nep-bec New Economics Papers
on Business Economics
Issue of 2011‒12‒19
33 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Is there an accruals or a cash flow anomaly in UK stock returns? By Nuno Soares; Andrew W. Stark
  2. The Role of Time-Varying Price Elasticities in Accounting for Volatility Changes in the Crude Oil Market By Christiane Baumeister; Gert Peersman
  3. Do Mood Swings Drive Business Cycles and is it Rational? By Paul Beaudry; Deokwoo Nam; Jian Wang
  4. A Model of Liquidity Hoarding and Term Premia in Inter-Bank Markets By Acharya, Viral V.; Skeie, David
  5. Competing on Speed By Emiliano Pagnotta; Thomas Philippon
  6. Non-Comparative versus Comparative Advertising of Quality By Winand Emons; Claude Fluet
  7. International recessions By Fabrizio Perri; Vincenzo Quadrini
  8. Working in family firms: less paid but more secure? Evidence from French matched employer-employee data By Andrea Bassanini; Eve Caroli; Antoine Rebérioux; Thomas Breda
  9. Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation By Andersson, Fredrik; Davis, Elizabeth E.; Freedman, Matthew L.; Lane, Julia; McCall, Brian P.; Sandusky, L. Kristin
  10. Manager impartiality? Worker-firm matching and the gender wage gap By Hensvik, Lena
  11. Channels of Size Adjustment and Firm Performance By Holger Breinlich; Stefan Niemann; Edna Solomon
  12. Transparency, entry, and productivity By Gu, Yiquan; Wenzel, Tobias
  13. Worker information and firm disclosure: Analysis on French linked employer-employee data By Corinne Perraudin; Héloïse Petit; Antoine Rebérioux
  14. Firm Market Power and the Earnings Distribution By Douglas Webber
  15. Organizational structure, strategic delegation and innovation in oligopolistic industries By Evangelos Mitrokostas; Emmanuel Petrakis
  16. Does Labor Diversity affect Firm Productivity? By Pierpaolo Parrotta; Dario Pozzoli; Mariola Pytlikova
  17. Testing the 'Residential Rootedness' - Hypothesis of Self-Employment for Germany and the UK By Darja Reuschke; Maarten Van Ham
  18. Investment and oil price volatility By Paresh Kumar Narayan; Susan Sunila Sharma
  19. Market Structure and the Competitive Effects of Vertical Integration By Simon Loertscher; Markus Reisinger
  20. Small, alone and poor: a merciless portrait of insolvent French firms, 2007-2010 By Nadine Levratto; Luc Tessier; Messaoud Zouikri
  21. Core competencies and the structure of foreign direct investment By Federico J. Díez; Alan C. Spearot
  22. Irreversible investment, uncertainty, and ambiguity: the case of bioenergy sector By Pierre-André Jouvet; Elodie Le Cadre; Caroline Orset
  23. Firm dynamics in a closed, conserved economy: A model of size distribution of employment and related statistics By Anindya S. Chakrabarti
  24. Importance of the management incentives for the improvement of company’s activities By Slavica, Stevanovic; Ivana, Simeunovic
  25. Entry deterrence through cooperative R&D over-investment By Christin, Clémence
  26. Transport modal choice by multinational firms : firm-level evidence from Southeast Asia By Hayakawa, Kazunobu; Tanaka, Kiyoyasu; Ueki, Yasushi
  27. The growth of Chinese exports: an examination of the detailed trade data By Brett Berger; Robert F. Martin
  29. Long-term Employment and Job Security over the Last Twenty-Five Years: A Comparative Study of Japan and the U.S. By Kambayashi, Ryo; Kato, Takao
  30. Systemically Important Banks and Capital Regulation Challenges By Patrick Slovik
  31. Household finances and the 'Big Five' personality traits By Sarah Brown; Karl Taylor
  32. The relationship between the PMI and the Italian index of industrial production and the impact of the latest economic crisis By Valentina Aprigliano
  33. Dynamic product diversity By Ramon Caminal

  1. By: Nuno Soares (Faculdade de Engenharia, Universidade do Porto, Portugal and CEF.UP, Faculdade de Economia, Universidade do Porto, Portugal); Andrew W. Stark (Manchester Business School, UK)
    Abstract: In this paper, we apply a modified version of the Mishkin (1983) test to companies in the UK stock market in order to investigate the presence of accruals and cash flow effects on UK firms’ annual returns. First, we find that accruals decile rankings have U-shaped, or inverted U-shaped, or no relationships with most of the risk variables. Accruals decile rankings have, however, a negative relationship with the ratio of research and development to market value which is known to have a positive relationship with returns. Second, regarding the relationship between risk controls and returns, we find evidence associated with an RD effect and some evidence in favour of earnings-price and past return effects. We find little evidence of firm size, book to-market, and firm leverage effects, once the other variables are controlled for. Third, for the period 1990-2007, we report little evidence of general accruals mispricing in the UK in which accruals have a negative relationship with future returns, once risk has been accounted for. Additionally, after treatment of extreme observations, evidence of cash flow mispricing is found for the UK stock market. An alternative interpretation of our results is that there is no separate accruals effect, at least in the way predicted by the conventional mispricing stories, once other effects are taken into account, but there is a separate cash flow effect.
