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on Business Economics |
| By: | Thakor, Anjan; Mehran, Hamid; Acharya, Viral V. |
| Abstract: | Banks face two moral hazard problems: asset substitution by shareholders (e.g., making risky, negative net present value loans) and managerial rent seeking (e.g., investing in inefficient “pet” projects or simply being lazy and uninnovative). The privately-optimal level of bank leverage is neither too low nor too high: It balances efficiently the market discipline imposed by owners of risky debt on managerial rent-seeking against the asset-substitution induced at high levels of leverage. However, when correlated bank failures can impose significant social costs, regulators may bail out bank creditors. Anticipation of this generates an equilibrium featuring systemic risk in which all banks choose inefficiently high leverage to fund correlated assets. A minimum equity capital requirement can rule out asset substitution but also compromises market discipline by making bank debt too safe. The optimal capital regulation requires that a part of bank capital be unavailable to creditors upon failure, and be available to shareholders only contingent on good performance. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:reg:wpaper:643&r=bec |
| By: | Lidia Mannarino; Valeria Pupo; Fernanda Ricotta (Dipartimento di Economia e Statistica, Università della Calabria) |
| Abstract: | Using Total Factor Productivity (TFP) as a measure of corporate performance, this study compares the performance of owner management to that of firms run by professional managers over the period 2004-2006. We consider the influence of owner management for the sample as a whole and for subgroups of firms. The findings demonstrate that family run firms are less productive than firms run by professional managers, but the difference between the two is small. Our results support the idea that in Italy there is not a genuine process of manager selection both for family and no-family firms. |
| Keywords: | TFP, Family firms, Management |
| JEL: | D24 G34 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:clb:wpaper:201103&r=bec |
| By: | G. Ecchia; M. Gelter; P. Pasotti |
| Abstract: | We set up a model to study how ownership structure, corporate law and employment law interact to set the incentives that influence the decision by the large shareholder or manager effectively controlling the firm to divert resources from minority shareholders and employees. We suggest that agency problems between the controller and other investors and holdup problems between shareholders and employees are connected if the controller bears private costs of “expropriating” these groups. Corporate law and employment law may therefore somethimes be substitutes; employees may benefit from better corporate law intended to protect minority shareholder, and viceversa. Our model has implications for the domestic and comparative study of corporate governance structure and addresses, among other things, the question whether large shareholders are better able to “bond” with employees than dispersed ones, or whether the separation of ownership facilitates longterm relationships with labor. |
| JEL: | G30 K22 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp735&r=bec |
| By: | Eiichi Tomiura (Department of Economics, Yokohama National University, and Research Institute of Economy, Trade and Industry (RIETI)); Banri Ito (Senshu University and RIETI); Ryuhei Wakasugi (Institute of Economic Research, Kyoto University and RIETI) |
| Abstract: | Previous studies have established that offshoring firms employ more non-production workers. By using micro-data on Japanese firms, this paper disaggregates non-production workers. The share of skilled non-production workers tends to be high in offshoring firms but that of unskilled non-production workers is not. The share of non-production workers for the management of overseas activities tends to be high in FDI firms and in firms outsourcing to foreign suppliers, but not in Japanese firms outsourcing to offshore suppliers owned by other Japanese firms. These findings suggest that offshoring has different impacts on employment depending on suppliers and the worker's skill. |
| Keywords: | offshoring; outsourcing; non-production workers; skill; firm-level data |
| JEL: | D23 F23 L24 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:760&r=bec |
| By: | Nyborg, Karine (Dept. of Economics, University of Oslo); Zhang, Tao (Ragnar Frisch Center for Economic Research) |
| Abstract: | Firms with a reputation as socially responsible may have an important cost advantage: If workers prefer their employer to be socially responsible, equilibrium wages may be lower in such firms. We explore this hypothesis, combining Norwegian register data with data on firm reputation collected by an employer branding firm. Adjusting for a large set of background variables, we find that the firm’s social responsibility reputation is significantly associated with lower wages. |
