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on Business Economics |
| By: | Marco Protopapa (Bank of Italy) |
| Abstract: | This work investigates the role of equity ownership for the purpose of committing the management to the pursuit of shareholder value in the presence of separation between ownership and control. By rooting the conflicts of interests between managers and shareholders upon the control of internal funds, a simple model allows to analyse the link between profit uncertainty, growth options and decisional powers. Implications are derived for the optimal degree of equity concentration, the effect of firm fundamentals on the allocation of income and control rights, and the pay for luck phenomenon. First, optimal equity ownership is positively related to the short-term performance of the firm and negatively related to both its growth options and riskiness of cash flows. Second, optimal equity ownership is negatively related to the probability of the firm being financially constrained, in the sense that the level of desired investment exceeds internally available resources. It is also shown that straight debt alone does not implement the second best, in absence of a large shareholder. Finally, an interesting result shows that, in presence of financial constraints, pay for luck is associated in equilibrium to a lower optimal degree of ownership concentration: pay for luck and looser governance, as implemented by the internal discipliner of equity concentration, emerge as the equilibrium result of a constrained incentive problem. |
| Keywords: | capital structure, payout policies, corporate governance, corporate control |
| JEL: | G32 G35 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_798_11&r=bec |
| By: | Marc CHESNEY (University of Zurich); Jacob STROMBERG (University of Zurich (SFI Ph.D. program)); Alexander F. WAGNER (University of Zurich, Swiss Finance Institute and Harvard University) |
| Abstract: | This paper studies the extent to which risk-taking incentives of CEOs and other governance features in a range of years prior to the recent financial crisis were related to the write-downs of U.S. financial institutions during the crisis. We document that institutions whose CEOs had particularly strong risk-taking incentives, weak ownership incentives and independent boards had the highest write-downs, both in absolute terms and relative to total assets. Furthermore, financial institutions with lower Tier-1 ratios and those with CEOs who earned less than their colleagues at comparable firms had larger write-downs. |
| Keywords: | Executive compensation; Subprime crisis; Write-downs; Corporate governance; Managerial incentives; Risk-taking; Too big to fail |
| JEL: | G28 G34 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1018&r=bec |
| By: | Crozet, Matthieu; Trionfetti, Federico |
| 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 rela- tive 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 us- ing data for a large panel of European firms, supports these predic- tions. 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:cpm:docweb:1101&r=bec |
| By: | Javier Andrés (University of Valencia, Spain); José Emilio Boscá (University of Valencia, Spain); Javier Ferri (University of Valencia, Spain) |
| Abstract: | The co-movements of labor productivity with output, total hours, vacancies and unemployment have changed since the mid 1980s. This paper offers an explanation for the sharp break in the fluctuations of labor market variables based on endogenous labor supply decisions following the mortgage market deregulation. We set up a search model with efficient bargaining and financial frictions, in which impatient borrowers can take an amount of credit that cannot exceed a proportion of the expected value of their real estate holdings. When borrowers’ equity requirements are low, the impact of a positive technology shock on the marginal utility of consumption is strengthened, which in turn results in lower hours per worker and higher wages in the bargaining process. This shift in labor supply discourages firms from opening vacancies, reducing the impact of the shock on employment. We simulate the effects of a continuous increase in both the loan-to-value ratio and the share of borrowers in total population. Our exercise shows that the response of labor market variables might have been substantially affected by the increase in household leverage in the US in the last twenty years. |
| Keywords: | business cycle, labor market, borrowing restrictions |
| JEL: | E24 E32 E44 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:iei:wpaper:1102&r=bec |
| By: | Hallberg, Daniel (Institute for Futures Studies) |
| Abstract: | <p> In Sweden, employers pay non-wage costs for their workforce in the form of legislated employment tax and collective fees. For parts of the workforce, the collective fees are progressive with respect to the employee’s age and wage. The objective of this paper is to examine how non-wage costs affect voluntary early retirement. To this end we use a large longitudinal employer–employee matched data set with administrative records of the private sector in Sweden. We exploit the variation in collective fee costs across companies to identify employer incentives to encourage early retirement. The results from the instrumental variable estimator suggest that a 1 percentage point increase in non-wage costs in relation to wage costs increases retirement by 6 percent. Further, given the wage sum and workforce structure, large firms spend more on non-wage compensation than small firms. The share of non-wage costs in relation to the wage sum is also positively linked to net employment growth.<p> |