    Keywords: Accruals anomaly, accrual based accounting, cash flows, financial statement analysis
    JEL: M41 G11 G14
    Date: 2011–12
  2. By: Christiane Baumeister; Gert Peersman
    Abstract: There has been a systematic increase in the volatility of the real price of crude oil since 1986, followed by a decline in the volatility of oil production since the early 1990s. We explore reasons for this evolution. We show that a likely explanation of this empirical fact is that both the short-run price elasticities of oil demand and of oil supply have declined considerably since the second half of the 1980s. This implies that small disturbances on either side of the oil market can generate large price responses without large quantity movements, which helps explain the latest run-up and subsequent collapse in the price of oil. Our analysis suggests that the variability of oil demand and supply shocks actually has decreased in the more recent past preventing even larger oil price fluctuations than observed in the data.
    Keywords: Econometric and statistical methods; International topics
    JEL: E31 E32 Q43
    Date: 2011
  3. By: Paul Beaudry; Deokwoo Nam; Jian Wang
    Abstract: This paper provides new evidence in support of the idea that bouts of optimism and pessimism drive much of US business cycles. In particular, we begin by using sign-restriction based identification schemes to isolate innovations in optimism or pessimism and we document the extent to which such episodes explain macroeconomic fluctuations. We then examine the link between these identified mood shocks and subsequent developments in fundamentals using alternative identification schemes (i.e., variants of the maximum forecast error variance approach). We find that there is a very close link between the two, suggesting that agents' feelings of optimism and pessimism are at least partially rational as total factor productivity (TFP) is observed to rise 8-10 quarters after an initial bout of optimism. While this later finding is consistent with some previous findings in the news shock literature, we cannot rule out that such episodes reflect self-fulfilling beliefs. Overall, we argue that mood swings account for over 50% of business cycle fluctuations in hours and output.
    JEL: E1 E2 E32
    Date: 2011–12
  4. By: Acharya, Viral V.; Skeie, David
    Abstract: Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank transactions, such as in one-month and three-month LIBOR markets. We provide an explanation of such stress in term lending by modelling leveraged banks’ precautionary demand for liquidity. When adverse asset shocks materialize, a bank’s ability to roll over debt is impaired because of agency problems associated with high leverage. In turn, a bank’s propensity to hoard liquidity is increasing, or conversely its willingness to provide term lending is decreasing, in its rollover risk over the term of the loan. High levels of short-term leverage and illiquidity of assets can thus lead to low volumes and high rates for term borrowing, even for banks with profitable lending opportunities. In extremis, there can be a complete freeze in inter-bank markets.
    Keywords: bank liquidity; bank loans; debt; financial leverage; interbank market; risk management
    JEL: E43 G01 G21
    Date: 2011–12
  5. By: Emiliano Pagnotta; Thomas Philippon
    Abstract: Two forces have reshaped global securities markets in the last decade: Exchanges operate at much faster speeds and the trading landscape has become more fragmented. In order to analyze the positive and normative implications of these evolutions, we study a framework that captures (i) exchanges' incentives to invest in faster trading technologies and (ii) investors' trading and participation decisions. Our model predicts that regulation that protect prices will lead to fragmentation and faster trading speed. Asset prices decrease when there is intermediation competition and are further depressed by price protection. Endogenizing speed can also change the slope of asset demand curves. On normative side, we find that for a given number of exchanges, faster trading is in general socially desirable. Similarly, for a given trading speed, competition among exchange increases participation and welfare. However, when speed is endogenous, competition between exchanges is not necessarily desirable. In particular, speed can be inefficiently high. Our model sheds light on important features of the experience of European and U.S. markets since the implementation of Reg. NMS, and provides some guidance for optimal regulations.
