nep-bec New Economics Papers
on Business Economics
Issue of 2011‒06‒11
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Import Competition from and Outsourcing to China: A Curse or Blessing for Firms? By Giordano Mion; Linke Zhu
  2. Compensation and Incentives in german Corporations By Moritz Heimes; Steffen Seemann
  3. Skill-Biased Technological Change and the Business Cycle By Balleer, Almut; van Rens, Thijs
  4. Temporary Agency Work and Firm Competitiveness - Evidence from a panel data set of German manufacturing enterprises By Sebastian Nielen; Alexander Schiersch
  5. The Cyclicality of Productivity Dispersion By Matthias Kehrig
  6. Career Concerns and Firm – Sponsored General Training By Christos Bilanakos
  7. Alleviating Coordination Problems and Regulatory Constraints through Financial Risk Management By Marcel Boyer; M. Martin Boyer; René Garcia
  8. Economic performance and international trade engagement: the case of Portuguese manufacturing firms By Armando Silva; Oscar Afonso; Ana Paula Africano
  9. Investment risk taking by institutional investors By Janko Gorter; Jacob A. Bikker
  10. FDI in Emerging Economies: An analysis in a firm heterogeneity model By ITO Koji
  11. The State of Collective Bargaining and Worker Representation in Germany: The Erosion Continues By John T. Addison; Alex Bryson; Paulino Teixeira; André Pahnke; Lutz Bellmann
  12. Executive Board: The Russian Experience By Iwasaki, Ichiro
  13. Optimal Contracts and Investment in General Human Capital under Common Agency By Christos Bilanakos
  14. Optimal Degree of Foreign Ownership under Uncertainty By Bircan, Çağatay
  15. What Explains the German Labor Market Miracle in the Great Recession? By Michael C. Burda; Jennifer Hunt
  16. The Macroeconomic Implications of Household Debt: An Empirical Analysis By Yun Kim
  17. Small, Medium-sized and Large Businesses in the Canadian Economy: Measuring Their Contribution to Gross Domestic Product in 2005 By Gibson, Bob; Leung, Danny; Rispoli, Luke
  18. Do financial investors destabilize the oil price? By Marco J. Lombardi; Ine Van Robays
  19. Comparing and selecting performance measures using rank correlations By Caporin, Massimiliano; Lisi, Francesco
  20. Intangible capital and Productivity Growth in European Countries By Cecilia Iona Lasinio; Massimiliano Iommi; Stefano Manzocchi
  21. The great moderation under the microscope: decomposition of macroeconomic cycles in US and UK aggregate demand By Crowley , Patrick M; Hughes Hallett, Andrew
  22. Does Competition Raise Productivity Through Improving Management Quality? By John Van Reenen

  1. By: Giordano Mion; Linke Zhu
    Abstract: We use Belgian manufacturing firm-level data over the period 1996- 2007 to analyze the impact of imports from different origins on firm growth, exit, and skill upgrading. For this purpose we use both industry-level and firm-level imports by country of origin and distinguish between firm-level outsourcing of final versus intermediate goods. Results indicate that China is different from both other low-wage and OECD countries. Industry-level import competition and firm-level outsourcing to China reduce firm employment growth and induce skill upgrading. In contrast, industry-level imports have no effect on Belgian firm survival, while firm-level outsourcing of finished goods to China even increased firm's probability of survival. In terms of skill upgrading, the effect of Chinese imports is large. Import competition from China accounts for 42% (20%) of the within firm increase in the share of skilled workers (non-production workers) in Belgian manufacturing over the peri od of our analysis, but these effects, as well as the employment reducing effect, remain mainly in low-tech industries. Firm-level outsourcing to China further accounts for a small but significant increase in the share of non-production workers. This change in employment structure is in line with predictions of recent model of trade-induced technological change and offshoring.
    Keywords: import competition, outsourcing, China, skill upgrading, technological change
    JEL: F14 F16 L25
    Date: 2010–12
  2. By: Moritz Heimes (Department of Economics, University of Konstanz, Germany); Steffen Seemann (Department of Economics, University of Konstanz, Germany)
    Abstract: In this paper we analyze executive compensation in Germany for the period 2005-2009. We use a self-collected dataset on compensation arrangements in German corporations to estimate the impact of firm performance and firm risk on executive pay. To be in line with earlier studies in this literature, we first measure firm performance and firm risk based on stock market returns. Our findings support the prediction from agency theory that incentive pay decreases with firm risk. We find, however, that stock market returns have no explanatory power in the presence of accounting based performance measures. Based on accounting data we also find a positive impact of firm performance on executive pay and a negative relationship between firm risk and incentive pay for our sample period. We conclude that shareholders use accounting measures rather than stock market data to evaluate and pay for manager performance. We also find that with accounting data we can explain short-term bonus payments but not long-term oriented compensation in German corporations.
