nep-bec New Economics Papers
on Business Economics
Issue of 2011‒07‒27
25 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Working in Family Firms: Less Paid but More Secure? Evidence from French Matched Employer-Employee Data By Bassanini, Andrea; Caroli, Eve; Rebérioux, Antoine; Breda, Thomas
  2. Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution By Ishita Chatterjee; Bibhas Saha
  3. Firm Growth in the Retail and Wholesale Trade Sectors – Evidence from Sweden By Daunfeldt, Sven-Olov; Lang, Åsa; Macuchova, Zuzana; Rudholm, Niklas
  4. The Return on Human Capital: the Case of UK Non-executive Directors that are also Executive Directors By Charlie Weir; Oleksandr Talavera; Alexander Muravyev
  5. Does Gibrat’s Law Hold for Retailing? Evidence from Sweden By Daunfeldt, Sven-Olov; Elert, Niklas; Lang, Åsa
  6. Firm migration in the Swedish wholesale trade sector By Håkansson, Johan; Macuchova, Zuzana; Rudholm, Niklas
  7. Hedging Effectiveness under Conditions of Asymmetry By John Cotter; Jim Hanly
  8. Using Forward Contracts to Reduce Regulatory Capture By Felix Höffler; Sebastian Kranz
  9. Bankruptcy Risk, Product Market Competition and Horizontal Mergers By Bernard Franck; Nicolas Le Pape
  10. Wage incentive profiles in dual labour markets By Grassi, Emanuele; Di Cintio, Marco
  11. A New Method for Measuring Tail Exponents of Firm Size Distributions By Fujimoto, S.; Ishikawa, A.; Mizuno, T.; Watanabe, T.
  12. Implicit Collusion in Non-Exclusive Contracting under Adverse Selection By Han, Seungjin
  13. Firm Heterogeneity and Complex Offshoring Strategies: Evidence from Korean Firm-Level Data By Janghee Cho; Hyunbae Chun; Jung Hur
  14. New Start-ups and Firm In-migration - Evidence from the Swedish Wholesale Trade Industry By Daunfeldt, Sven-Olov; Elert, Niklas; Rudholm, Niklas
  15. Asymmetric Phase Shifts in the U.S. Industrial Production Cycles By Yongsung Chang; Sunoong Hwang
  16. Fiscal News and Macroeconomic Volatility By Benjamin Born; Alexandra Peter; Johannes Pfeifer
  17. Conglomerate Industry Spanning By Gerard Hoberg; Gordon M. Phillips
  18. Entrepreneurial motives and performance: Why might better educated entrepreneurs be less successful? By Arnab Bhattacharjee; Jean Bonnet; Nicolas Le Pape; Régis Renault
  19. Procrastination in Teams, Contract Design and Discrimination By Philipp Weinschenk
  20. Corporate social responsibility and inventory policy By Lucía Barcos; Alicia Barroso; Jordi Surroca; Josep A. Tribó
  21. Cycles, Gaps, and the Social Value of Information By George-Marios Angeletos; Luigi Iovino; Jennifer La'O
  22. Evolutionary model of existing competition and voluntary disclosure By Manuel Núñez-Nickel; Susana Gago Rodríguez
  23. Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets By Patricia M. Danzon; Michael F. Furukawa
  24. Trends in packaging claims for new products: impacts on firm value By Nora Lado; Ester Martínez-Ros; Mercedes Martos-Partal
  25. Bank Overleverage and Macroeconomic Fragility By Ryo Kato; Takayuki Tsuruga

  1. By: Bassanini, Andrea (OECD); Caroli, Eve (University Paris Dauphine); Rebérioux, Antoine (University Paris Ouest-Nanterre); Breda, Thomas (Paris School of Economics)
    Abstract: We study compensation packages in family and non-family firms. Using matched employer-employee data for a representative sample of French establishments, we first show that family firms pay on average lower wages to their workers. We find that part of this wage gap is due to differences in unobserved characteristics of workers across family and non-family firms. However, we also find evidence that company wage policies differ according to ownership status, so that workers staying in the same firm enjoy on average a 3% pay increase when a family firm becomes non-family owned and suffer a similar pay drop when the ownership transition occurs the other way round. In contrast, we find evidence that family firms are characterised by lower job insecurity, as measured by dismissal rates and by the subjective risk of dismissal perceived by workers. In addition, family firms appear to rely less on dismissals – and more on hiring reductions – than non-family firms when they downsize. We show that compensating wage differentials account for a substantial part of the inverse relationship between the family/non-family gaps in wages and job security.
