nep-bec New Economics Papers
on Business Economics
Issue of 2011‒11‒21
fifteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Rent-Sharing, Hold-up, and Wages: Evidence from Matched Panel Data By Card, David; Devicienti, Francesco; Maida, Agata
  2. Why Has the Fraction of Contingent Workers Increased? A Case Study of Japan By Hirokatsu Asano; Takahiro Ito; Daiji Kawaguchi
  3. The Impact of Working Capital Management upon Companies’ Profitability: Evidence from European Companies By Joana Filipa Lourenço Garcia; Francisco Vitorino da Silva Martins; Elísio Fernando Moreira Brandão
  4. What Do Boards Really Do? Evidence from Minutes of Board Meetings By Schwartz-Ziv, Miriam; Weisbach, Michael S.
  5. Job and Worker Turnover in German Establishments By Bellmann, Lutz; Gerner, Hans-Dieter; Upward, Richard
  6. Firm-Sponsored Classroom Training: is it Worth it for Older Workers ? By Benoit Dostie; Pierre Thomas Léger
  7. The Role of Financial Speculation in Driving the Price of Crude Oil By Ron Alquist; Olivier Gervais
  8. Product Differentiation, the Volume of Trade and Profits under Cournot and Bertrand Duopoly By Collie, David R.; Le, Vo Phuong Mai
  9. Does High Involvement Management Improve Worker Wellbeing? By Alex Bryson; Petri Böckerman; Pekka Ilmakunnas
  10. Empirical Analysis of Countervailing Power in Business-to-Business Bargaining By Walter Beckert
  11. Channels of Firm Adjustment: Theory and Empirical Evidence By Holger Breinlich; Stefan Niemann
  12. Internal Organization of Firms and Cartel Formation. By Jerome Kuipers; Norma Olaizola
  13. Managerial accountability for payroll expense and firm-size wage effects By Robertas Zubrickas
  14. Innovative entrepreneurship as a way to meet professional dissatisfactions By Jean Bonnet, University of Caen Basse-Normandie - CREM-CNRS, France; Thomas Brau, University of Caen Basse-Normandie - CREM-CNRS, France; Antonia Guijarro Madrid, Associate professor Accounting and Finance Department, Technical University of Cartagena (UPCT). Spain
  15. Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Style By Antoinette Schoar; Luo Zuo

  1. By: Card, David (University of California, Berkeley); Devicienti, Francesco (University of Turin); Maida, Agata (University of Milan)
    Abstract: It is widely believed that rent-sharing reduces the incentives for investment when long term contracts are infeasible because some of the returns to sunk capital are captured by workers. We propose a simple test for the degree of hold-up based on the fraction of capital costs that are deducted from the quasi-rent that determines negotiated wages. We implement the test using a data set that combines Social Security earnings records for workers in the Veneto region of Italy with detailed financial information for employers. We find strong evidence of rent-sharing, with an elasticity of wages with respect to current profitability of the firm of 3-7%, arising mainly from firms in concentrated industries. On the other hand we find little evidence that bargaining lowers the return on investment. Instead, firm-level bargaining appears to split the rents after deducting the full cost of capital.
    Keywords: rent-sharing, hold-up, employer-employee data
    JEL: J31
    Date: 2011–10
  2. By: Hirokatsu Asano (Faculty of Economics, Asia University); Takahiro Ito (Graduate School for International Development and Cooperation, Hiroshima University); Daiji Kawaguchi (Faculty of Economics, Hitotsubashi University)
    Abstract: This paper explains the secular increase of contingent workers in Japan whose share of employment increased from 17 to 34 percent between 1986 and 2008. Changes in labor-forceand industrial compositions explain about one quarter of the increase of contingent workers. The uncertainty of product demand and the introduction of information and communication technologies increased firms' usage of contingent workers. The increase of contingent workers was concentrated among new entrants to the labor market, male workers of younger cohorts, and female workers of all cohorts, suggesting that the declining importance of the long-term employment relationship is a major cause for the increase of contingent workers.