    Keywords: Pay for Performance, Executive Compensation, Incentives
    JEL: G30 J33 M12
    Date: 2010–05–31
  3. By: Balleer, Almut; van Rens, Thijs
    Abstract: Over the past two decades, technological progress in the United States has been biased towards skilled labor. What does this imply for business cycles? We construct a quarterly skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long-run restrictions. Hours fall in response to skill-biased technology shocks, indicating that at least part of the technology-induced fall in total hours is due to a compositional shift in labor demand. Skill-biased technology shocks have no effect on the relative price of investment, suggesting that capital and skill are not complementary in aggregate production.
    Keywords: business cycle; capital-skill complementarity; long-run restrictions; skill premium; skill-biased technology; VAR
    JEL: E24 E32 J24 J31
    Date: 2011–06
  4. By: Sebastian Nielen (Schumpeter School of Business and Economics at the University of Wuppertal); Alexander Schiersch (German Institute for Economic Research, Berlin)
    Abstract: This paper addresses the relationship between the utilization of temporary agency workers by firms and their competitiveness measured by unit labor costs, using a rich, newly built, data set of German manufacturing enterprises. The analysis is conducted by applying different panel data models while taking the inherent selection problem into account. Making use of dynamic panel data models allows us to control for firm specific fixed effects as well as for potential endogeneity of explanatory variables. The results indicate a U-shaped relationship between the extent that temporary agency workers are used and the competitiveness of firms.
    Keywords: temporary agency work, competitiveness, firm performance, manufacturing
    JEL: D24 J24 L60
    Date: 2011–06
  5. By: Matthias Kehrig
    Abstract: Using plant-level data, I show that the dispersion of total factor productivity in U.S. durable manufacturing is greater in recessions than in booms. This cyclical property of productivity dispersion is much less pronounced in non-durable manufacturing. In durables, this phenomenon primarily reflects a relatively higher share of unproductive firms in a recession. In order to interpret these findings, I construct a business cycle model where production in durables requires a fixed input. In a boom, when the market price of this fixed input is high, only more productive firms enter and only more productive incumbents survive, which results in a more compressed productivity distribution. The resulting higher average productivity in durables endogenously translates into a lower average relative price of durables. Additionally, my model is consistent with the following business cycle facts: procyclical entry, procyclical aggregate total factor productivity, more procyclicality in durable than non-durable output, procyclical employment and countercyclicality in the relative price of durables and the cross section of stock returns.
    Keywords: Productivity, Plant-level Risk, Entry and Exit, Business Cycles, Manufacturing, Plant-Level Data
    JEL: D24 E32 L11 L25 L60
    Date: 2011–05
  6. By: Christos Bilanakos
    Abstract: This paper studies the provision of firm-sponsored general training in the presence of workers’ career concerns. We use a model building on the argument that the acquisition of general skills increases the worker’s bargaining power vis-a-vis the employer. In this context, we show that the worker’s implicit incentives to provide effort increase with the level of acquired general training. The employer takes this reciprocal effect into account and is thus more willing to invest in general human capital in the first place. When the positive effect of training on worker’s incentives is strong enough, the equilibrium outcome may even involve overinvestment in general training. It is also shown that a sharper increase in worker’s power associated with additional training may strengthen the employer’s investment incentives and have beneficial effects on welfare.
    Keywords: General Training, Career Concerns, Power.
    Date: 2011–05
  7. By: Marcel Boyer; M. Martin Boyer; René Garcia
    Abstract: We characterize a firm as a nexus of activities and projects with their associated cash flow distributions across states of the world and time periods. We propose a characterization of the firm where variations in the market price of risk induce adjustments in the value-maximizing combination of projects. Changing the portfolio of projects generates coordination costs. We propose a new role for financial risk management based on the idea that the use of financial derivatives may reduce coordination costs. We find empirical support for this new rationale for the use of financial derivatives, after controlling for the traditional variables explaining the need for financial risk management. <P>Nous caractérisons une entreprise comme un ensemble d'activités et de projets avec leurs flux financiers par état et période. Nous proposons une caractérisation de l'entreprise où les variations dans le prix de marché du risque induisent des ajustements dans la combinaison optimale d’activités ou de projets. Les modifications du portefeuille de projets génèrent des coûts de coordination. Nous proposons un nouveau rôle pour la gestion financière des risques en proposant que l'utilisation de titres financiers puisse réduire les coûts de coordination. Ce nouveau rôle de la gestion financière des risques est vérifié empiriquement, une fois pris en compte les facteurs explicatifs traditionnels de la gestion financière des risques.