    JEL: G12 L13 L15
    Date: 2011–12
  6. By: Winand Emons; Claude Fluet
    Abstract: Two firms produce a good with a horizontal and a vertical characteristic called quality. The difference in the unobservable quality levels determines how the firms share the market. We consider two scenarios: in the first one, firms disclose quality; in the second one, they send costly signals thereof. Under non-comparative advertising a firm advertises its own quality, under comparative advertising a firm advertises the quality differential. In either scenario, under comparative advertising the firms never advertise together which they may do under non-comparative advertising. Moreover, under comparative advertising firms do not advertise when the informational value to consumers is small.
    Keywords: Quality, Advertising, Disclosure, Signalling
    JEL: D82 L15 M37
    Date: 2011
  7. By: Fabrizio Perri; Vincenzo Quadrini
    Abstract: The 2007–2009 crisis was characterized by an unprecedented degree of international synchronization as all major industrialized countries experienced large macroeconomic contractions around the date of Lehman bankruptcy. At the same time countries also experienced large and synchronized tightening of credit conditions. We present a two-country model with financial market frictions where a credit tightening can emerge as a self-fulfilling equilibrium caused by pessimistic but fully rational expectations. As a result of the credit tightening, countries experience large and endogenously synchronized declines in asset prices and economic activity (international recessions). The model suggests that these recessions are more severe if they happen after a prolonged period of credit expansion.
    Date: 2011
  8. By: Andrea Bassanini; Eve Caroli; Antoine Rebérioux; Thomas Breda
    Abstract: We study compensation packages in family and non-family firms. Using French matched employer-employee data, we first show that family firms pay on average lower wages. We find that part of this wage gap is due to low wage workers sorting into family firms and high wage workers sorting into non-family firms. However, we also find evidence that company wage policies differ according to ownership status, so that the same worker is paid differently under family and non-family firm ownership. We also 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
  9. By: Andersson, Fredrik (U.S. Department of the Treasury); Davis, Elizabeth E. (University of Minnesota); Freedman, Matthew L. (Cornell University); Lane, Julia (National Science Foundation); McCall, Brian P. (University of Michigan); Sandusky, L. Kristin (U.S. Census Bureau)
    Abstract: This paper exploits longitudinal employer-employee matched data from the U.S. Census Bureau to investigate the contribution of worker and firm reallocation to changes in earnings inequality within and across industries between 1992 and 2003. We find that factors that cannot be measured using standard cross-sectional data, including the entry and exit of firms and the sorting of workers across firms, are important sources of changes in earnings distributions over time. Our results also suggest that the dynamics driving changes in earnings inequality are heterogeneous across industries.
    Keywords: inequality, linked employer-employee data, sorting
    JEL: J0 J30
    Date: 2011–11
  10. By: Hensvik, Lena (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: This paper examines whether women benefit from working under female management using Swedish matched employer-employee panel data. I account for unobserved heterogeneity among both workers and firms potentially correlated with manager gender. The results show a substantial negative and statistically significant correlation between the proportion of female managers and the establishment’s gender wage gap. However, estimates that account for sorting on unobserved worker skills do not support that that managers favor same-sex workers in wage setting. Additional results show female-led organizations recruit more non-managerial, high-wage women but this is primarily due to (unobserved) firm attributes rather than gender-specific management practices.
    Keywords: Gender wage gap; managers; worker sorting
    JEL: J24 J31 J53
    Date: 2011–11–30
  11. By: Holger Breinlich; Stefan Niemann; Edna Solomon
    Abstract: We use unique business register data for the United Kingdom to investigate the effects of different forms of firm expansion and contraction on firm-level performance indicators such as wages and productivity. We distinguish between adjustment of employment and turnover at existing establishments, expansions and contractions taking place via greenfield investment and disinvestment, and via acquisitions and sell-offs. We show that the choice of adjustment channel has important implications for the evolution of firm-level performance indicators. In terms of aggregate importance, we demonstrate that the two external adjustment forms (greenfield and M&A) account for at least 50% of the changes in aggregate wages, profits and productivity associated with firm expansions and contractions.