    Keywords: family firms, wages, job security, compensating wage differentials, linked employer-employee data
    JEL: G34 J31 J33 J63 L26
    Date: 2011–07
  2. By: Ishita Chatterjee (University of Western Australia); Bibhas Saha (School of Economics, University of East Anglia)
    Abstract: We develop a model of bilateral delegation in wage and employment bargaining to study efficiency and distributional implications in monopoly and in Cournot duopoly. In both markets delegation causes underproduction, but has contrasting implications for bargaining pie and for its distribution. In monopoly the bargaining pie contracts. In duopoly the bargaining pie expands, sometimes even up to the collusive level suggesting that delegation is conducive to implicit collusion. Surprisingly, a party’s payoff can be inversely related to its bargaining power. The well-known duopoly result of overproduction occurs only in unilateral delegations and when the delegating party is sufficiently strong.
    Keywords: Managerial incentives, ecient bargaining, bilateral delegation, implicit collusion
    JEL: L12 L14 D43
    Date: 2011–07–19
  3. By: Daunfeldt, Sven-Olov (The Swedish Retail Institute (HUI)); Lang, Åsa (Dalarna University); Macuchova, Zuzana (Dalarna University); Rudholm, Niklas (The Swedish Retail Institute (HUI))
    Abstract: To identify the determinants of firm growth within the Swedish retail – and wholesale trade industries during the period 1998- 2004, we analyze a sample of 400 limited companies using quantile regression techniques. Our results indicate that firm growth mainly can be explained by time-invariant firm-specific effects, supporting Penrose’s (1959) suggestion that internal resources such as firm culture, brand loyalty, entrepreneurial skills, and so on, are important determinants of firm growth rates.
    Keywords: firm dynamics; firm level heterogeneity; high-growth firms; resource-based view; quantile regression
    JEL: L11 L25 L26 L81
    Date: 2011–06–01
  4. By: Charlie Weir (Aberdeen Business School); Oleksandr Talavera (School of Economics, University of East Anglia); Alexander Muravyev (Institute for the Study of Labor (IZA))
    Abstract: This paper studies the relationship between directors' human capital and the company’s performance. In particular, we focus on the effect of non-executive directors who are also executive in other firms (independent executives, IE). The analysis is based on a unique dataset of publicly traded firms in the UK which we obtain by matching Extel Financial and Corporate Register data. Our results suggest a positive relationship between the presence of IE on corporate board and company performance. The effect is stronger IEs come from well performing firms. Additionally, the similarity of industries plays a role.
    Keywords: human capital, corporate board, non-executive directors
    JEL: G34 G39
    Date: 2011–07–19
  5. By: Daunfeldt, Sven-Olov (The Ratio Institute (RATIO)); Elert, Niklas (The Ratio Institute (RATIO)); Lang, Åsa (School of Technology and Business Studies)
    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 industry
    JEL: L11 L25 L81
    Date: 2011–01–01
  6. By: Håkansson, Johan (HUI Research); Macuchova, Zuzana (Dalarna University); Rudholm, Niklas (HUI Research)
    Abstract: This paper analyzes the determinants of firm migration in the Swedish wholesale trade sector using a unique dataset covering over 10,000 Swedish wholesale trade firms during the years 2000 – 2004. The results indicate that there are negative correlations between profits, firm age, and firm size and the probability of firm migration. Also, there is a positive correlation between firm growth in the previous year and firm migration, indicating that growth opportunities that can not be realized at the present location is an important motive for migration.