| Keywords: | Self-regulation; wage differentials; CSR |
| JEL: | C51 D21 D64 Q56 |
| Date: | 2011–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2011_001&r=bec |
| By: | Matthieu Crozet; Federico Trionfetti |
| Abstract: | Guided by empirical evidence we consider firms heterogeneity in terms of factor intensity. We show that Heckscher-Ohlin comparative advantage and firm-level relative factor-intensity interact to jointly explain the observed differences in relative sales. Firms whose relative factor-intensity matches up with the comparative advantage of the country have lower relative marginal costs and larger relative sales than firms who do not. Our empirical analysis, conducted using data for a large panel of European firms, supports these predictions. Our findings also provide an original firm-level verification of the Heckscher-Ohlin model based on the effect of comparative advantage on firms relative sales. |
| Keywords: | Factor intensity; firms heterogeneity; test of trade theories |
| JEL: | F1 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2011-01&r=bec |
| By: | Silviano Esteve-Pérez (University of Valencia) |
| Abstract: | This paper presents a duopoly model of firm rivalry in a vertically differentiated industry when market dynamics is explicitly accounted for. It shows how the interplay between demand (degree of product differentiation, demand elasticity) and cost (fixed and quality costs) factors determine firms' relative strength when quality is irreversible. The main strategic choices are product quality, price and the timing of entry and exit. Further, firms incur sunk quality costs at time of entry and operating fixed costs of maintaining quality. Although the low quality firm may outlast its rival in the declining phase, both firms wish to be the "quality leader". |
| Keywords: | Entry; Exit; Vertical product differentiation |
| JEL: | L13 L11 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1107&r=bec |
| By: | ARIKAWA Yasuhiro; KAWANISHI Takuya; MIYAJIMA Hideaki |
| Abstract: | Financial factors and ownership structure are both part of the determinants of corporate R&D investment. Considering listed firms in the R&D intensive industries during the 2000s, this paper examines whether financial factors and ownership structure explain R&D investment in Japan. Following the methodology of Brown et al. (2009), which extends the dynamic investment model of Bond and Maghir (1994) to R&D investment, we find that only small, young firms mainly listed on new emerging markets face financial constraints. We also find that large firms finance R&D investment partly from debt. For firms with relatively limited assets, however, higher leverage leads to lower R&D investment. Finally, we find no evidence that large shareholdings by foreign investors enforce myopic behavior on firms in R&D intensive industries. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11013&r=bec |
| By: | Patrick GAGLIARDINI ; Christian GOURIEROUX (Crest) |
| Abstract: | We consider a homogeneous class of assets, whose returns are driven by an unobservable factor representing systematic risk. We derive approximated pricing formulas for the future factor values and their proxies, when the size n of the class is large. Up to order 1=n, these closed form approximations involve well-chosen summary statistics of the basic asset returns, but not the current and lagged factor values. The potential of the closed form approximation formulas seems quite large, especially for credit risk analysis, which considers large portfolios of individual loans or corporate bonds, and for longevity risk analysis, which involves large portfolios of life insurance contracts. |
| Keywords: | optimal matching |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2010-07&r=bec |
| By: | Robert Powell (School of Accounting Finance & Economics, Edith Cowan University); David E Allen (School of Accounting Finance & Economics, Edith Cowan University) |
| Abstract: | The global financial crisis (GFC) has placed the creditworthiness of banks under intense scrutiny. In particular, capital adequacy has been called into question. Current capital requirements make no allowance for capital erosion caused by movements in the market value of assets. This paper examines default probabilities of Swiss banks under extreme conditions using structural modeling techniques. Conditional Value at Risk (CVaR) and conditional probability of default (CPD) techniques are used to measure capital erosion. Significant increase in probability of default (PD) is found during the GFC period. The market asset value based approach indicates a much higher PD than external ratings indicate. Capital adequacy recommendations are formulated which distinguish between real and nominal capital based on asset fluctuations. |