    Date: 2011–12–14
  12. By: Gu, Yiquan; Wenzel, Tobias
    Abstract: This paper studies the relationship between transparency on the consumer side and productivity of firms. We show that more transparent markets are characterized by higher average productivity as firms with low productivity abstain from entering these markets. --
    Keywords: Market Transparency,Firm Productivity,Salop Model,Heterogeneous Firms
    JEL: D24 L13 L15
    Date: 2011
  13. By: Corinne Perraudin; Héloïse Petit; Antoine Rebérioux
    Abstract: Information disclosure requirements significantly increased in French listed companies in the early 2000s, converging toward the U.S./U.K. stock market standards. Following the burgeoning literature on relations between corporate governance and labor, we investigate the consequences of this process regarding worker information: does more information for shareholders mean more information for workers? We take advantage of a French (representative) establishment survey that generates linked 'employer–employee' data at two points in time, 1998 and 2004. Our results strongly suggest that worker information has improved in listed companies but not in private ones, as an externality of the financialization process. We find however that this extra information is only partially correlated with greater employee satisfaction, as measured through the perception of fair recognition by supervisors.
    Keywords: information sharing, firm disclosure, corporate governance, job satisfaction, linked employer employee data
    JEL: J53 G39 J28 C21
    Date: 2011
  14. By: Douglas Webber
    Abstract: Using the Longitudinal Employer Household Dynamics (LEHD) data from the United States Census Bureau, I compute firm-level measures of labor market (monopsony) power. To generate these measures, I extend the dynamic model proposed by Manning (2003) and estimate the labor supply elasticity facing each private non-farm firm in the US. While a link between monopsony power and earnings has traditionally been assumed, I provide the first direct evidence of the positive relationship between a firm\'s labor supply elasticity and the earnings of its workers. I also contrast the semistructural method with the more traditional use of concentration ratios to measure a firm\'s labor market power. In addition, I provide several alternative measures of labor market power which account for potential threats to identification such as endogenous mobility. Finally, I construct a counterfactual earnings distribution which allows the effects of firm market power to vary across the earnings distribution. I estimate the average firm\'s labor supply elasticity to be 1.08, however my findings suggest there to be significant variability in the distribution of firm market power across US firms, and that dynamic monopsony models are superior to the use of concentration ratios in evaluating a firm\'s labor market power. I find that a one-unit increase in the labor supply elasticity to the firm is associated with wage gains of between 5 and 18 percent. While nontrivial, these estimates imply that firms do not fully exercise their labor market power over their workers. Furthermore, I find that the negative earnings impact of a firm\'s market power is strongest in the lower half of the earnings distribution, and that a one standard deviation increase in firms\' labor supply elasticities reduces the variance of the earnings distribution by 9 percent.
    Date: 2011–12
  15. By: Evangelos Mitrokostas (University of Portsmouth); Emmanuel Petrakis (University of Crete; Economics, Universitat Jaume I (Castellón, Spain))
    Abstract: We endogenize firms’ organizational structures in a homogenous goods duopoly where firms invest in cost reducing R&D and compete in quantities, and examine their impact on R&D efforts, market performance and social welfare. Each firm’s owner can either delegate to a manager both market competition and R&D investment decisions (Full Delegation strategy) or delegate the market competition decision alone (Partial Delegation strategy). We show that when the initial marginal cost is relatively high, Universal Full Delegation emerges in equilibrium. Otherwise, an asymmetric equilibrium with one owner choosing a Full Delegation strategy and the other a Partial Delegation strategy arises. Welfare is always higher in the asymmetric equilibrium configuration, thus, market and societal incentives are not always aligned. Finally, Universal Partial Delegation can arise in equilibrium only if goods are poor substitutes or if competition is in prices.
    Keywords: Organizational Structure, Strategic Delegation, Innovation, Oligopolistic Industries
    JEL: L1 L22 O33
    Date: 2011
  16. By: Pierpaolo Parrotta (Aarhus University and University of Lausanne); Dario Pozzoli (Aarhus University, Department of Economics and Centre for Research in Integration and Marginalization (CIM)); Mariola Pytlikova (Aarhus Univserity, Centre for Corporate Performance (CCP) and Centre for Research in Integration and Marginalization (CIM))
    Abstract: Using a matched employer-employee data-set, we analyze how workforce diversity in cultural background, education and demographic characteristics affects productivity of firms in Denmark. Implementing a structural estimation of the firms' production function (Ackerberg et al., 2006) we find that labor diversity in education significantly enhances a firm's value added. Hence, the negative effects, coming from communication and integration costs connected to a more culturally and demographically diverse workforce, seem to outweigh the positive effects coming from creativity and knowledge spillovers.
    Keywords: Labor diversity, skill complementarity, communication barriers, total factor productivity.