| Keywords: | Early retirement; Non-wage labor costs; Pensions; Labor demand; Collective fees |
| JEL: | J21 J23 J26 J32 |
| Date: | 2011–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifswps:2011_006&r=bec |
| By: | Dermot Leahy; Catia Montagna |
| Abstract: | We study the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Firms’ mode of operation decision depends on both the incentive to economize on costs and on strategic considerations. We explore the strategic incentives to outsource and show that asymmetric equilibria emerge, with firms choosing different modes of operation, even when they are ex-ante identical. With ex-ante asymmetries, higher cost firms are more likely to outsource. We apply our model to a number of different international trading setups. |
| Keywords: | Outsourcing, Vertical Integration, Trade Liberalisation, Oligopoly |
| JEL: | F12 L13 L14 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:251&r=bec |
| By: | Betsey Stevenson; Justin Wolfers |
| Abstract: | We document that trust in public institutions—and particularly trust in banks, business and government—has declined over recent years. U.S. time series evidence suggests that this partly reflects the pro-cyclical nature of trust in institutions. Cross-country comparisons reveal a clear legacy of the Great Recession, and those countries whose unemployment grew the most suffered the biggest loss in confidence in institutions, particularly in trust in government and the financial sector. Finally, analysis of several repeated cross-sections of confidence within U.S. states yields similar qualitative patterns, but much smaller magnitudes in response to state-specific shocks. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-11&r=bec |
| By: | Fabio Canova; Alain Schlaepfer |
| Abstract: | We date turning points of the reference cycle for 19 countries in the Mediterranean, for selected regions, and for the area. Cycles phases are asymmetric, with expansions lasting, on average, much longer than recessions. Cyclical fluctuations are volatile and not highly correlated across countries. Recessions are not very deep and output losses limited. Heterogeneities across countries and regions are substantial. There are time variations in features of Mediterranean business cycles not clearly linked with the Euro-Mediterranean partnership process. The concordance of cyclical fluctuations in the region is poorly linked to trade as is its evolution over time. |
| Keywords: | Turning point dates, Reference cycle, Euro Mediterranean partnership, Trade interdependences |
| JEL: | E32 C32 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1267&r=bec |
| By: | Berger, Johannes (University of Cologne); Herbertz, Claus (University of Cologne); Sliwka, Dirk (University of Cologne) |
| Abstract: | We empirically investigate the impact of incentive scheme structure on the degree of cooperation in firms using a unique and representative data set. Combining employee survey data with detailed firm level information on the relative importance of individual, team, and company performance for compensation, we find a significant positive relation between the intensity of team incentives and several survey measures of cooperation. Moreover, higher powered team incentives are associated with lower degrees of absenteeism while this is not the case for individual incentives. |
| Keywords: | incentives, cooperation, teams, helping effort |
| JEL: | D23 J33 M52 M54 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5618&r=bec |
| By: | Massimo, Riccaboni; Jakub, Growiec; Fabio, Pammolli |
| Abstract: | We provide a detailed analysis of a generalized proportional growth model (GPGM) of innovation and corporate dynamics that encompasses the Gibrat’s Law of Proportionate Effect and the Simon growth process as particular instances. The predictions of the model are derived in terms of (i) firm size distribution, (ii) the distribution of firm growth rates, and (iii-iv) the relationships between firm size and the mean and variance of firm growth rates. We test the model against data from the worldwide pharmaceutical industry and find its predictions to be in good agreement with empirical evidence on all four dimensions. |
| Keywords: | Business firm size; firm growth distribution; Gibrat’s Law; Pareto distribution; lognormal distribution; size-variance relationship. |
| JEL: | L25 L65 L11 C49 |
| Date: | 2011–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30046&r=bec |
| By: | Jean-Philippe Timsit; Annick Castiaux |
| Abstract: | The goal of this study is to determine which strategic model, either IO or RBV, allows firms to generate the highest performance on a competitive market. Contrasting with classical studies that mobilize analyses as VARCOMP, we deploy a multi-agent system simulating the behavior of firms adopting RBV or IO strategic models. For an equivalent proportion of both strategic orientations, we study the instant and total performances of the firms on hypercompetitive markets. We show that the performance of best-performing IO firms, measured by the ROA, is higher in the short term, but that RBV firms obtain an average higher sustained performance, in the long term. Moreover, when they are in competition with IO firms on a highly profitable and competitive market, RBV firms which dare to enter such markets obtained generally the highest performance. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1104.0777&r=bec |