| Keywords: | Real capital; Financial crisis; Conditional value at risk; Credit risk; Banks; Probability of default; Capital adequacy |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecu:wpaper:2010-04&r=bec |
| By: | Julien Jacob |
| Abstract: | We consider a firm, from a high-risk industry, facing two available technologies. One of the two technologies is ambiguous in the sense that its probability of accident lies in a interval of objective probabilities. The firm has the possibility to invest in seeking information in order to reduce the uncertainty inherent to the ambiguous technology. We apply a model inspired by Jaffray (1989) on imprecise probabilities to study the firm’s behavior in such a context. Considering a strict liability rule, we compare the impact of two liability regimes, unlimited liability and limited liability, on the firm’s technical choice. Whatever the firm’s information seeking policy, which type of liability regime promotes which technology depends on the relative value of the marginal operating costs of the two technologies. |
| Keywords: | Technical choice, technological risk, unlimited liability, limited liability, ambiguity. |
| JEL: | D21 D81 K32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2011-06&r=bec |
| By: | Ghatak, Maitreesh; Karaivanov, Alexander |
| Abstract: | We analyze optimal contracts and optimal matching patterns in a simple model of partnership where there is a double-sided moral hazard problem and potential partners differ in their productivity in two tasks. It is possible for one individual to accomplish both tasks (sole production) and there are no agency costs associated with this option but partnerships are a better option if comparative advantages are significant. We show that the presence of moral hazard can reverse the optimal matching pattern relative to the first best, and that even if partnerships are optimal for an exogenously given pair of types, they may not be observed in equilibrium when matching is endogenous, suggesting that empirical studies on agency costs are likely to underestimate their extent by focusing on the intensive margin and ignoring the extensive margin. |
| Keywords: | contractual structure; endogenous matching; partnerships |
| JEL: | D12 D21 D23 D82 Q15 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8298&r=bec |
| By: | Aniruddha Bagchi; Siddharth Bandyopadhyay |
| Abstract: | We examine the relationship between the incidence of workplace deviance (on-the-job crime) and the business cycle. A worker's probability of future employment depends on whether she has been deviant as well as on the availabilty of jobs. Using a two period model we show that the net impact on deviant behaviour to changes in unemployment is ambiguous and depends on the strength of two effects. If the probability of being employed for a non-deviant improves as expected market conditions improve, then that lowers deviant behaviour, while if the deviant's probability of being employed improves as market conditions improve, that increases deviance as market conditions improve. In either case, there is a setup cost to deviant behaviour and the attractiveness of incurring that increases with an increase in expected probability of future employment. This second effect therefore increases the incentive to be deviant and thus can reinforce the first effect or weaken it. Finally, we show that an increase in optimism i.e. the probability of facing a recession going down unambiguously increases deviant behaviour. |
| Keywords: | Crime, Business Cycle, Dynamic Deterrence |
| JEL: | D84 E32 J63 K42 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:11-06&r=bec |
| By: | Daunfeldt, Sven-Olov (The Ratio Institute and Dalarna University); Elert, Niklas (The Ratio Institute and Dalarna University); Lang, Åsa (Dalarna University and Mid Sweden University) |
| Abstract: | Gibrat’s Law predicts that firm growth is a purely random effect and therefore should be independent of firm size. The purpose of this paper is to test Gibrat’s law within the retail industry, using a novel data-set comprising all Swedish limited liability companies active at some point between 1998 and 2004. Very few studies have previously investigated whether Gibrat’s Law seems to hold for retailing, and they are based on highly aggregated data. Our results indicate that Gibrat´s Law can be rejected for a large majority of five-digit retail industries in Sweden, since small retail firms tend to grow faster than large ones. |
| Keywords: | firm dynamics; firm size; firm growth; retail |
| JEL: | L11 L25 L81 |
| Date: | 2011–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0164&r=bec |
| By: | Lesourd, Jean-Baptiste; Schilizzi, Steven |