    Keywords: Firm re-location; firm entry; firm demography; hierarchical random effects; logistic regression model
    JEL: L22 L81 R11 R30
    Date: 2011–07–01
  7. By: John Cotter (University College Dublin); Jim Hanly (Dublin Institute of Technology)
    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.
    Keywords: Hedging Performance; Asymmetry; Lower Partial Moments, Value at Risk, Conditional Value at Risk.
    JEL: G10 G12 G15
    Date: 2011–07–21
  8. By: Felix Höffler (Max Planck Institute for Research on Collective Goods, Bonn); Sebastian Kranz (University of Bonn, Department of Economics)
    Abstract: A fully unbundled, regulated network fi?rm of unknown efficiency level can undertake unobservable effort to increase the likelihood of low downstream prices, e.g., by facilitating downstream competition. To incentivize such effort, the regulator can use an incentive scheme paying transfers to the ?firm contingent on realized downstream prices. Alternatively, the regulator can propose to the ?firm to sell the following forward contracts: the fi?rm pays the downstream price to the owners of a contract, but receives the expected value of the contracts when selling them to a competitive fi?nancial market. We compare the two regulatory tools with respect to regulatory capture: if the regulator can be bribed to suppress information on the underlying state of the world (the basic probability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.
    Keywords: Incentive regulation, regulatory capture, virtual power plants
    JEL: K23 L94 L43 L51
    Date: 2011–05
  9. By: Bernard Franck; Nicolas Le Pape
    Keywords: Debt, Bankruptcy, Horizontal Merger, Competition Policy, Oligopoly.
    JEL: G33 G34 L13 L41
    Date: 2010–12–19
  10. By: Grassi, Emanuele; Di Cintio, Marco
    Abstract: We propose a modified version of the Shapiro-Stiglitz’s (1984) efficiency wage model by introducing temporary contracts in the standard setup. New theoretical insights emerge on the incentive problem faced by workers and firms. We argue that the existence of temporary contracts broaden the incentive menu available to employers and that the optimal incentive structure can be sustained as an equi- librium outcome only if permanent contracts do not disappear. We also provide an alternative explanation of the wage penalty suffered by temporary workers even if standard models of efficiency wages would predict higher compensations for workers facing a higher job loss risk.
    Keywords: Dual labour market; efficiency wages; wage differentials
    JEL: J41 J31 J63
    Date: 2011–07
  11. By: Fujimoto, S.; Ishikawa, A.; Mizuno, T.; Watanabe, T.
    Abstract: We propose a new method for estimating the power-law exponent of a firm size variable, such as annual sales. Our focus is on how to empirically identify a range in which a firm size variable follows a power-law distribution. As is well known, a firm size variable follows a power-law distribution only beyond some threshold. On the other hand, in almost all empirical exercises, the right end part of a distribution deviates from a power-law due to finite size effect. We modify the method proposed by Malevergne et al. (2011) so that we can identify both of the lower and the upper thresholds and then estimate the power-law exponent using observations only in the range defined by the two thresholds. We apply this new method to various firm size variables, including annual sales, the number of workers, and tangible fixed assets for firms in more than thirty countries.
    Keywords: Econophysics, power-law distributions, power-law exponents, firm size variables, finite size effect
    JEL: C16 D20 E23
    Date: 2011–07
  12. By: Han, Seungjin
    Abstract: This paper studies how implicit collusion may take place in non-exclusive contracting under adverse selection when multiple agents (e.g., entrepreneurs with risky projects) non-exclusively trade with multiple firms (e.g., banks). It introduces the notion of the dual-additive price schedule, which makes agents non-exclusively trade with firms in the market without arbitrage opportunities. It then shows that any dual-additive price schedule can be supported as equilibrium terms of trade in the market if each firm's expected profit is no less than its reservation profit. Firms sustain collusive outcomes through triggering trading mechanisms in which they change their terms of trade contingent only on agents' reports on the lowest average price that the deviating firm's trading mechanism would induce.
