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on Business Economics |
| By: | Marinelli, Federico (CUNEF) |
| Abstract: | Firm's boundaries have been one of the central questions in several research domains, but it is possible to affirm that a definitive consensus has not been reached to determine the relationship between diversification and firm's performance. We study this relationship according to the main empirical finding in strategy and finance but controlling for the persistence of abnormal returns. Through longitudinal studies, using both accounting and market indicators, we conclude that this relationship is not causal but attributable to factors other than the degree of relatedness among business units and the degree of efficiency of the internal capital market. The persistence of abnormal returns has a grater explanatory power: we find that some diversified firms persistently create shareholder value, beat the market index and have lower market volatility, while others persistently reach opposite results. Moreover, we find that higher performance is associated with an unrelated portfolio of business segments. |
| Keywords: | diversification; abnormal return persistence; shareholder value and risk; efficient internal capital market; business segment relatedness; |
| JEL: | L25 |
| Date: | 2011–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0907&r=bec |
| By: | Vilmi, Lauri (Department of Economics) |
| Abstract: | We explore the implications of endogenous firm entry and exit for business cycle dynamics and optimal fiscal policy. We first show that when the firm exit rate is endogenous, negative technology shocks lead to reductions in the number of firms. Technology shocks therefore have additional effects on household welfare relative to an economy with only endogenous entry. Second, endogenous firm exit creates a new channel for monetary policy when debt contracts are written in nominal terms, as monetary shocks affect the rate of firm defaults. Monetary shocks therefore have real effects also when prices and wages are flexible. Third, we show that endogenous firm exit creates a new role for fiscal policy to increase efficiency and welfare by subsidizing firms and decreasing the number of defaults. Finally, we demonstrate that endogenous firm exit implies that non-persistent shocks to technology and money supply have persistent effects on labor productivity. This has implications for the estimated persistence of technology shocks. |
| Keywords: | firm defaults; money supply shock; labor productivity |
| JEL: | E32 E52 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0250&r=bec |
| By: | Renneboog, L.D.R.; Zhao, Y. (Tilburg University, Center for Economic Research) |
| Abstract: | We analyze the relation between CEO compensation and networks of executive and non-executive directors for all listed UK companies over the period 1996-2007. We examine whether networks are built for reasons of information gathering or for the accumulation of managerial influence. Both indirect networks (enabling directors to collect information) and direct networks (leading to more managerial influence) enable the CEO to obtain higher compensation. Direct networks can harm the efficiency of the remuneration contracting in the sense that the performance sensitivity of compensation is then lower. We find that in companies with strong networks and hence busy boards the directors’ monitoring effectiveness is reduced which leads to higher and less performance-sensitive CEO compensation. Our results suggest that it is important to have the ‘right’ type of network: some networks enable a firm to access valuable information whereas others can lead to strong managerial influence that may come at the detriment of the firm and its shareholders. We confirm that there are marked conflicts of interest when a CEO increases his influence by being a member of board committees (such as the remuneration committee) as we observe that his or her compensation is then significantly higher. We also find that hiring remuneration consultants with sizeable client networks also leads to higher CEO compensation especially for larger firms. |
| Keywords: | Executive remuneration;Professional and social networks;Corporate governance;Managerial Power;Remuneration consultants. |
| JEL: | G3 J3 L14 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011014&r=bec |
| By: | Christian Calmès (Département des sciences administratives, Université du Québec (Outaouais), Chaire d'information financière et organisationnelle, ESG-UQAM, Laboratory for Research in Statistics and Probability, LRSP); Denis Cormier (Département de stratégie des affaires, Université du Québec (Montréal), et Chaire d'information financière et organisationnelle, ESG-UQAM); Francois Racicot (Département des sciences administratives, Université du Québec (Outaouais), Chaire d'information financière et organisationnelle, ESG-UQAM, et Laboratory for Research in Statistics and Probability, LRSP); Raymond Théoret (Département de stratégie des affaires, Université du Québec (Montréal), Chaire d'information financière et organisationnelle, ESG-UQAM, et Université du Québec (Outaouais)) |