    JEL: C23 J24 L20
    Date: 2011–12
  17. By: Darja Reuschke; Maarten Van Ham
    Abstract: Based on the notion that entrepreneurship is a 'local event' , the literature argues that selfemployed workers and entrepreneurs are 'rooted' in place. This paper tests the 'residential rootedness'-hypothesis of self-employment by examining for Germany and the UK whether the self-employed are less likely to move or migrate than employees. Using longitudinal data from the German Socio-economic Panel Study (SOEP) and the British Household Panel Survey (BHPS) and accounting for transitions in employment status we found little evidence that the self-employed in Germany and the UK are more rooted in place than employees. Firstly, the self-employed are not less likely to move or migrate over the period 2001-08. Secondly, those who are currently self-employed are also not more likely to have remained in the same place over a period of three years (2008-06 and 2005-03) as compared to those who are currently employed. Thirdly, those who are continuously self-employed are not less likely to have moved or migrated over a 3-period than those in continuous paid employment. Fourthly, in contrast to the prevalent 'residential rootedness'-hypothesis in economic geography and regional studies, we found that the entry into and the exit from selfemployment are associated with internal migration.
    Keywords: Self-employment, migration, residential mobility, rootedness hypothesis, UK, Germany
    JEL: D22 J61 J62 L26
    Date: 2011
  18. By: Paresh Kumar Narayan; Susan Sunila Sharma
    Abstract: In this note, we consider the relationship between oil price volatility and firm returns for 560 firms listed on the New York Stock Exchange. Using daily time series data from 2000 to 2008, we find that oil price volatility increases firm returns for the majority of the firms in our sample.
    Keywords: Investment, oil price, volatility,
    Date: 2011–11–21
  19. By: Simon Loertscher; Markus Reisinger
    Abstract: We analyze the competitive effects of backward vertical integration in a model with oligopolistic firms that exert market power upstream and downstream. In contrast to previous literature, we show that a small degree of vertical integration is always procompetitive because efficiency effects dominate foreclosure effects. Moreover, vertical integration even to monopoly can be procompetitive. With regard to market structure, we find, somewhat surprisingly, that vertical integration is more likely to be procompetitive if the industry is more concentrated. Our model thus suggests that antitrust authorities should be particularly wary of vertical integration in relatively competitive industries. We demonstrate that the quantitative welfare effects can be substantial there.
    Keywords: Vertical Integration; Market Structure; Downstream Oligopsony; Competitive Policy
    JEL: D43 L41 L42
    Date: 2011
  20. By: Nadine Levratto; Luc Tessier; Messaoud Zouikri
    Abstract: This empirical paper investigates the path to bankruptcy for a sample of French firms in default, in particular the decision to file a petition for bankruptcy, the arbitrage between rescuing and liquidation and the effective survival. The procedure is depicted as a sequence of three steps in which judges play a crucial role as they decide whether a company is insolvent or not and determine whether an insolvent company deserves to be rescued or, on the contrary, should be liquidated, the market having the last word since the effective success depends on the capability of the firm to recover from the judicial proceedings. We test different hypotheses about the variables influencing each possibility which include i) the role of the market in the firm's health, ii) the influence of financial structures, iii) the importance of corporate governance and iv) the inherent corporate factors of probable survival. Using three linked LOGIT models, our first finding is that the probability to default depends mainly on the market. Secondly the probability to be rescued depends essentially on the financial structure. Finally, the probability for the firm to remain in business in the long term is largely influenced by the market and profitability. Our results also support the idea that governance, size and resources are the main determinants of exit from the market or success of any company.
    Keywords: Insolvency, bankruptcy, firm default, financial indicators, size, logit models.
    JEL: D20 G32 G33 K20
    Date: 2011
  21. By: Federico J. Díez; Alan C. Spearot
    Abstract: We develop a matching model of foreign direct investment to study how multinational firms choose between greenfield investment, acquisitions, and joint ventures. For all entry modes, firms must invest in a continuum of tasks to bring a product to market. Each firm possesses a core competency in the task space, though firms are otherwise identical. For acquisitions and joint ventures, a multinational enterprise (MNE) must match with a local partner, where the local partner may provide complementary expertise within the task space. However, for joint ventures, investment in tasks is shared by multiple owners, and hence is subject to a holdup problem. In equilibrium, ex-ante identical multinational enter the local matching market, and ex post, three different types of ownership within a heterogeneous group of firms arise. Specifically, the worst matches dissolve and the MNEs invest greenfield, the middle matches form joint ventures, and the best matches integrate via mergers and acquisitions. We also show that joint ventures are more common when the host country produces products that are inferior to those produced in the source country, which explains why MNEs use joint ventures more frequently in less-developed countries. Finally, we extend the model to a simple two-period context to provide a rationale for one of the more salient features of joint ventures, namely, their instability.