    Keywords: collusion, non-exclusive contracting, competing mechanisms
    JEL: D43 D82 D86
    Date: 2011–05–26
  13. By: Janghee Cho (Department of Economics, Sogang University, Seoul); Hyunbae Chun (Department of Economics, Sogang University, Seoul); Jung Hur (Department of Economics, Sogang University, Seoul)
    Abstract: Using Korean firm-level data on offshoring activities, we investigate the role of firm heterogeneities in productivity, firm size, and capital and ICT (information and communication technology) intensities in explaining choices of the complex offshoring strategies ? foreign outsourcing through arm¡¯s length transaction and foreign insourcing through foreign direct investment. We find new evidence of complementarity in the two modes of offshoring activities. In particular, our empirical results reveal that firm characteristics such as capital and ICT intensities have distinctive roles in decision of the two foreign sourcing strategies. That is, if a firm requiring a variety of inputs has high labor and ICT intensive technologies at the same time, it may engage in the two types of foreign sourcing strategies that are complementary each other.
    Keywords: Firm Heterogeneity, Productivity, Offshoring, Outsourcing, Insourcing
    JEL: F14 F23 L22 L23
    Date: 2011–06
  14. By: Daunfeldt, Sven-Olov (HUI Research); Elert, Niklas (The Ratio Institute); Rudholm, Niklas (HUI Research)
    Abstract: The purpose of this paper is to distinguish between the determinants of new start-ups and in-migration of firms using a data-set that covers 13,471 limited liability firms in the Swedish wholesale trade industries during the period 2000-2004. Our results indicate that the presence of a university more than doubles the expected number of entrants and increases the expected number of in-migrating firms with 30%. A large share of educated workers and a high local unemployment rate is also associated with more start-ups and firm in-migration.
    Keywords: Firm growth; firm size; job creation; small firms
    JEL: L11 L25 L26
    Date: 2011–07–01
  15. By: Yongsung Chang (University of Rochester); Sunoong Hwang (Korea Institute for Industrial Economics & Trade)
    Abstract: We identify the cyclical turning points of 74 U.S. manufacturing industries and uncover new empirical regularities: (i) Cyclical phase shifts are highly concentrated around the aggregate turning points; (ii) In contrast to the conventional notion of a Ôsudden stop and slow recovery,Õ troughs are much more concentrated than peaks; (iii) Occurrences of phase shifts across industries support the spillovers through input-output linkages; (iv) The common macroeconomic shocks, such as exogenous changes in the federal funds rate, government spending, and oil prices, are significant drivers of industrial phase shifts; (v) Both monetary and fiscal policy shocks are more effective in recessions.
    Keywords: Business cycles; Comovement; Turning points; Asymmetries
    JEL: C14 C33 C35 E23 E32
    Date: 2011–07
  16. By: Benjamin Born; Alexandra Peter; Johannes Pfeifer
    Abstract: This paper analyzes the contribution of anticipated capital and labor tax shocks to business cycle volatility in an estimated New Keynesian DSGE model. While fiscal policy accounts for 12 to 20 percent of output variance at business cycle frequencies, the anticipated component hardly matters for explaining fluctuations of real variables. Anticipated capital tax shocks do explain a sizable part of inflation and interest rate fluctuations, accounting for between 5 and 15 percent of total variance. In line with earlier studies, news shocks in total account for 20 percent of output variance. Further decomposing this news effect, we find that it is mostly driven by stationary TFP and non-stationary investment-specific technology.