| Abstract: | We examine under what conditions setting up a captive insurance company with reinsurance is an optimal solution for risk-averse firms when the insured firm, the insurer and the reinsurer do not know the probability distribution of some risks, and have conflicting estimates of this distribution. |
| Keywords: | corporate insurance, reinsurance, uncertainty, ambiguity, non-conventional risks, captive insurance companies, Risk and Uncertainty, D81, G22, Q2, |
| Date: | 2011–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:ags:uwauwp:100886&r=bec |
| By: | Konings, Jozef; Roeger, Werner; Zhao, Liqiu |
| Abstract: | Reduced form approaches to estimate markups typically exploit variation in observed input and output. However, these approaches ignore the presence of fixed input factors, which may result in an overestimation of the price-cost margins. We first propose a new methodology to simultaneously estimate price-cost margins and the shares of fixed inputs. We then use Belgian firm level data for manufacturing and service sectors to show that markups are lower when taking into account fixed input factors. We find that the average price-cost margin of manufacturing firms is 0.041, compared to 0.090 when we do not control for fixed costs of production. We also show that price-cost margins increase with the share of fixed costs in turnover. Our findings provide new insights about observed high price-cost margins in service industries. In particular, we show that once fixed costs are taken into account, price-cost margins in service industries are comparable to those in manufacturing. |
| Keywords: | fixed input costs; price-cost margins; Solow residual |
| JEL: | L11 L13 L60 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8290&r=bec |
| By: | Edquist, Harald (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Since the mid 1990s labor productivity growth in Sweden has been high compared to Japan, the US and the western EU-countries. While productivity growth has been rapid in manufacturing, it has been much slower in the service sector. Paradoxically, all employment growth since the mid 1990s has been created in business services. The two traditional explanations of this pattern are Baumol’s disease and outsourcing. This paper puts forward an additional explanation, based on the observation that manufacturing industries have invested heavily in intangible assets such as R&D and vocational training. In 2005–2006, intangible investment was 25 percent of value added in manufacturing, while the corresponding figure for the service sector was 11 percent. Moreover, calculations based on the growth accounting framework at the industry level in 2000–2006 show that intangible investment accounted for almost 30 percent of labor productivity growth in manufacturing. Thus, investments in intangibles that mostly are knowledge intensive services have contributed considerable to productivity growth in Swedish manufacturing since 1995. |
| Keywords: | Intangibles; Manufacturing; Productivity growth; Service sector; Sector analysis |
| JEL: | O14 O32 O33 |
| Date: | 2011–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0863&r=bec |
| By: | Jos\`e T. Lunardi; Salvatore Miccich\`e; Fabrizio Lillo; Rosario N. Mantegna; Mauro Gallegati |
| Abstract: | We introduce a new statistical test of the hypothesis that a balanced panel of firms have the same growth rate distribution or, more generally, that they share the same functional form of growth rate distribution. We applied the test to European Union and US publicly quoted manufacturing firms data, considering functional forms belonging to the Subbotin family of distributions. While our hypotheses are rejected for the vast majority of sets at the sector level, we cannot rejected them at the subsector level, indicating that homogenous panels of firms could be described by a common functional form of growth rate distribution. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1103.2234&r=bec |
| By: | Marcel Fafchamps; Matthias Schündeln |
| Abstract: | Combining data from the Moroccan census of manufcaturing enterprises with information from a commune survey, we test whether firm expansion is affected by local financial development. Our findings are consistent with this hypothesis: local bank availability is robustly associated with faster growth for small and medium-size firms in sectors with growth opportunities, with a lower likelihood of firm exit and a higher likelihood of investment. The findings also suggests a channel for the effect of the availability of financing in firm growth in our data, namely that access to credit was used to invest in labor saving technology. |
| Keywords: | manufacturing, credit constraint, firm size |
| JEL: | O16 L25 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2011-02&r=bec |