    Keywords: Investments, Foreign ; International business enterprises
    Date: 2011
  22. By: Pierre-André Jouvet (EconomiX and Climate Economics Chair); Elodie Le Cadre (UMR INRA-AgroParisTech Economie Publique - EconomiX, Université Paris Ouest Nanterre La Défense); Caroline Orset (UMR INRA-AgroParisTech Economie Publique)
    Abstract: We analyse the decision of an agent to invest and engage in industrial activities that are characterized by two forms of uncertainty: market size uncertainty and competitive effect uncertainty. We apply our model on the bioenergy industries. We compare the case of an ambiguity neutral agent with that of an ambiguity adverse agent. We show that the investment decision of an agent depends on the effects of both the capital investment and the level of production on the cost and the uncertainty the agent is confronted with. Moreover, we find that ambiguity aversion tends to decrease the agent's optimal levels of production and investment. Our numerical analysis of the French case illustrates the different effects associated with market size uncertainty and competitive effect uncertainty.
    Keywords: Ambiguity, Bioenergy, Irreversible investment, Uncertainty
    JEL: D21 D81 Q42 Q23
    Date: 2011–04
  23. By: Anindya S. Chakrabarti
    Abstract: We address the issue of the distribution of firm size. To this end we propose a model of firms in a closed, conserved economy populated with zero-intelligence agents who continuously move from one firm to another. We then analyze the size distribution and related statistics obtained from the model. Our ultimate goal is to reproduce the well known statistical features obtained from the panel study of the firms i.e., the power law in size (in terms of income and/or employment), the Laplace distribution in the growth rates and the slowly declining standard deviation of the growth rates conditional on the firm size. First, we show that the model generalizes the usual kinetic exchange models with binary interaction to interactions between an arbitrary number of agents. When the number of interacting agents is in the order of the system itself, it is possible to decouple the model. We provide some exact results on the distributions. Our model easily reproduces the power law. The fluctuations in the growth rate falls with increasing size following a power law (with an exponent 1 whereas the data suggests that the exponent is around 1/6). However, the distribution of the difference of the firm-size in this model has Laplace distribution whereas the real data suggests that the difference of the log sizes has the same distribution.
    Date: 2011–12
  24. By: Slavica, Stevanovic; Ivana, Simeunovic
    Abstract: In this paper we have emphasized on the importance of the management incentives and their impact on company’s efficiency and effectiveness of corporate governance. Company owners, who regard managerial incentives as an investment rather than as a financial outlay, could expect a commitment of the managers to the interests of the company, achievement of desired results and business prosperity. At the same time, the potential conflict of interests between company’s shareholders and management could be solved by allocation of appropriate management incentives. As the effectiveness of management incentives depends on their good evaluation, it is important to identify potential indicators and to measure their consistency with the value created to business owners. Moreover we have identified financial measures for manager’s contribution to the company operations, used as a criterion for entitlement to managers’ incentives. Paper ends by assessing the need to adjust the company to changing global financial environment, with a special reference to the changes of incentives’ policy in Serbian companies, and the most important motivational factors affecting Romanian employees during the current period of global financial crisis.
    Keywords: Management Incentives; Principal-Agent Problem; Incentive Schemes; Company Performance
    JEL: J32 M12 M52
    Date: 2011–10–17
  25. By: Christin, Clémence
    Abstract: In this paper, we highlight new conditions under which R&D agreements may have anti-competitive effects. We focus on cases where two firms compete with each other and with a competitive fringe. R&D activities need a specific input available to all firms on a common market, the price of which increases with demand for the input. In such a context, if a firm increases its R&D expenses, it increases the cost of R&D for its rivals. This induces exit from the fringe and may increase the final price. Therefore, by contrast to the case where the cost of R&D for one firm is independent of its rivals' R&D decisions, cooperation between strategic firms on the upstream market may induce more R&D by strategic firms, in order to exclude firms from the fringe and increase the final price. --
    Keywords: Competition policy,Research and Development Agreements,Collusion,Entry deterrence
    JEL: L13 L24 L41
    Date: 2011
  26. By: Hayakawa, Kazunobu; Tanaka, Kiyoyasu; Ueki, Yasushi
    Abstract: We examine transport modal decision by multinational firms to shed light on the role of freight logistics in multinational activity. Using a firm-level survey in Southeast Asia, we show that foreign ownership has a significantly positive and quantitatively large impact on the likelihood that air/sea transportation is chosen relative to truck shipping. This result is robust to the shipping distance, cross-border freight, and transport infrastructure. Both foreign-owned exporters and importers also tend to use air/sea transportation. Thus, our analysis presents a new distinction between multinational and domestic firms in their decision over transport modes.