| Abstract: | Following Zhang (Accounting Review, 2007) we cast firm accruals in terms of short-term investment. Since many studies consider accruals as a smoothed measure of cash flows, we first adopt Zhang specification and augment the standard Jones model with a cash-flow variable. Second, if accruals are indeed a form of short-term investment they should also be influenced by firm’s performance as measured by Tobin’s q. Consequently we propose a new version of the accrual model including a proxy for Tobin’s q. Given that accounting data and Tobin’s q are generally measured with errors, we also introduce a new estimation method based on a modified version of the Hausman artificial regression, featuring an optimal weighting matrix composed of higher moments instrumental variable estimators. Our results suggest that all the key parameters of the accrual models are indeed systematically biased with measurement errors. More importantly, our findings largely qualify Zhang’s conjecture on accruals, as both cash-flows and Tobin’s q are found strongly significant regressors of firm accruals. Relatedly we find that the Tobin’s q augmented model better isolate discretionary accruals so that the residuals of the equation are particularly well-suited to forecast stock returns. |
| Keywords: | Discretionary accruals; Earnings management; Investment; Measurement errors; Higher moments; Instrumental variable estimators. |
| JEL: | M41 C12 D92 |
| Date: | 2010–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:012011&r=bec |
| By: | John Cotter; Jim Hanly |
| Abstract: | We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies including OLS and both Symmetric and Asymmetric GARCH models. Our findings show that asymmetry reduces in-sample hedging performance and that there are significant differences in hedging performance between short and long hedgers. Thus, tail specific performance metrics should be applied in evaluating hedging effectiveness. We also find that the Ordinary Least Squares (OLS) model provides consistently good performance across different measures of hedging effectiveness and estimation methods irrespective of the characteristics of the underlying distribution. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1103.5411&r=bec |
| By: | Zhang, Hongru (Cardiff Business School) |
| Abstract: | This paper extends Nolan and Thoenissen (2009), hence NT, model with an explicit financial intermediary that transfer funds from households to entrepreneurs subject to a well defined loan production function. The loan productivity shock is treated as the supply side financial disturbance. Together with NT.s net worth shock that resembles the credit demand perturbation, both of the two-sided shocks are robustly extracted by combining the model with US quarterly data. The two shocks are found to be tightly linked with the post-war recessions. Each recession happens when both of the two shocks become contractionary. A few potential economic downturns seem to have been avoided because of the expansion of credit which offset the simultaneous contraction of entrepreneurial net wealth. This new introduced shock has significant explanatory power for the variance of EFP and the model simulated EFP holds high correlation with various spreads as proxies for empirical EFP. |
| Keywords: | DSGE modeling; corporate net wealth shock; loan productivity shock; external financing; shock construction; historical decomposition; variance decomposition |
| JEL: | E32 E44 G21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2011/7&r=bec |
| By: | Stéphane Auray (CNRS, THEMA, EQUIPPE, Universités Lille Nord de France (ULCO),Université de Sherbrooke (GREDI) and CIRPEE, Canada.); Aurélien Eyquem (Université de Lyon, Lyon, F-69003, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | This paper examines if taking into account changes in the number of producers, or equivalently changes in the product variety space over the business cycle, helps to understand and replicate international business cycle facts. To this end, we develop a two-country model in which the economy is driven by real and monetary policy shocks. If it is characterized by an endogenous number of firms and varieties, sticky prices and financial markets incompleteness. We show that these features are crucial to reproduce international business cycle statistics. We also evaluate the welfare implications of various monetary policies and highlight the importance for monetary policymakers to respond moderately to output fluctuations. |
| Keywords: | International business cycles, Endogenous entry, Financial markets incompleteness, Sticky prices, Monetary policy, Welfare |
| JEL: | C92 D62 D63 D64 D74 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1114&r=bec |
| By: | Mario Forni; Luca Gambetti; Luca Sala |
| Abstract: | This paper uses a structural, large dimensional factor model to evaluate the role of `news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by `non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations are explained by shocks unrelated to technology. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:383&r=bec |
