nep-bec New Economics Papers
on Business Economics
Issue of 2012‒01‒03
23 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Optimal Coexistence of Long-term and Short-term contracts in Labor Markets By Inés Macho-Stadler; David Pérez-Castrillo; Nicolás Porteiro
  2. Export Growth, Capacity Utilization and Productivity Growth: Evidence from Canadian Manufacturing Plants By Baldwin, John R.<br/> Gu, Wulong<br/> Yan, Beiling
  3. Evidence on the dynamics of investment-cash flow sensitivity By Gautam, Vikash
  4. Cross-Sectoral Variation in The Volatility of Plant-Level Idiosyncratic Shocks By Rui Castro; Gian Luca Clementi; Yoonsoo Lee
  5. Bank systemic risk and the business cycle: An empirical investigation using Canadian data By Christian Calmès; Raymond Théoret
  6. The Valuation Effects of Geographic Diversification: Evidence from U.S. Banks By Martin Goetz; Luc Laeven; Ross Levine
  7. The Effect of Relative Standing on Considerations About Self-Employment By Schneck, Stefan
  8. Investment, idiosyncratic risk, and ownership By Vasia Panousi; Dimitris Papanikolaou
  9. Wage adjustment and productivity shocks By Carlsson, Mikael; Messin, Julián; Nordström Skans, Oskar
  10. Verti-zontal Differentiation in Monopolistic Competition By Francesco Di Comite; Jacques-François Thisse; Hylke Vandenbussche
  11. Subjective Evaluations with Performance Feedback By Jan Zabojnik
  12. The Credit Spread and U.S. Business Cycles By Junsang Lee; Keisuke Otsu
  13. Learning, capital-embodied technology and aggregate fluctuations By Gortz, Christoph; John, Tsoukalas
  14. Flexible contracts and human capital investments By Fouarge Didier; Grip Andries de; Smits Wendy; Vries Robert de
  15. Does dual employment protection affect TFP? Evidence from Spanish manufacturing firms By Juan Jóse Dolado; Salvador Ortigueira; Rodolfo Stucchi
  16. Market Size, Competition, and the Product Mix of Exporters By Thierry Mayer; Marc J. Melitz; Gianmarco I.P. Ottaviano
  17. Corporate Governance and the Costs of Public Debt Financing: Evidence from Japan By Takanori Tanaka
  18. De nouvelles formes de segmentation liées à la dérégulation du marché du travail ? Evidences empiriques sur les modes d'ajustement des entreprises danoises. By Guillaume Blache
  19. Factor Intensity, Product Switching, and Productivity: Evidence from Chinese Exporters By Yue Ma; Heiwai Tang; Yifan Zhang
  20. China in the World Economy: Dynamic Correlation Analysis of Business Cycles By Jarko, Fidrmuc; Iikka, Korhonen; Ivana, Bátorová
  21. When Pareto meets Melitz: the inapplicability of the Melitz-Pareto model for Chinese firms By Sun, Churen; Tian, Guoqiang; Zhang, Tao
  22. Foreign Ownership and Firm Survival: First Evidence for Enterprises in Germany By Wagner, Joachim; Weche Gelübcke, John Philipp
  23. On the optimal management of teams under budget constraints By Dunia López-Pintado; Juan D. Moreno-Ternero

  1. By: Inés Macho-Stadler (Department of Economics, Universitat Autònoma de Barcelona); David Pérez-Castrillo (Department of Economics, Universitat Autònoma de Barcelona); Nicolás Porteiro (Department of Economics, Universidad Pablo de Olavide)
    Abstract: We consider a market where firms hire workers to run their projects and such projects differ in profitability. At any period, each firm needs two workers to successfully run its project: a junior agent, with no specific skills, and a senior worker, whose effort is not verifiable. Senior workers differ in ability and their competence is revealed after they have worked as juniors in the market. We study the length of the contractual relationships between firms and workers in an environment where the matching between firms and workers is the result of market interaction. We show that, despite in a one-firm-one-worker set-up long-term contracts are the optimal choice for firms, market forces often induce firms to use short-term contracts. Unless the market only consists of firms with very profitable projects, firms operating highly profitable projects offer short-term contracts to ensure the service of high-ability workers and those with less lucrative projects also use short-term contracts to save on the junior workers' wage. Intermediate firms may (or may not) hire workers through long-term contracts.
    Keywords: Labor contracts, short-term, long-term, matching, incentives.