    Keywords: Risk Management, firm value, coordination problems, hedging, value at risk., Gestion des risques, valeur d’entreprise, problèmes de coordination, hedging, valeur à risque.
    Date: 2011–05–01
  8. By: Armando Silva (Instituto Politécnico do Porto - ESEIG); Oscar Afonso (Faculdade de Economia, Universidade do Porto, CEFUP and OBEGEF); Ana Paula Africano (Faculdade de Economia, Universidade do Porto and CEFUP)
    Abstract: By combining economic and financial data for Portuguese manufacturing firms with data on their exports and imports, we uncover some aspects of the relationship between international trade engagement and firms’ performance. In line with recent theoretical and empirical developments in the international trade literature: (i) we testify that Portuguese international trade is highly concentrated, especially on the import side, and both in inter- and intra-sector terms; (ii) we corroborate previous studies and theses according to which two-way traders outperform only importers, only exporters and above all domestic firms; (iii) we find that the greater the diversification of markets and goods (especially with regard to imports), the better the performance achieved by internationalised firms; (iv) we notice that the higher the intensity of international trade of firms (especially imports), the better the performance of firms; (v) we also present evidence that destination markets, for exports, and, origin markets, for imports, are also important in explaining firm performance.
    Keywords: International trade, Firm performance, Diversification
    JEL: C23 F14 F23
    Date: 2011–05
  9. By: Janko Gorter; Jacob A. Bikker
    Abstract: This paper is the first that formally compares investment risk taking by pension funds and insurance firms. Using a unique and extended dataset that covers the volatile investment period 1995-2009, we find that, in the Netherlands, insurers take substantially less investment risk than pension funds, even though a market risk capital charge for insurers is yet absent. This result can be explained from financial distress costs, which only insurers face. We also find that institutional investors’ risk taking is determined by their risk bearing capacity, where this risk bearing capacity depends on capital, size, reinsurance, underwriting risk and human and financial wealth per pension plan participant. Finally, and in line with the ownership structure hypothesis, stock insurers are found to take significantly more investment risk than mutual insurers.
    Keywords: Portfolio Choice; Insurance Companies; Pension Funds; Ownership Structure
    JEL: G11 G22 G23 G32
    Date: 2011–04
  10. By: ITO Koji
    Abstract: In recent years, Japanese manufacturers in both competitive and less competitive sectors have penetrated emerging economies, and sales in 2008 by Japanese affiliates established via foreign domestic investment (FDI) exceeded Japan's revenues from exports. To consider this phenomenon and the significance of FDI for emerging economies, this study constructs a two-country model featuring two factors of production, two industries (with different factor intensities), and firm heterogeneity. Thereafter, the study numerically analyzes trends in FDI by industry and examines how the economies of both countries are affected.<br />Results of the analysis show that highly productive firms favor FDI. That is true whether their industries make intensive use of a scarce factor of production or use a more abundant factor intensively.<br />Compared to the situation in which only export is possible, FDI increases competition among firms in both industries. Real wages and welfare increase as a result. On the other hand, low-productivity firms are forced to exit, and the number of firms decreases. This analysis also shows that FDI could work to help prevent a decline in real revenues of industries that make intensive use of a scarce factor of production.
    Date: 2011–05
  11. By: John T. Addison (Moore School of Business, University of South Carolina, GEMF, and IZA); Alex Bryson (National Institute of Economic and Social Research and CEP); Paulino Teixeira (Faculdade de Economia/GEMF, University of Coimbra, and IZA); André Pahnke (Institut für Arbeitsmarkt- und Berufsforschung, Bundesagentur für Arbeit); Lutz Bellmann (Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Arbeitsmarkt- und Berufsforschung, Bundesagentur für Arbeit, and IZA)
    Abstract: This paper investigates trends in collective bargaining and worker representation in the German private sector from 2000 to 2008. It seeks to update and widen earlier analyses pointing to a decline in collective bargaining, while providing more information on the dual system as a whole. Using data from the IAB Employment Panel and the German Employment Register, we report evidence of a systematic and continuing erosion of the dual system. Not unnaturally the decline is led by developments in western Germany. One conjecture is that the path of erosion will continue until rough and ready convergence is reached with eastern Germany in a sharp reversal of other post-unification trends.
    Keywords: Trends in collective bargaining and worker representation; Transitions, establishment data.