    Keywords: International business enterprises, Industrial management, Transportation, Costs, Southeast Asia, Transport mode, Logistics, Multinational firms, Multinomial logit
    JEL: F15 F23 R41
    Date: 2011–11
  27. By: Brett Berger; Robert F. Martin
    Abstract: Over the past decade, Chinese exports have boomed, increasing far faster than GDP growth. What can account for this explosion? Our paper uses finely detailed Chinese export data (8-digit HS codes) combined with U.S. trade data to explore this question. Although exchange rate policy clearly boosted the trade surplus, and the structure of the economy, e.g. abundant cheap labor, encouraged investment, these alone cannot account for the changing composition and acceleration of exports. We find that the growth in exports is most likely a product of effective Chinese industrial policy and fortuitous timing. The detailed trade data reveal that key "new" technology goods, such as cell phones, LCD screens, and laptops played a critical role. Finally, we use the data to examine the relationship between Chinese exports and global manufacturing, in particular U.S. manufacturing employment. We find that increased Chinese competition in both domestic and U.S. export markets likely lowered U.S. manufacturing employment between 2000 and 2007. Chinese policy is not, however, wholly responsible. Some job losses, such as in textile production, were no doubt the result of China's natural comparative advantages, while other U.S. job losses are attributable to relatively low investment and slow GDP growth in the United States following the 2001 recession.
    Date: 2011
  28. By: Stefano D'Addona (University of Roma Tre); Christos Giannikos (Zicklin School of Business)
    Abstract: Standard Real Business Cycle (RBC) models are well known to generate counter-factual asset pricing implications. This paper provides a simple extension to the prior literature where we study an economy that follows a regimes switching process both in the mean and the volatility, in conjunction with Epstein-Zin preferences for the consumers. We provide a detailed theoretical and numerical analysis of the model’s predictions. We also show that a reasonable parameterization of our model conveys reasonable financial figures. Furthermore, we provide evidence in support of the necessity to model the decline of macroeconomic risk in this particular class of models.
    Keywords: Asset Pricing, Real Business Cycle Models, Recursive Preferences, Markov Switching Models
    JEL: G12 E32 E23
    Date: 2011
  29. By: Kambayashi, Ryo (Hitotsubashi University); Kato, Takao (Colgate University)
    Abstract: Taking advantage of a recent relaxation of Japanese government's data release policy, we conduct a cross-national analysis of micro data from Japan's Employment Status Survey and its U.S. counterpart, Current Population Survey. Our focus is to document and contrast changes in long-term employment and job security over the last twenty five years between the two largest advanced economies. We find that in spite of the prolonged economic stagnation, the ten-year job retention rates of core employees (employees of prime age of 30-44 who have already accumulated at least five years of tenure) in Japan were remarkably stable at around 70 percent over the last twenty-five years, and there is little evidence that Japan's Great Recession of the 1990s had a deleterious effect on job stability of such employees. In contrast, notwithstanding its longest economic expansion in history, the comparable job retention rates for core employees in the U.S. actually fell from over 50 percent to below 40 percent over the same time period. The probit estimates of job loss models in the two nations also point to the extraordinary resilience of job security of core employees in Japan, whereas showing a significant loss of job security for similar employees in the U.S. Though core employees in Japan turned out to have weathered their Great Recession well, we find that mid-career hires and young new job market entrants were less fortunate, with their employment stability deteriorating significantly. We interpret the findings, based on the theory of institutional complementarity, and derive lessons for policy makers around the world who are currently facing their own Great Recessions and developing effective policy responses.
    Keywords: long-term employment, job security, Great Recession, Lost Decade, Japan and the U.S.