| By: | Uschi Backes-Gellner (Department of Business Administration, University of Zurich); Yvonne Oswald (Department of Business Administration, University of Zurich); Simone N. Tuor (Department of Business Administration, University of Zurich) |
| Abstract: | Previous studies on employer-provided training have consistently shown a gap in training participation between part-time and full-time workers. This study examines whether the training disadvantage for part-time workers differs by gender. To capture the uncertainty in the firm’s training decision and to factor in heterogeneity among part-time workers, our analysis draws not only on human capital but also on statistical discrimination theory. Our empirical results indicate that gender plays a role in determining part-time/full-time training differences. Whereas for women working part-time or full-time makes only a minor difference, for men working part-time constitutes a serious disadvantage in access to employer-provided training. The results remain consistent among different subsamples. |
| Keywords: | employer-provided trainnig, part-time |
| JEL: | I21 J16 M53 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0058&r=bec |
| By: | X. Henry Wang (Department of Economics, University of Missouri-Columbia); Lin Liu; JBill Z. Yang |
| Abstract: | The traditional wisdom holds that the benefits of a decentralized channel structure arise from downstream competitive relationships. In contrast, Arya and Mittendorf (2007) showed that the value of decentralization can also arise from upstream interaction when the downstream firm conveys internal strife (decentralization) to an upstream external supplier. This paper extends the single firm centralization- decentralization choice model of Arya and Mittendorf (2007) to a strategic choice model in which all downstream competitors play a strategic centralization-decentralization game. We demonstrate that whether the main conclusions in the context of non-strategic choice of channel structure continue to hold when all firms play a centralization-decentralization game depends critically on the market structure of the upstream input market. Specifically, the conclusions are valid if all firms have exclusive upstream input suppliers but not so if the upstream input market is monopolized. Thus, whether the value of decentralization can arise from upstream interaction depends critically on the market structure of the upstream market. |
| Keywords: | Strategic Choice, Channel Structure, Oligopoly |
| JEL: | L22 D21 |
| Date: | 2011–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1102&r=bec |
| By: | Davide Antonioli; Paolo Pini; Rocco Manzalini |
| Abstract: | The shifting of labour demand towards relatively more skilled workers has been a hot issue in the economic field for many years. A consolidated explanation for the upskilling phenomenon is that technological-organisational changes have driven the labour demand with detrimental consequences for less skilled workers (skill-biased technological-organisational change). In order to upgrade the skill workforce the firm has at least two main channels at its disposal: the external labour market strategy, mainly based on hiring and firing mechanisms; the internal labour market strategies, which improve the skill base of the employees through training activities. The main objective of the present work is to verify the relations between innovative strategies and both the workforce composition and the training activities, within an integrated framework that also leads us to consider the role of specific aspects of the industrial relations system. The firm level analysis is based on original datasets which include data on manufacturing firms for two Italian local production systems, located in the Emilia-Romagna region. The results suggest that the firms use both the two channels to improve their skill base, which is actually related to the innovation activities, although there is weak supporting evidence of the use of external labour markets to upgrade the workforce skills: the upskilling phenomenon seems to be associated to specific innovative activities in the technological sphere, while specific organisational aspects emerge as detrimental for blue collars. On the side of internal labour market strategies the evidence supports the hypothesis that innovation intensity induce the firms to implement internal procedures in order to upskill the workforce, confirming the importance of internal labour market strategies. Moreover, we have recognized the important role of firm level industrial relations in determining the training activities for the blue collar workers. |
| Keywords: | technological change; organisational change; industrial relations; skills |
| JEL: | J24 J53 L23 L6 O33 |
| Date: | 2011–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:udf:wpaper:201106&r=bec |