    JEL: D86 C78
    Date: 2011–11
  2. By: Baldwin, John R.<br/> Gu, Wulong<br/> Yan, Beiling
    Abstract: Labour productivity growth in the Canadian business sector slowed substantially after 2000. Most of the slowdown occurred in the manufacturing sector. This paper examines how this slowdown was associated with the restructuring that occurred in manufacturing as a result of the increase in excess capacity, the dramatic increase in the Canada-U.S. exchange rate and a slowdown in export growth.
    Keywords: Business performance and ownership, Manufacturing, Travel and tourism, Economic accounts, International travel, Productivity accounts
    Date: 2011–12–12
  3. By: Gautam, Vikash
    Abstract: An important debate in the literature relates to the use of investment-cash flow sensitivity (ICFS) to measure finance constraint faced by firms. This debate is grounded on four prominent issues: a priori sorting of firms, treatment of distressed firms, use of cash flow to represent only internal liquidity of firms and restricting firms to a single regime. In this paper we investigate these issues using a sample of 2676 Indian manufacturing firms over the period 1994 to 2009. We use firm level estimates of ICFS to sort firms into positively cash flow sensitive (PCF-sensitive) group, cash flow insensitive (CF-insensitive) group and, negatively cash flow sensitive (NCF-sensitive) group. We find that all three group of firms start with high levels of investment. But, only the PCF-sensitive firms have high level of cash flows. With age, the investment of all three groups of firms remains stationary. But, for CF-insensitive firms only the cash flow rises with age. Further, we use a multinomial logistic regression to study the determinants of ICFS in the three groups. The results suggest that the interpretation of NCF-sensitive, PCF-sensitive and CF-insensitive as distressed, financially constrained and financially unconstrained, respectively, can be contested by the data.
    Keywords: investment-cash flow sensitivity; finance constraint; distress; multinomial logistic regression
    JEL: D21 G31 D82 G32
    Date: 2011–09
  4. By: Rui Castro; Gian Luca Clementi; Yoonsoo Lee
    Abstract: We estimate plant--level idiosyncratic risk in the U.S. manufacturing sector. Our proxy for risk is the volatility of the portion of TFP growth which is not explained by either industry- or economy-wide factors, or by establishments' characteristics systematically associated with growth itself. Consistent with previous studies, we find that idiosyncratic shocks are much larger than aggregate random disturbances, accounting for about 90% of the overall uncertainty faced by plants. The extent of cross-sectoral variation in idiosyncratic risk is remarkable. Plants in the most volatile sector are subject to at least three times as much uncertainty as plants in the least volatile. Our evidence indicates that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.
    JEL: D24 L16 L60 O30 O31
    Date: 2011–12
  5. By: Christian Calmès (Chaire d'information financière et organisationnelle ESG-UQAM, Laboratory for Research in Statistics and Probability, Université du Québec (Outaouais)); Raymond Théoret (Chaire d'information financière et organisationnelle ESG-UQAM, Université du Québec (Montréal), Université du Québec (Outaouais))
    Abstract: Since financial institutions are subjected to increasingly tighter requirements regarding the way they conduct their loan business, we could assume that built-in regulatory pressures induce them to adopt collective business strategies, with the unintended consequence of persistently weakening the banking system ability to cope with external shocks. Surprisingly, we find rather the opposite. This paper documents how banks, as a group, react to macroeconomic risk and uncertainty, and more specifically the way banks systemic behaviour evolves over the business cycle. Adopting the methodology of Beaudry et al. (2001), our results clearly indicate that the dispersion across banks traditional portfolios has actually increased through time. We introduce an estimation procedure based on EGARCH and re-fine Baum et al. (2002, 2004, 2009) and Quagliariello (2007, 2009) framework to analyze the question in the new industry context, i.e. shadow banking. Consistent with finance theory, we first confirm that banks tend to behave homogeneously vis-à-vis macroeconomic uncertainty. Additionally, we find that the cross-sectional dispersions of loans to assets and non-traditional activities shrink essentially during downturns, when the resilience of the banking system is at its lowest. Our results also indicate that banks herd-like behaviour remains predominantly a cyclical phenomenon, almost unaffected by the new banking environment. Most importantly however, the cross-sectional dispersion of market-oriented ac-tivities appears to be both more volatile and sensitive to the business cycle than the dispersion of the traditional banking business lines.
    Keywords: Basel III; Banking stability; Macroprudential policy; Herding; Macroeconomic uncertainty.
    JEL: C32 G20 G21
    Date: 2011–12–19
  6. By: Martin Goetz; Luc Laeven; Ross Levine
    Abstract: This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on their market valuations. Using two novel identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduce BHC valuations. These findings are consistent with the view that geographic diversity makes it more difficult for shareholders and creditors to monitor firm executives, allowing corporate insiders to extract larger private benefits from firms.