    JEL: J63 J64 J41
    Date: 2011–12
  30. By: Patrick Slovik
    Abstract: Bank regulation might have contributed to or even reinforced adverse systemic shocks that materialised during the financial crisis. Capital regulation based on risk-weighted assets encourages innovation designed to circumvent regulatory requirements and shifts banks’ focus away from their core economic functions. Tighter capital requirements based on risk-weighted assets may further contribute to these skewed incentives. The estimated macroeconomic costs of redirecting banks’ attention away from such unconventional business practices are low. During a medium-term adjustment period, for each percentage point of bank equity, regulation that is not based on risk-weighted assets would affect annual GDP growth by -0.02 percentage point more than under the risk-weighted assets framework. Refocusing banks’ attention toward their main economic functions is a core requirement for durable financial stability and sustainable economic growth.<P>Banques d'importance systémique: défis pour la réglementation du capital<BR>La réglementation bancaire pourrait avoir contribué, voire renforcé, des chocs systémiques qui se sont matérialisés lors de la crise financière. La réglementation des fonds propres fondée sur des actifs pondérés par les risques encourage l'innovation conçue pour contourner les exigences réglementaires et éloigne les préoccupations des banques de leurs principales fonctions économiques. Le resserrement des exigences en capital fondées sur les actifs pondérés du risque peut exacerber ce biais d’incitation. Des estimations suggèrent que rediriger l’activité des banques hors de telles pratiques commerciales nonconventionnelles ne serait guère coûteux. Pendant une période d'ajustement de moyen terme, pour chaque point de pourcentage du ratio de capitaux propres bancaires, une réglementation qui ne s’appuie pas sur les actifs pondérés du risque réduirait la croissance annuelle du PIB de seulement 0,02 point de pourcentage de plus qu’une réglementation fondée sur les actifs pondérés par les risques. Un recentrage de l’attention des banques vers leurs principales fonctions économiques est une exigence fondamentale pour garantir la stabilité financière et une croissance économique durables.
    Keywords: financial regulation, financial stability, Basel accord, Basel III, capital requirements, systemically important financial institutions, Too-big-to-fail, Bank Leverage, réglementation financière, crise financière, stabilité financière, Accord de Bâle, Bâle III, institutions financières d'importance systémique, levier bancaire
    JEL: G01 G21 G28
    Date: 2011–12–12
  31. By: Sarah Brown; Karl Taylor (Department of Economics, The University of Sheffield)
    Abstract: We explore the relationship between household finances and personality traits from an empirical perspective. Specifically, using individual level data drawn from the British Household Panel Survey, we analyse the influence of personality traits on financial decision-making at the individual level focusing on decisions regarding unsecured debt acquisition and financial assets. Personality traits are classified according to the ‘Big Five’ taxonomy: openness to experience, conscientiousness, extraversion, agreeableness and neuroticism. We find that certain personality traits such as extraversion and openness to experience exert relatively large influences on household finances in terms of the levels of debt and assets held. In contrast, personality traits such as conscientiousness and neuroticism appear to be unimportant in influencing levels of unsecured debt and financial asset holding. Our findings also suggest that personality traits have different effects across the various types of debt and assets held. For example, openness to experience does not appear to influence the probability of having national savings but is found to increase the probability of holding stocks and shares, a relatively risky financial asset.
    Keywords: big five personality traits, financial assets, unsecured debt
    JEL: C24 D03 D14
    Date: 2011–12
  32. By: Valentina Aprigliano (Université Libre de Bruxelles)
    Abstract: Survey data attract considerable interest as timely and reliable series for assessing the state of the economy. We investigate the relationship between the manufacturing PMI and the Index of Industrial Production (IPI) for Italy, with a special focus on the effects of the latest crisis. The manufacturing PMI tracks a medium-to-long run component of the IPI quarterly growth rate, which is estimated by a one-sided multivariate Wavelet filter. This filter provides more efficient estimates at the end of the sample than the Baxter and King method. Furthermore, the Wavelet basis allows us to take into account the time-varying oscillations of a series caused by the large negative shocks characterizing the latest global crisis, while the non-parametric framework does not force us to conclude definitely for the occurrence of structural breaks not yet testable rigorously.
    Keywords: Wavelet analysis, principal component analysis, business cycle
    JEL: C5 E3
    Date: 2011–09
  33. By: Ramon Caminal
    Abstract: The goal of this paper is to study the frequency of new product introductions in monopoly markets where demand is subject to transitory saturation. We focus on those types of goods for which consumers purchase at most one unit of each variety, but repeat purchases in the same product category. The model considers infinitely-lived, forward-looking consumers and firms. We show that the share of potential surplus that a monopolist is able to appropriate increases with the frequency of introduction of new products and the intensity of transitory saturation. If the latter is sufficiently strong then the rate of introduction of new products is higher than socially desirable (excessive dynamic product diversity.)
    Keywords: transitory saturation, product diversity, repeat purchases, demand cycles
    JEL: L12 L13
    Date: 2011–12–12

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