    Keywords: Contingent Workers, Female Labor Supply, Uncertainty, ICT, Japan
    JEL: J23
    Date: 2011–09
  3. By: Joana Filipa Lourenço Garcia (Faculdade de Economia, Universidade do Porto); Francisco Vitorino da Silva Martins (Faculdade de Economia, Universidade do Porto); Elísio Fernando Moreira Brandão (Faculdade de Economia, Universidade do Porto)
    Abstract: Companies can use working capital management as an approach to influence their profitability. This paper studies the impact of working capital management and its components upon the profitability of European companies. Cash Conversion Cycle is used as a comprehensive measure for working capital management and Gross Operating Profitability used as a measure for profitability. This study is based on a sample of 2,974 non - financial companies listed in 11 European Stock Exchanges for a period of 12 years: 1998 - 2009. The results of GLS and OLS regression analysis found a significant negative relationship between Receivables Collection Period, Inventory Conversion Period, Payables Deferral Period, Cash Conversion Cycle and profitability. This suggests that companies can improve their profitability by reducing the time span during which working capital is tied up within the company. An inverse relationship between liquidity measured by Current Ratio and profitability was also found and an additional analysis revealed that different levels of liquidity lead to differentiated impacts of the Cash Conversion Cycle upon operating profitability.
    Keywords: Working Capital Management, Corporate Profitability, Cash Conversion Cycle, European Countries
    Date: 2011–11
  4. By: Schwartz-Ziv, Miriam (Hebrew University of Jerusalem and Harvard University); Weisbach, Michael S. (OH State University)
    Abstract: We analyze a unique database from a sample of real-world boardrooms-- minutes of board meetings and We analyze a unique database from a sample of real-world boardrooms--minutes of board meetings and substantial equity interest. We use these data to evaluate the underlying assumptions and predictions of models of boards of directors. These models generally fall into two categories: "managerial models" that assume boards play a direct role in managing the firm, and "supervisory models" that assume that boards monitor top management but do not make business decisions themselves. Consistent with the supervisory models, our minutes-based data suggest that boards spend most of their time monitoring management: 67% of the issues they discussed were of a supervisory nature, they were presented with only a single option in 99% of the issues discussed, and they disagreed with the CEO only 3.3% of the time. In addition, managerial models describe boards at times as well: Boards requested to receive further information or an update for 8% of the issues discussed, and they took an initiative with respect to 8.1% of them. In 63% of the meetings, boards took at least one of these actions or did not vote in line with the CEO. Taken together our results suggest that boards can be characterized as active monitors.
    Date: 2011–11
  5. By: Bellmann, Lutz (Institute for Employment Research (IAB), Nuremberg); Gerner, Hans-Dieter (Institute for Employment Research (IAB), Nuremberg); Upward, Richard (University of Nottingham)
    Abstract: We use a simple regression-based approach to measure the relationship between employment growth, hirings and separations in a large panel of German establishments over the period 1993-2009. Although the average level of hiring and separation is much lower in Germany than in the US, as expected, we find that the relationship between employment growth and worker flows in German establishments is very similar to the behaviour of US establishments described in Davis, Faberman & Haltiwanger (2006, 2011), and quite different to the behaviour of French establishments described in Abowd, Corbel & Kramarz (1999). The relationship is very stable over time, even during the most recent economic crisis, and across different types of establishment.
    Keywords: job turnover, worker turnover, hirings and separations
    JEL: J2 J23 J63
    Date: 2011–10
  6. By: Benoit Dostie; Pierre Thomas Léger
    Abstract: We use longitudinal linked employer-employee data and find that the probability of participating in firm-sponsored classroom training diminishes rapidly for workers aged 45 years and older. Although the standard human capital investment model predicts such a decline, we also consider the possibility that returns to training decline with age. Taking into account endogenous training decisions, we find that the training wage premium diminishes only slightly with age. However, estimates of the impact of training on productivity decrease dramatically with age, suggesting that incentives for firms to invest in classroom training are much lower for older workers.