    JEL: G21 G34 L22
    Date: 2011–12
  7. By: Schneck, Stefan
    Abstract: This paper uses unique German data to examine the effects of the relative standing on the individual propensity to become self-employed in the next two years. The results suggest that the relationship between relative wage positions and propensity to become self-employed is U-shaped. This is interpreted as evidence that low status translates into entrepreneurial motivation for workers in low relative wage positions. Employees with high relative standing, in turn, seem to be more concerned about the lack of future career prospects in paid employment and consider self-employment as a next step on the individual career ladder.
    Keywords: Relative wage position, status, self-employment
    JEL: L26 L29
    Date: 2011–12
  8. By: Vasia Panousi; Dimitris Papanikolaou
    Abstract: High-powered incentives may induce higher managerial effort, but they also expose managers to idiosyncratic risk. If managers are risk averse, they might underinvest when firm-specific uncertainty increases, leading to suboptimal investment decisions from the perspective of well-diversified shareholders. We empirically document that when idiosyncratic risk rises, firm investment falls, and more so when managers own a larger fraction of the firm. This negative effect of managerial risk aversion on investment is mitigated if executives are compensated with options rather than with shares or if institutional investors form a large part of the shareholder base.
    Keywords: Investments ; Risk ; Uncertainty ; Institutional investors ; Stockholders
    Date: 2011
  9. By: Carlsson, Mikael (Research Department, Sveriges Riksbank); Messin, Julián (Office of the Chief Economist for Latin America and the Caribbean,); Nordström Skans, Oskar (Uppsala Center for Labor Studies)
    Abstract: We study how workers’ wages respond to TFP-driven innovations in firms’labor productivity. Using unique data with highly reliable firm-level output prices and quantities in the manufacturing sector in Sweden, we are able to derive measures of physical (as opposed to revenue) TFP to instrument labor productivity in the wage equations. We find that the reaction of wages to sectoral labor productivity is almost three times larger than the response to pure idiosyncratic (firm-level) shocks, a result which crucially hinges on the use of physical TFP as an instrument. These results are all robust to a number of empirical specifications, including models accounting for selection on both the demand and supply side through worker-firm (match) fixed effects. Further results suggest that technological progress at the firm level has negligible effects on the firm-level composition of employees.
    Keywords: Matched employer-employee data; sorting; wage; labor productivity; TFP
    JEL: J23 J31 J33
    Date: 2011–05–11
  10. By: Francesco Di Comite (Université Catholique de Louvain and European Commission); Jacques-François Thisse (Université Catholique de Louvain); Hylke Vandenbussche (National Bank of Belgium)
    Abstract: The recent availability of trade data at a firm-product-country level calls for a new generation of models able to exploit the large variability detected across observations. By developing a model of monopolistic competition in which varieties enter preferences non-symmetrically, we show how consumer taste heterogeneity interacts with quality and cost heterogeneity to generate a new set of predictions. Applying our model to a unique micro-level dataset on Belgian exporters with product and destination market information, we find that heterogeneity in consumer tastes is the missing ingredient of existing monopolistic competition models necessary to account for observed data patterns.
    Keywords: Heterogeneous firms, Product Differentiation, Monopolistic Competition, Nonsymmetric varieties
    JEL: D43 F12 F14 L16
    Date: 2011–10–17
  11. By: Jan Zabojnik (Queen's University)
    Abstract: This paper models two key roles of subjective performance evaluations: their incentive role and their feedback role. The paper shows that the feedback role makes subjective pay feasible even without repeated interaction, as long as there exists some verifiable measure of performance. It also shows that while subjective pay is helpful, it cannot achieve full efficiency. However, fully efficient incentives are achievable if the firm can commit to a forced distribution of evaluations and employs a continuum of workers. With a small number of workers, a forced distribution is valuable only if the verifiable measure is poor.
    Keywords: Subjective Evaluations, Performance Feedback, Optimal Contracts
    JEL: D82 D86 M52
    Date: 2011–11
  12. By: Junsang Lee; Keisuke Otsu
    Abstract: In this paper, we construct a dynamic stochastic general equilibrium model in order to investigate the impact of credit spread shocks on the U.S. business cycle. We find that the shocks to the investment specific technology and the preference weights on consumption and leisure are the main sources of output fluctuation. Shocks to the credit spread and productivity are the main source of the fluctuation in the investment to output ratio. Credit spread shocks also had a significant impact on the output during the recent financial crisis.