    JEL: J51 J53
    Date: 2011–05
  12. By: Iwasaki, Ichiro
    Abstract: In this paper, using a unique dataset of joint-stock companies, we empirically examine the determinants of the choice and size of the collective executive board, a core element of the multi-tier board system of Russian firms. Our empirical evidence strongly suggests that the need of company executives for a collective management system is a key driver for the formation of a collective executive board, while outside investors are generally indifferent toward its adoption as a means to strengthening the monitoring and control functions over top management. We also found that Russian firms in the pursuit of the internationalization of their business activities tend to avoid the establishment of a collective executive board, which is a diverse corporate organ from the viewpoint of the international standard of corporate governance systems.
    Keywords: executive board, multi-tier board system, corporate governance, strategic management, Russia
    JEL: G34 K22 L22 P31 P34
    Date: 2011–05
  13. By: Christos Bilanakos
    Abstract: This paper studies contracts and incentives to invest in general human capital under common agency. Both the worker and the employer have too weak investment incentives in equilibrium. The employer’s underinvestment results from his failure to internalize the positive impact of his investment on other firms’ productivity as well as from the fact that he gives a share of output to the worker in order to induce a higher effort contribution. The worker anticipates that she will not be the full residual claimant of benefits and underinvests in equilibrium, too. A benevolent government will choose a set of subsidies such that the worker’s investment relative to the employer is equal to the first-best relative investment intensity. If the number of employers is small, then the worker’s investment level is relatively low and the government must give a relatively higher subsidy to the worker in order to stimulate her investment incentives.
    Keywords: General Human Capital, Common Agency, Contracts.
    Date: 2011–05
  14. By: Bircan, Çağatay (University of Michigan)
    Abstract: This paper studies the integration strategies of multinational firms in a multiperiod model under incomplete contracts and uncertainty. I incorporate continuous levels of integration to the study of organizational choice in an existing model of foreign direct investment (Antras and Helpman, 2004) and extend the model to a multi-period framework of learning. The joint productivity of the two partners in an integrated firm is unknown initially to both sides and is revealed only after continued joint production. The model gives rise to a nondegenerate distribution of foreign ownership at the firm level and shows that the optimal level of integration rises with the age of the firm. These patterns are supported by detailed plant-level data on share of foreign ownership. The model predicts that the degree of foreign ownership is an increasing function of joint productivity and intra-firm trade should rise over time as a result of increased control by multinationals. I test the implications of my theory with plant-level data from Turkey and find support for the predictions of the model.
    Keywords: partial ownership, vertical integration, multinationals, uncertainty
    JEL: D23 F23 L23
    Date: 2011–06
  15. By: Michael C. Burda; Jennifer Hunt
    Abstract: Germany experienced an even deeper fall in GDP in the Great Recession than the United States with little employment loss. Employers’ reticence to hire in the preceding expansion - associated in part with a lack of confidence it would last - contributed to an employment shortfall equivalent to 40 percent of the missing employment decline in the recession. Another 20 percent may be explained by wage moderation. A third important element was the widespread adoption of working time accounts, which permit employers to avoid overtime pay if hours per worker average to standard hours over a window. We find that this provided disincentives for employers to lay off workers in the downturn. While the overall cuts in hours per worker were consistent with the severity of the Great Recession, reduction of working time account balances substituted for traditional government-sponsored short time work.
    Keywords: unemployment, Germany, Great Recession, short time work, working time accounts, Hartz reforms, extensive vs. intensive employment margin
    JEL: E24 E65 J23 J33
    Date: 2011–06
  16. By: Yun Kim (Department of Economics, Trinity College)
    Abstract: Multi-equation econometric frameworks are used to investigate the impact of household debt on aggregate performance in US. In the vector autoregression analysis capturing the transitory feedback effects, we observe a bidirectional positive feedback process between aggregate income and debt. According to the estimation of vector error correction models, there are negative long-run relationships between household debt and output. The empirical model has also been extended to include investment and corporate debt. The results are in contrast with the results of empirical model without corporate sector variables. The negative long-run relationship between household debt and GDP ceases to exist as shown by the positive cointegrating coefficients in the cointegrating equations. Impulse response functions from these extended empirical models also indicate that investment may be an important channel through which household debt affects output.
    Keywords: Household Debt, Financial Instability Hypothesis, Cointegration, VAR, VECM
    JEL: C32 E21 E32
    Date: 2011–05
  17. By: Gibson, Bob; Leung, Danny; Rispoli, Luke
    Abstract: The paper estimates the contributions to gross domestic product (GDP) made by small, medium-sized and large businesses in the Canadian business sector for 2005. The contribution of large businesses with 500 or more employees to business-sector GDP was 45.7%. Small and medium-sized businesses, including unincorporated businesses, accounted for the other 54.3%.