    Keywords: Firm-Sponsored Classroom Training, Wages, Productivity, Aging, Linked Employer-Employee Data
    JEL: C23 D24 J31
    Date: 2011
  7. By: Ron Alquist; Olivier Gervais
    Abstract: Over the past 10 years, financial firms have increased the size of their positions in the oil futures market. At the same time, oil prices have increased dramatically. The conjunction of these developments has led some observers to argue that financial speculation caused the run-up in oil prices. Yet several arguments cast doubt on the validity of this claim. First, although the stock of open futures contracts is many times larger than the flow of oil consumption in the United States, comparing these two statistics is misleading. Stocks are not measured with respect to a specific unit of time but flows are, so the two are not directly comparable. Second, empirical analysis shows that changes in financial firms’ positions do not predict oil-price changes, but that oil-price changes predict changes in positions. Third, the evidence indicates that financial firms’ positions did not cause the market to expect persistent price increases during 2007/08. Other explanations for the increase in oil prices include macroeconomic fundamentals, such as interest rates and increased demand from emerging Asia. Of these two explanations, the one that seems most consistent with the facts explains oil-price fluctuations in terms of large and persistent demand shocks related to growth in global real activity in the presence of supply constraints.
    Keywords: International topics
    JEL: Q41 G12
    Date: 2011
  8. By: Collie, David R. (Cardiff Business School); Le, Vo Phuong Mai (Cardiff Business School)
    Abstract: This paper analyses how product differentiation affects the volume of trade under duopoly using Shubik-Levitan demand functions rather than the Bowley demand functions used by Bernhofen (2001). The Shubik-Levitan demand functions have the advantage that an increase in product differentiation does not increase the size of the market as happens with the Bowley demand functions. It is shown that the volume of trade in terms of quantities is decreasing in the degree of product differentiation when the trade cost is relatively low, but increasing in the degree of product differentiation when the trade cost is relatively high.
    Keywords: Product Differentiation; Cournot Oligopoly; Bertrand Oligopoly
    JEL: F12 F13
    Date: 2011–11
  9. By: Alex Bryson; Petri Böckerman; Pekka Ilmakunnas
    Abstract: Employees exposed to high involvement management (HIM) practices have higher subjective wellbeing, fewer accidents but more short absence spells than "like" employees not exposed to HIM. These results are robust to extensive work, wage and sickness absence history controls. We present a model which highlights the possibility of higher short-term absence in the presence of HIM because it is more demanding than standard production and because multi-skilled HIM workers cover for one another's short absences thus reducing the cost of replacement labour faced by the employer. We find direct empirical support for the assumptions in the model. Consistent with the model, because long-term absences entail replacement labour costs for HIM and non-HIM employers alike, long-term absences are independent of exposure to HIM.
    Keywords: Health, subjective wellbeing, sickness absence, job satisfaction, pain, high involvement management, high performance work system, performance-related pay, training, team working, information sharing
    JEL: I10 J28 J81 M52 M53 M54
    Date: 2011–11
  10. By: Walter Beckert (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: This paper provides a comprehensive econometric framework for the empirical analysis of countervailing power. It encompasses the two main features of pricing schemes in business-to-business relationships: nonlinear price schedules and bargaining over rents. Disentangling them is critical to the empirical identification of countervailing power. Testable predictions from the theoretical analysis for a pragmatic reduced form empirical pricing model are delineated. This model is readily implementable on the basis of transaction data, routinely collected by antitrust authorities and illustrated using data from the UK brick industry. The paper emphasizes the importance of controlling for endogeneity of volumes and established supply chains and for heterogeneity across buyers and sellers due to intrinsically unobservable outside options.
    Keywords: countervailing power, bargaining, nonlinear prices, transaction panel data countervailing power, bargaining, nonlinear prices, transac¬tion panel data
    JEL: D43 L11 L12 L14 L42 C23 C78
    Date: 2011–10
  11. By: Holger Breinlich; Stefan Niemann
    Abstract: We provide a comprehensive analysis of how firms choose between different expansion and contraction forms, unifying existing approaches from the industrial organization and corporate finance literature. Using novel data covering almost the entire universe of UK firms, we document firms’ use of internal adjustment, greenfield investment and mergers and acquisitions (M&As). We describe frequency and aggregate importance of the different channels, and show that their use varies systematically with observable firm characteristics, in particular firm size and the magnitude of adjustment. We also demonstrate that there is positive assortative matching on the UK merger market. Based on these facts, we propose a theoretical framework which accommodates all three adjustment channels in a unified setting, and is able to replicate the adjustment and matching patterns found in the data.