| By: | Bruno S. Frey; Roger Lüthi; Margit Osterloh |
| Abstract: | Management research has long focused on the theory of the firm, studying for-profit organizations that produce privately owned resources based on central authority and within well-defined boundaries. In recent times, a new kind of enterprise has emerged that we call Community Enterprises. They are barrier free and extend beyond the reach of strong, personal relationships and are characterized by the production of appropriation-free resources and the absence of boundaries. Wikipedia is the most successful example of such a Community Enterprise. Assumptions and principles underneath related fields such as organizational theory, innovation economics, and industrial organization should therefore be critically examined. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2011-08&r=bec |
| By: | Alessandro Fedele (Department of Economics, Università di Brescia); Piero Tedeschi (DISCE, Università Cattolica) |
| Abstract: | In this paper we develop a model of product quality and firms' reputation. If quality is not verifiable and there is repeated interaction between firms and consumers, we show that reputation emerges as a means of disciplining the former to deliver high quality. In order to that, we also prove that competitive firms can extract some rent in producing high quality, thus providing a solution to Stiglitz (1989) puzzle, alternative and complementary to Hörner's (2002) one. Positive profit are generated in equilibria characterized by the emergence of a social norm which prescribes a minimum quality level. Moreover, we demonstrate that more concentrated industry structures deliver better quality and higher social and consumer welfare. This finding should induce cautiousness in enhancing competition when product quality is at stake. We derive our results in the specific context of after-sales service quality provided by insurance companies. Yet, we argue that our analysis is of general applicability. |
| Keywords: | quality, reputation, Bertrand competition, insurance contracts. |
| JEL: | L13 D82 D81 C73 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie4:ieil0061&r=bec |
| By: | Muntean, Mihaela; Cabau, Liviu Gabriel |
| Abstract: | Subordinated to performance management, Business Intelligence approaches help firms to optimize business performance. Key performance indicators will be added to the multidimensional model grounding the performance perspectives. With respect to the Business Intelligence value chain, a theoretical approach was introduced and a practice example, based on Microsoft SQL Server specific services, for the customer perspective was implemented. |
| Keywords: | business intelligence; performance management; key performance indicators |
| JEL: | M00 L86 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29914&r=bec |
| By: | Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)); Tåg, Joacim (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Why do so many high-priced acquisitions of entrepreneurial firms take place in network industries? We develop a theory of commercialization (entry or sale) in network industries showing that high equilibrium acquisition prices are driven by the incumbents' desire to prevent rivals from acquiring innovative entrepreneurial firms. This preemptive motive becomes more important when there is an increase in network effects. A consequence is higher innovation incentives under an acquisition relative to entry. A policy enforcing strict compatibility leads to more entry, but can be counterproductive by reducing bidding competition, thereby also reducing acquisition prices and innovation incentives. |
| Keywords: | Acquisitions; Commercialization; Compatibility; Entry; Network effects; Innovation; R&D; Regulation |
| JEL: | L10 L15 L26 L50 L86 O31 |
| Date: | 2011–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0867&r=bec |
| By: | Barnes, Paula (Productivity Commission) |
| Abstract: | This Productivity Commission staff working paper (by Paula Barnes) examines sectoral investment in intangible assets in Australia following on from a previous paper on an examination of intangibles assets in the market sector as a whole. It highlights some significant issues relating to the measurement of intangibles and their contribution to productivity, finding that estimates of intangibles at the aggregate level mask considerable sectoral differences. <p>In recent years increased attention has been given to the contribution to economic growth of intangible assets such as knowledge, firm-specific skills and better ways of doing business. But most intangibles are treated as current expenses in official statistics, rather than as assets — despite the fact that they provide services in more than one period. This makes it difficult to examine their role in the economy. It leads to an understatement of investment in the economy and may also affect measures of productivity growth. <p>This paper addresses two questions: does the importance of intangibles as part of total investment vary across sectors?; and does the exclusion of many intangibles from investment measurement affect the measures of sectoral economic growth and productivity? <p>The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission. |