| By: | Wenjun Liu (Graduate School of Economics, Kobe University); Tomokazu Nomura (Graduate School of Economics, Kobe University); Shoji Nishijima (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | In this study, we investigated discrimination against women within the Brazilian labor market using firm-level data and considering the proportion of female employees as a proxy for the extent of discrimination. Estimating the profit efficiency of firms using data envelopment analysis, and regressing it on the proportion of female employees and other firm characteristics, we found that the proportion of female employees is positively correlated with firm profit efficiency. Our finding indicates that firms employing a high proportion of female workers incur a lower labor cost while producing the same level of output compared to firms employing a low proportion of female employees, and provide strong evidence of the existence of discrimination against female employees within the Brazilian labor market. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1019&r=bec |
| By: | ASANO Hirokatsu; ITO Takahiro; KAWAGUCHI Daiji |
| Abstract: | The fraction of contingent workers among all workers in Japan increased from 17% in 1986 to some 34% in 2008. This paper investigates the reason for this secular trend. Both demand and supply increases of contingent workers relative to regular workers are important, as evidenced by the stable relative wage to regular workers. The increase of female labor-force participation explains the supply increase, and the change of industrial composition explains the demand increase. These compositional changes explain about one quarter of the increase of contingent workers. Uncertainty surrounding product demand and the introduction of information and communication technologies increase firms' usage of contingent workers, but its quantitative effect is limited. These findings suggest that the declining importance of firm-specific human capital is a probable cause for the increase of contingent workers. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11021&r=bec |
| By: | Matthias Gubler (Faculty of Business and Economics, University of Basel, Switzerland); Matthias S. Hertweck (Department of Economics, University of Konstanz, Germany) |
| Abstract: | This paper develops a 9-dimensional SVAR to investigate the sources of the U.S. business cycle. We extend the standard set of identified shocks to include unexpected changes in commodity prices. Our main result is that commodity price shocks are a very important driving force of macroeconomic fluctuations, second only to investment-specific technology shocks. In particular, we find that commodity price shocks explain a large share of cyclical movements in inflation. Neutral technology shocks and monetary policy shocks seem less relevant at business cycle frequencies. The impulse response dynamics provide support for medium-scale DSGE models, but not for strong price rigidities. |
| Keywords: | business cycles, commodity price shocks, structural VAR |
| JEL: | C32 E32 E52 Q43 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1103&r=bec |
| By: | KURODA Sachiko; YAMAMOTO Isamu |
| Abstract: | Using information on Japanese, UK, and German workers' work hour and matched firms' characteristics, this paper investigates whether the number of hours worked is determined by demand-side factors, and tries to introduce one possibility to explain why Japanese tend to work longer hours than workers in other countries. Based on an empirical framework that each firm sets a minimum boundary of work hours, and workers hired by the firm are not able to work less than the minimum requirement, we found that the minimum requirement depends on the fixed costs of labor that the firm bears. Specifically, firms that tend to conduct labor hoarding during recessions, presumably because of higher fixed costs, require incumbent workers to work longer hours. We also found that the greater the workers' firm-specific skills, the more firms placed demands on these workers to work longer hours, given other things are equal. Since Japanese firms have long been considered to bear large fixed costs to train workers, we interpret the long work hour requirement as a rational strategy for Japanese firms to protect those workers that have accumulated high skills from dismissal. In other words, the long work hours of Japanese workers reflect the practice of long-term employment, a typical feature of the Japanese labor market. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11024&r=bec |
| By: | MATSUURA Toshiyuki; SATO Hitoshi; WAKASUGI Ryuhei |
| Abstract: | The number of temporary workers in Japan's labor market has increased rapidly since the 1990s. This trend is particularly remarkable in the manufacturing sector, which now relies on sales to foreign markets. This paper formalizes the idea that global competition may encourage manufactures to shift from permanent to temporary workers, proposing a model of multi-product firms motivated to reduce revenue fluctuations. Firms prefer lower sales volatility because of labor adjustment costs. In such a framework, trade liberalization encourages firms to reduce the number of products, which raises the demand for temporary workers because they entail no firing costs. The model is also empirically tested using micro-data from Japanese manufacturing plants. The model's predictions are moderately supported. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11030&r=bec |