    Date: 2011–09–23
  12. By: Jerome Kuipers (Maastricht University); Norma Olaizola (UPV/EHU)
    Abstract: We study the endogenous formation of cartels in two contexts. Firt, we considere internal-external stability based models which, due to firms' free-riding incentives, lead to the formation of very small stable cartels (if any). Second, we introduce the dynamic aspect of coalition formation. That is, when considering a cartel we take into account also any other cartel that can be reached through a succesion of moves. We apply notions such as the generalized stable sets and the absorbing sets solutions which predict that collusion of the whole industry can occur with some regularity. Then we apply the two approaches to a Cournot game, and study the influence that the internal organization of firms has on the size of the cartels that form by means of a compariso between a situation where ownership and management are not separated and one in which they are.
    Keywords: Cartels, stability, absorving sets solution, strategic delegation
    JEL: L22 C72
    Date: 2011–11–15
  13. By: Robertas Zubrickas
    Abstract: We argue that job performance appraisal is an agency problem with asymmetric transfer values: an employee is paid in proportion to the rating received from his line manager, who only partially internalizes the resultant payroll cost. This asymmetry in rating valuations is based on evidence that managers are not fully accountable for payroll expense, with the degree of unaccountability increasing in fi…rm size. We develop a nested agency model of economic organization of a fi…rm with unaccountable managers, which in equilibrium obtains the …firm-size wage effects the large-fi…rm wage premium and inverse relationship between fi…rm size and wage dispersion.
    Keywords: Compression of ratings, managerial incentives, soft budget constraint, firm-size wage effects, principal-agent model
    JEL: J30 D21 M52
    Date: 2011–03
  14. By: Jean Bonnet, University of Caen Basse-Normandie - CREM-CNRS, France; Thomas Brau, University of Caen Basse-Normandie - CREM-CNRS, France; Antonia Guijarro Madrid, Associate professor Accounting and Finance Department, Technical University of Cartagena (UPCT). Spain
    Abstract: The creation of an innovative firm as a way to remedy the professional dissatisfactions of salaried people has been evoked early in the literature (Shapero 1975, 1977). In this paper, while covering the « elementary components » of global dissatisfactions we focus on eight specific fields: creativity, intellectual stimulation and variety related to the expression of intellectual capacities ; management, independence, prestige characterizing the attachment to executive job ; altruism and tangible work related to the purpose of work (helping others and getting concrete results of one’s labor). Results show that the creation of innovative firms takes place as an effective way to solve in some fields « what was not going well » in the salaried work. These results make it possible to detect profiles of salaried people looking for professional change who might be interested by the wide possibilities offered by the innovative firm for their choice of new orientations.
    Keywords: Innovative entrepreneurship, Psychology of the entrepreneur, Job satisfaction, Professional dissatisfactions, Professional values
    JEL: L26
    Date: 2011–10
  15. By: Antoinette Schoar; Luo Zuo
    Abstract: This paper examines how early career experiences affect the career path and promotion of managers as well as the managerial style that they develop when becoming CEOs. We identify the impact of an exogenous shock to managers’ careers, in particular the business cycle at the career starting date. Economic conditions at the beginning of a manager’s career have lasting effects on the career path and the ultimate outcome as a CEO. CEOs who start in recessions take less time to become CEOs, but end up as CEOs in smaller firms, receive lower compensation, and are more likely to rise through the ranks within a given firm rather than moving across firms and industries. Moreover, managers who start in recessions have more conservative management styles once they become CEOs. These managers spend less in capital expenditures and R&D, have lower leverage, are more diversified across segments, and show more concerns about cost effectiveness. While looking at the role of early job choices on CEO careers is more endogenous, the results support the idea that certain types of starting positions are feeders for successful long-run management careers: Starting in a firm that ranks within the top ten firms from which CEOs come from is associated with favorable outcomes for a manager – they become CEOs in larger companies and receive higher compensation.
    JEL: D21 D23 G3 G31 G32
    Date: 2011–11

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