopoly firms' abilities to adjust to negative demand shocks and on industry prices. The results suggest that capacity coordination speeds the adjustment process, but also has a clear pro-collusive effect on firm behavior.
    Keywords: economic experiments; demand shocks; capacity coordination; collusion
    JEL: C92 D44 L41
    Date: 2010–12–15
  22. By: Orley Ashenfelter (Princeton University); Kathryn Graddy (Department of Economics, Brandeis University)
    Abstract: This paper examines the relationship between sale rates and price shocks in art auctions. Using data on contemporary and impressionist art, we show that while sale rates appear to have little relationship to current prices, there exists a strong negative relationship of sale rates to unexpected price shocks, which is reminiscent of a Phillips curve. We estimate an empirical model that suggests that the reserve price is set on average at about 70% of the low estimate.
    Date: 2011–01
  23. By: Ralph de Haas (EBRD); Neeltje van Horen (Dutch Central Bank.)
    Abstract: Recent developments and theoretical work on the transition economies has emphasised the importance of internal bargaining and incentives. This paper constitutes the first attempt to systematise the large and growing body of case studies of enterprise restructuring in Poland, Hungary, Slovakia, Russia and the Czech Republic. We begin from a framework in which the incentives and constraints on managers are crucial for the success of transforming enterprises into value maximising firms. The forms of, and the constraints on, active behaviour are examined for each enterprise across the dimensions of internal organisation, product and labour markets and investment. There is a huge variety in the quality of the evidence and in the experiences documented. Although we find widespread evidence of enterprise managers reacting to the post-reform environment, examples of deep restructuring are rare. Managers are hamstrung by weak incentives and increasing employee opposition, as well as by the uneven development of social and market infrastructure external to the enterprise. Low incentives arise from the absence of a managerial labour market, monopoly power and the large component of idiosyncratic knowledge possessed by incumbents. Opposition is based on the high costs of job loss. A characteristic feature of the transition economies is the ability of employees to veto restructuring and the opposition of labour appears likely to increase as unemployment rates and durations grow. Cases are described where the passage of restructuring measures has been facilitated by the willingness of the state to provide compensation to the ‘losers’. The examination of pre-privatisation behaviour suggests that the pace and depth of restructuring would increase after privatisation only when privatisation clearly transforms the incentives and constraints facing managers. The limited evidence on post- privatisation restructuring surveyed here suggests that foreign ownership of a former state-owned enterprise is the exception in which privatisation produces a marked change in behaviour. The role of product market power runs through the survey. Some enterprises use profits as a shield to avoid painful change, others have actively sought to build dominant positions. Aggregate data is presented which raises the possibility that the pattern of restructuring is being distorted by the uneven distribution of monopoly power across sectors. In our conclusions, we suggest ways in which future enterprise-level research could be improved to shed more light on the pattern of restructuring and to facilitate safer policy advice. From a policy perspective, we stress the complementarity between different reforms. The focus on the incentives and constraints facing enterprise managers highlights the limitations to a strategy which relies on privatisation to raise efficiency. The state must play a role in facilitating labour shedding and internal reorganisation of enterprises through providing finance for compensation, promoting the provision of social services outside the structure of enterprises and fostering the creation of new jobs. The hardening ahs promoted adjustment but over-tight budgetary policies may offset this, slowing the arte of new job creation ad heightening uncertainty about the prospects of enterprises under restructuring.
    JEL: O1 P2 P5
    Date: 2010–08
  24. By: Ruiz-Porras, Antonio; Lopez-Mateo, Celina
    Abstract: We study how competition and corporate governance may explain investment decisions of Mexican manufacturing firms. We develop the study with indexes of market concentration and agency costs and OLS regressions. The analysis uses longitudinal census data. Our results suggest that investment is better explained by the Dominance Index, a Mexican measure of concentration, than by the Herfindahl-Hirschman one. They also suggest that agency costs (proxy for the degree of separation of ownership and control), and market competition may encourage investment decisions. Furthermore they suggest an inverse relationship between market competition and agency costs. We believe that our findings support the hypothesis that competition may be an alternative mechanism to encourage corporate practices in emerging economies.
    Keywords: Corporate governance; competition; investment; Mexico; manufacturing; economic development
    JEL: G34 O16 L22 L60
    Date: 2011–01–27
  25. By: Luc Behaghel; Eve Caroli; Emmanuelle Walkowiak
    Abstract: Following the adoption of information and communication technologies (ICT), firms are likely to face increasing skill requirements. They may react either by training or hiring the new skills, or by a combination of both. We first show that ICT are indeed skill biased and we then assess the relative importance of external and internal labour market strategies. We show that skill upgrading following ICT adoption takes place mostly through internal labour markets adjustments. The introduction of ICT is associated with an upward shift in firms' occupational structure, of which one third is due to hiring and firing workers from and to the external labour market, whereas two-thirds are due to promotions. Moreover, we find no compelling evidence of external labour market strategies based on "excess turnover". In contrast, French firms heavily rely on training in order to upgrade the skill level of their workforce, even if this varies across industries.
    Keywords: Technical change, labour turnover, skill bias, training, internal labour markets
    JEL: J23 J24 J41
    Date: 2011
  26. By: Ibsen, Rikke (Aarhus School of Business); Westergård-Nielsen, Niels (Aarhus School of Business)
    Abstract: In this paper we will look at job creation and destruction in firms. We will answer the question if it is the large companies that create jobs, while the smaller companies are contributing much less. Or is it the young companies that create jobs? And who destroys the most jobs? In the crisis Denmark lost 186,000 jobs in the private sector. The question is where and how could these jobs be recreated. Are these issues specific to industries or are they universal? The data used is register data on workplaces and firms for the period 1980-2007. The base unit of data is the workplace. The company (firm) is the legal entity. A company can have many sites, and one of the ways companies can grow is by expanding with multiple sites. This can happen by mergers and acquisitions but can also happen by creating "daughter workplaces". It is therefore essential to look at workplaces and firms at the same time. A complication here is that firms switch ID over time because of change of ownership, mergers and divisions. Data must be corrected so that these administrative issues will not affect the survival of firms. The data are used in a way where we can cover firm birth and firm death, spin-offs and mergers. The analysis will make it possible to differentiate between net and gross creation of jobs because we can follow each single individual in and out of jobs. We have for Denmark found that size on its own does not have a big impact, but young firms are much more likely to contribute to a positive growth. For the U.S. it has been found that the growth in jobs comes from small businesses. A closer analysis though shows that the main factor here is the firm age. Thus, it is found that young firms net create the most jobs, but they are also responsible for the most job destructions.
    Keywords: job creation, job destruction, firm age, firm size, education, employer-employee data
    JEL: E24 L25 L26
    Date: 2011–01

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