| Keywords: | intangible assets; sectoral investment; productivity; assets; human capital; R&D; research and development; brand equity |
| JEL: | E24 O30 O40 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:prodsw:2010_003&r=bec |
| By: | Niels Bosma (Utrecht University); Jolanda Hessels (EIM Business School and Policy Research, Zoetermeer, and Erasmus School of Economics, Rotterdam); Veronique Schutjens (Utrecht University); Mirjam van Praag (University of Amsterdam); Ingrid Verheul (Rotterdam School of Economics (EUR)) |
| Abstract: | In the media role models are increasingly being acknowledged as an influential factor in explaining the reasons for the choice of occupation and career. Various conceptual studies have proposed links between role models and entrepreneurial intentions. However, empirical research aimed at establishing the importance of role models for (nascent) entrepreneurs is scarce. Knowledge of the presence of entrepreneurial role models, their specific functions and characteristics is therefore limited. Our explorative empirical study is a first step towards filling this gap. Our study is based on the outcomes of a questionnaire completed by a representative sample of 292 entrepreneurs in three major Dutch cities - entrepreneurs who have recently started up a business in the retail, hotel and restaurant sectors, business services and other services. We provide indications of the presence and importance of entrepreneurial role models, the function of these role models, the similarity between the entrepreneur and the role model, and the strength of their relationship. |
| Keywords: | role models; entrepreneurs; human capital; new firm start-ups |
| JEL: | L26 M13 J24 |
| Date: | 2011–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20110061&r=bec |
| By: | Oliver D. Hart |
| Abstract: | We analyze noncontractible investments in a model with shading. A seller can make an investment that affects a buyer’s value. The parties have outside options that depend on asset ownership. When shading is not possible and there is no contract renegotiation, an optimum can be achieved by giving the seller the right to make a take‐it‐or‐leave‐it offer. However, with shading, such a contract creates deadweight losses. We show that an optimal contract will limit the seller’s offers, and possibly create ex post inefficiency. Asset ownership can improve matters even if revelation mechanisms are allowed. |
| JEL: | D23 D86 K12 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16929&r=bec |
| By: | Akihiko Kawaura (Department of Policy Studies, Doshisha University) |
| Abstract: | This paper investigates the bankruptcy of Aloha Airlines and its exit from Hawaii’s interisland passenger market in order to examine whether government intervention is warranted based on the presumed benefits to the general public. A regression analysis of interisland traffic volume does not identify any substantial decline in interisland passengers immediately following Aloha’s closure. A government’s decision to bailout a firm should incorporate information on market structure, as the presence of excess capacity can alleviate damage to consumers. |
| Keywords: | bankruptcy; exit; excess capacity; bailout; airline |
| JEL: | L13 L52 L93 |
| Date: | 2011–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201103&r=bec |
| By: | Vincent VANDENBERGHE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | European countries need to expand employment among older individuals. Many papers have examined this issue from different angles. However, very few seem to have considered its gender dimension properly, despite evidence that lifting the overall senior employment rate requires significantly raising that of women older than 50. The key issue examined by this paper is whether employers are willing to employ more older workers, in particular older women. The answer depends to a large extent on the ratio of older individuals’ productivity to their cost to employers. To address this question we tap into a unique firm-level panel of Belgian data to produce robust evidence on the causal effect of age/gender on productivity and labour costs. We take advantage of the panel structure to identify age/gender-related differences from within-firm variation. Moreover, inspired by recent developments in the production function estimation literature, we address the problem of endogeneity of the age/gender mix, using a structural production function estimator (Olley & Pakes, 1996; Levinsohn & Petrin, 2003) alongside IV-GMM methods where lagged value of labour inputs are used as instruments. Our results indicate a small negative impact of larger shares of older men on the productivity-labour cost ratio. An increment of 10%-points of in their share causes a 0.17 to 0.69%-point contraction. However, the main result is that the equivalent handicap with older women is larger, ranging from 1.3 to 2.0%-points. This is not good news for older women’s employability. And the vast services industry does not seem to offer working conditions that mitigate older women’s disadvantage, on the contrary. |
| Keywords: | Ageing, Labour Productivity, Panel Data Analysis |
| JEL: | J24 C33 D24 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2011010&r=bec |
| By: | Lindenthal, Heiner Thies Edmund (Maastricht University) |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:maastr:urn:nbn:nl:ui:27-25550&r=bec |