| By: | TODO Yasuyuki; SATO Hitoshi |
| Abstract: | Recent heterogeneous-firm models of international trade suggest that productivity determines whether firms engage in export and foreign direct investment. However in practice, m Abstract any productive firms are not internationalized, whereas many unproductive firms are. This situation suggests that factors other than productivity influence internationalization. This study examines a set of potential factors -personal characteristics of the chief executive officer (CEO)- using a unique panel dataset for Japanese small and medium enterprises (SMEs). We find that SMEs are more likely to be internationalized when the CEO is more risk-tolerant, forward-looking, and internationally experienced. These factors show significant statistical relationships with SMEs' decisions to internationalize, perhaps suggesting why productive firms might not internationalize. In addition, we find that productivity has no significant relationship with the decision of exiting international markets probably because initial costs of internationalization become sunk, whereas SMEs with internationally experienced CEOs show strongly less likelihood of exit. These empirical results are consistent with theoretical predictions of our model that incorporates the uncertainty of foreign markets into the trade theory with firm heterogeneity. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11026&r=bec |
| By: | David A. Matsa; Amalia R. Miller |
| Abstract: | This paper examines the role of women helping women in corporate America. Using a merged panel of directors and executives for large U.S. corporations between 1997 and 2009, the authors find a positive association between the female share of the board of directors in the previous year and the female share among current top executives. The relationship's timing suggests that causality runs from boards to managers and not the reverse. This pattern of women helping women at the highest levels of firm leadership highlights the continued importance of a demand-side "glass ceiling" in explaining the slow progress of women in business. |
| JEL: | G34 M51 J16 J71 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ran:wpaper:842&r=bec |
| By: | SHINADA Naoki |
| Abstract: | An aging population, low fertility rate, and suppressed corporate investment have left Japan with an older workforce and older vintages of fixed capital. To restore economic dynamism, Japan must encourage productivity growth. Using panel data of listed Japanese firms in FY 1977-2008, this paper demonstrates how both employee age and capital vintage affect the quality of labor and capital that influence productivity. Our research contributes three significant findings. (1) The older the average age of a firm's employees or the longer their seniority, the higher the firm's productivity growth, but it is unclear if the effects peak at specific ages. (2) The positive effects of employees' increasing age and seniority and the negative effect of older capital on Japan's productivity growth have declined since the 1990s. (3) These effects have been larger among manufacturers than non-manufacturers. Negative effects of increasing non-regular workers should be addressed, and it is further important for Japanese firms to organize and manage labor skills and enhance knowledge, rather than depend on technology accumulated over time. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11036&r=bec |
| By: | Karle, H.; Klein, T.J.; Stahl, K.O. (Tilburg University, Center for Economic Research) |
| Abstract: | We study a differentiated product market in which an investor initially owns a controlling stake in one of two competing firms and may acquire a non-controlling or a controlling stake in a competitor, either directly using her own assets, or indirectly via the controlled firm. While industry profits are maximized within a symmetric two product monopoly, the investor attains this only in exceptional cases. Instead, she sometimes acquires a noncontrolling stake. Or she invests asymmetrically rather than pursuing a full takeover if she acquires a controlling one. Generally, she invests indirectly if she only wants to affect the product market outcome, and directly if acquiring shares is profitable per se. |
| Keywords: | Differentiated products;separation of ownership and control;private benefits of control. |
| JEL: | L13 L41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011026&r=bec |
| By: | Antti Kauhanen; Sami Napari |
| Abstract: | We study career and wage dynamics within and between firms using a large linked employer-employee panel dataset spanning 26 years. We construct six-level hierarchies for more than 5,000 firms. We replicate most of the analyses from Baker, Gibbs and Holmström (Quarterly Journal of Economics, 1994) and make some extensions. Many of our results corroborate their findings. Careers within firms are important, but the strong version of the theory of internal labor markets does not fit the data. Recent theories of career and wage dynamics explain our findings well. |
| Keywords: | internal labor markets, employer changes, promotions, wage growth, human capital |
| JEL: | M51 M12 J62 L22 |
| Date: | 2011–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1244&r=bec |