    Keywords: Anticipated Tax Shocks; Sources of Aggregate Fluctuations; Bayesian Estimation
    JEL: E32 E62 C11
    Date: 2011–07
  17. By: Gerard Hoberg; Gordon M. Phillips
    Abstract: We use text-based analysis of business descriptions from 10-Ks filed with the SEC to examine in which industries conglomerates are most likely to operate and to understand conglomerate valuations. We find that conglomerates are most likely to operate in industry pairs that are closer together in the product space and in industry pairs that have profitable opportunities "between" them. Examining cross-sectional conglomerate valuations, we find that conglomerates that are more difficult to reconstruct using text-analysis of firm pure plays and that span high value industries tend to trade at modest premia. The conglomerates that are most easy to replicate trade at small discounts relative to matched pure-play firms. These findings are consistent with conglomerate firms generating product synergies when producing in related profitable industries not spanned by single-segment firms.
    JEL: G34 L1 L22 L25
    Date: 2011–07
  18. By: Arnab Bhattacharjee; Jean Bonnet; Nicolas Le Pape; Régis Renault
    JEL: C15 D12 I11
  19. By: Philipp Weinschenk (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We study a dynamic model of team production with moral hazard. We show that the players begin to invest effort only shortly before the time limit when the reward for solving the task is shared equally. We explore how the team can design contracts to mitigate this form of procrastination and show that the second-best optimal contract is discriminatory. We investigate how limited liability or the threat of sabotage influences the team’s problem. It is further shown that players who earn higher wages can be worse off than teammates with lower wages and that present-biased preferences can mitigate procrastination.
    Keywords: Moral Hazard, team production, partnerships, procrastination, contract design, discrimination
    JEL: D82 M52 L22 J71
    Date: 2011–07
  20. By: Lucía Barcos; Alicia Barroso; Jordi Surroca; Josep A. Tribó
    Abstract: In this article, we study the impact of implementing corporate social responsible (CSR) practices on a firm’s inventory policy. Our proposal is that there is an inverted U-shape relationship between firms’ CSR and their inventory levels. Two elements explain such proposal. First, stakeholders have different interests regarding the outcome of the inventory system. Specifically, we hypothesize that customers pressure firms to increase inventories; employees have conflicting views regarding inventories and, for this reason, they do not pressure firms in a particular direction; and environmental activists force firms to reduce inventories. The second reason is that there is different level of stakeholder proactiveness contingent on the intensity in the implementation of social responsible policies. In particular, we posit that for low levels of CSR, customers are more relevant, while for larger levels other stakeholders gain more importance. We test this theoretical prediction by crossing two databases, COMPUSTAT, for financial data, and KLD for data on social responsibility. Our final database contains data on 1881 different US companies for the period 1996-2006. The results found conform to our theoretical prediction. Our analysis will be helpful to strategic and tactical decision-making processes on inventory management and will allow researchers to offer concrete advice on the likely outcomes of various stakeholder relationship practices in order to improve the effectiveness of inventory systems. Additionally, the connection between CSR and inventory policies has interest at a macroeconomic level given that, on the one hand, there is a growing tendency for firms to behave in a socially responsible way. On the other, inventories are responsible for up to 87% of the total peak-to-trough movement in GDP. Thus, our results suggest that this tendency to incorporate the social dimension in firms’ strategy should smooth out the overall economic cycle given that firms apply more intensive CSR policies in the expansive periods (decreasing inventories) rather than during the downturns (increasing inventories).
    Keywords: Corporate social responsibility, Stakeholders, Inventories
    Date: 2010–09
  21. By: George-Marios Angeletos; Luigi Iovino; Jennifer La'O
    Abstract: What are the welfare effects of the information contained in macroeconomic statistics, central-bank communications, or news in the media? We address this question in a business-cycle framework that nests the neoclassical core of modern DSGE models. Earlier lessons that were based on “beauty contests” (Morris and Shin, 2002) are found to be inapplicable. Instead, the social value of information is shown to hinge on essentially the same conditions as the optimality of output stabilization policies. More precise information is unambiguously welfare-improving as long as the business cycle is driven primarily by technology and preference shocks—but can be detrimental when shocks to markups and wedges cause sufficient volatility in “output gaps.” A numerical exploration suggests that the first scenario is more plausible.