    Keywords: Economic accounts, Business performance and ownership, Gross domestic product, Small and medium-sized businesses
    Date: 2011–05–30
  18. By: Marco J. Lombardi (European Central Bank, Directorate General Economics, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ine Van Robays (Department of Financial Economics, Ghent University, Woodrow Wilsonplein 5D, B-9000 Gent, Belgium.)
    Abstract: In this paper, we assess whether and to what extent financial activity in the oil futures markets has contributed to destabilize oil prices in recent years. We define a destabilizing financial shock as a shift in oil prices that is not related to current and expected fundamentals, and thereby distorts efficient pricing in the oil market. Using a structural VAR model identified with sign restrictions, we disentangle this non-fundamental financial shock from fundamental shocks to oil supply and demand to determine their relative importance. We find that financial investors in the futures market can destabilize oil spot prices, although only in the short run. Moreover, financial activity appears to have exacerbated the volatility in the oil market over the past decade, particularly in 2007-2008. However, shocks to oil demand and supply remain the main drivers of oil price swings. JEL Classification: C32, Q41, Q31.
    Keywords: Oil price, Speculation, Structural VAR, Sign restrictions.
    Date: 2011–06
  19. By: Caporin, Massimiliano; Lisi, Francesco
    Abstract: The financial economics literature proposes dozens of performance measures to be used, for instance, to compare, analyze, rank and select assets. There is thus a problem: which measures should be considered? The authors extend the current literature by comparing a large set of performance measures over more than one thousand of equities included in the Standard & Poor's 1500 index. They evaluate performance measures by mean of rank correlations, exploiting the possible dynamic evolution of the rank correlations, and proposing a method for the identification of the subset of measures which are not equivalent. Their empirical study highlights that recent and more flexible measures provide different asset ranks compared to classical approaches, and that the set of equivalent performance measures is not stable over time. --
    Keywords: performance measurement,rank correlations,comparing performance measures
    JEL: C10 G11 C40
    Date: 2011
  20. By: Cecilia Iona Lasinio (Istat and Luiss Lab); Massimiliano Iommi (ISTAT); Stefano Manzocchi (Università Luiss "Guido Carli")
    Abstract: This paper provides evidence about the diffusion of intangible investment across the EU27 member countries and investigates the role of intangible capital as a source of growth to improve our understanding of the international differences in the mix of drivers of productivity growth across Europe. Our study shows that the capitalization of intangible assets, allow identifying additional sources of long-run growth. We show that intangibles have been a relevant source of growth across European countries and that they cannot be omitted from national accounts. In particular, the ?unexplained? component of macro-economic dynamics, the Total Factor Productivity, becomes less important, while physical capital turns out to be strongly complementary with intangible capital.
    Keywords: Intangible capital, Productivity Growth, European countries
    JEL: O3 O4 O5
    Date: 2011
  21. By: Crowley , Patrick M (College of Business, Texas A&M University); Hughes Hallett, Andrew (George Mason University – School of Public Policy)
    Abstract: In this paper the relationship between the growth of real GDP components is explored in the frequency domain using both static and dynamic wavelet analysis. This analysis is carried out separately for the US and UK using quarterly data, and the results are found to be substantially different for the two countries. One of the key findings of this research is that the ‘great moderation’ shows up only at certain frequencies, and not in all components of real GDP. We use these results to explain why the incidence of the great moderation has been so patchy across GDP components, countries and time periods. This also explains why it has been so hard to detect periods of moderation (or other periods) reliably in the aggregate data. We argue this cannot be done without separating the GDP components into their frequency components over time. Our results show why: the predictions of traditional real business cycle theory often appear not to be upheld in the data.
    Keywords: business cycles; growth cycles; discrete wavelet analysis; US real GDP; UK real GDP
    JEL: C49 E20 E32
    Date: 2011–05–23
  22. By: John Van Reenen
    Abstract: A classic question in industrial organization is whether competition raises productivity and if so, through what mechanism? I discuss recent empirical evidence from both large-scale databases and specific industries which suggests that tougher competition does indeed raise productivity and one of the main mechanisms is through improving management practices. To establish this, I report on new research seeking to quantify management. I relate this to theoretical perspectives on the economics of competition and management, arguing that management should be seen at least in part as a transferable technology. A range of recent econometric studies suggest that (i) competition increases management quality and (ii) improved management quality boosts productivity.
    Keywords: management, productivity, organization
    JEL: L2 M2 O32 O33
    Date: 2010–12

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