    JEL: C7 D6 D8
    Date: 2011–07
  22. By: Manuel Núñez-Nickel; Susana Gago Rodríguez
    Abstract: We analyze how, in the absence of capital market incentives, the influence of existing competition on voluntary disclosure is an evolving process which has a non-monotonic design. The progressive capability of rivals to forecast significant information and the increasing losses of abnormal profits during the industry life cycle generate fears and incentives that change the sign of the relationship between competition and the probability of voluntary disclosure throughout the industry’s development. We support this new design empirically by applying a semi-parametric Cox model to 28 years of archival data for the entire Spanish newspaper sector. We also find that the best fitting model is the first harmonic of a Fourier series
    Keywords: Competition, Voluntary disclosure, Fourier series, Cox model
    Date: 2010–10
  23. By: Patricia M. Danzon; Michael F. Furukawa
    Abstract: This paper examines the role of regulation and competition in generic markets. Generics offer large potential savings to payers and consumers of pharmaceuticals. Whether the potential savings are realized depends on the extent of generic entry and uptake and the level of generic prices. In the U.S., the regulatory, legal and incentive structures encourage prompt entry, aggressive price competition and patient switching to generics. Key features are that pharmacists are authorized and incentivized to switch patients to cheap generics. By contrast, in many other high and middle income countries, generics traditionally competed on brand rather than price because physicians rather than pharmacies are the decision-makers. Physician-driven generic markets tend to have higher generic prices and may have lower generic uptake, depending on regulations and incentives. Using IMS data to analyze generic markets in the U.S., Canada, France, Germany, U.K., Italy, Spain, Japan, Australia, Mexico, Chile, Brazil over the period 1998-2009, we estimate a three-equation model for number of generic entrants, generic prices and generic volume shares. We find little effect of originator defense strategies, significant differences between unbranded and unbranded generics, variation across countries in volume response to prices. Policy changes adopted to stimulate generic uptake and reduce generic prices have been successful in some E.U. countries.
    JEL: I11 I18 K2 L5 L65
    Date: 2011–07
  24. By: Nora Lado; Ester Martínez-Ros; Mercedes Martos-Partal
    Abstract: An important reason why individuals join groups or communities is to satisfy their needs for identity. Firms might exploit this societal tendency to gain a competitive advantage. Using the strategic approach adopted by Kiehl’s, a U.S. cosmetic producer and retailer, as a source of inspiration and illustration, this paper develops a novel theoretical framework to investigate how firms interact with communities to access privileged customers’ information, from which they can build a product differentiation advantage. We argue that by adhering and supporting a well-defined set of values, Kiehl’s both achieves community membership and strengthens the sense of identity that its target communities provide to their members. These investments prompt reciprocal community member behaviors, which the company channels into its customer knowledge development process. Finally, this article describes how firm–community interactions can protect the differentiation advantage by turning products into symbols of the communities to which its customers belong.
    Date: 2010–09
  25. By: Ryo Kato (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Takayuki Tsuruga (Associate Professor, Graduate School of Economics, Kyoto University, (E-mail:
    Abstract: This paper develops a dynamic general equilibrium model that explicitly includes a banking sector with a maturity mismatch. We demonstrate that, despite the perfect competition in the banking sector, rational banks take on excessive risks systemically, resulting in overleverage and inefficiently high crisis probabilities. The model accounts for the banks' rational over-optimism regarding future capital prices which arises from pecuniary externalities on their own solvency. Using the model as an example, we introduce MSR (marginal systemic risk) as a general measure to assess the macroeconomic exposure to systemic risks.
    Keywords: Financial crisis, Liquidity shortage, Maturity mismatch, Pecuniary externalities
    JEL: E3 G21
    Date: 2011–07

This nep-bec issue is ©2011 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.