    Keywords: Credit Spread; Business Cycles; Investment Specific Technology
    JEL: E13 E32
    Date: 2011–11
  13. By: Gortz, Christoph; John, Tsoukalas
    Abstract: Business cycles in the U.S. and G-7 economies are asymmetric: recoveries and expansions tend to be long and gradual and busts tend to be short and sharp. Moreover, this type of asymmetry appears more pronounced in the last two cyclical episodes in the G-7. A large body of work views the last two cyclical U.S. episodes, namely, the``new economy" boom in the late 1990s, and the 2000s housing boom-bust as episodes where over-optimistic beliefs have played a significant role. These episodes have revived interest in expectations driven business cycles models. However, previous work in this area has not addressed the important asymmetry feature of business cycles. This paper takes a step towards addressing this limitation of expectations driven business cycle models. We propose a generalization of the Greenwood et al. (1988) model with vintage capital and learning about capital embodied productivity and show it can deliver fluctuations that are asymmetric as in the U.S. data. Learning, calibrated to match the procyclical forecast precision from the Survey of Professional Forecasters, is crucial for the model's ability to generate asymmetries. Forecast errors generated by the model are shown to: (a) amplify fluctuations, and (b) trigger recessions that mimic in magnitude, duration and depth the typical post WW II U.S. recession.
    Keywords: News shocks; expectations; growth asymmetry; Bayesian learning; business cycles
    JEL: E2 D83 E3
    Date: 2011–06
  14. By: Fouarge Didier; Grip Andries de; Smits Wendy; Vries Robert de (METEOR)
    Abstract: As suggested by human capital theory, workers with flexible contracts participate less often intraining than those with permanent contracts. We find that this is merely due to the fact thatflexworkers receive less employer–funded training, a gap they can only partly compensate for bytheir own training investments. Flexworkers particularly participate less in firm–specifictraining that is meant to keep up with new skill demands than workers with permanent contracts.However, for those who participate in employer–funded firm–specific training, a temporary contractappears to facilitate the transition to a permanent contract with the same employer. However, thisdoes not hold for participation in self–paid training. This training, which is usually generaltraining, does not help in finding a better job.
    Keywords: labour economics ;
    Date: 2011
  15. By: Juan Jóse Dolado; Salvador Ortigueira; Rodolfo Stucchi
    Abstract: This paper analyzes the effect of having a large gap in firing costs between permanent and temporary workers in a dual labour market on TFP development at the firm level. We propose a simple model showing that, under plausible conditions, both temporary workers’ effort and firms’ temp-to-perm conversion rates decrease when that gap increases. We test this implication by means of a panel of Spanish manufacturing firms from 1991 to 2005, using as natural experiments some labour market reforms entailing substantial changes in this gap. Our main empirical finding is that reforms leading to a lower gap enhanced conversion rates, which in turn increased firms’ TFP, and conversely for reforms that increased the gap.
    Keywords: Firms' TFP, Workers' effort, Temporary workers, Firing costs
    JEL: C14 C52 D24 J24 J41
    Date: 2011–12
  16. By: Thierry Mayer (Sciences-Po, CEPII and CEPR); Marc J. Melitz (Harvard University, NBER and CEPR); Gianmarco I.P. Ottaviano (Bocconi University, FEEM, Bruegel, CEPR and Centro Studi Luca d\'Agliano)
    Abstract: We build a theoretical model of multi-product firms that highlights how market size and geography (the market sizes of and bilateral economic distances to trading partners) affect both a firm\'s ex-ported product range and its exported product mix across market destinations (the distribution of sales across products for a given product range). We show how tougher competition in an export market induces a firm to skew its export sales towards its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destina-tions. Trade models based on exogenous markups cannot explain this strong significant link between destination market characteristics and the within-firm skewness of export sales (after controlling for bilateral trade costs. Theoretically, this within firm change in product mix driven by the trading environment has important repercussions on firm productivity and how it responds to changes in that trading environment.
    Date: 2011–10–17
  17. By: Takanori Tanaka (Faculty of Economics, Ritsumeikan University)
    Abstract: This paper explores the relation between corporate governance mechanisms in Japan and the costs of public debt financing. Using a sample of Japanese corporate bond issues during the period 2005-2008, we find that CEO ownership is associated with higher yield spreads after controlling for firm- and bond-specific characteristics. Founding family ownership is also positively related to yield spreads. In contrast, firms with large corporate shareholders enjoy lower yield spreads. These results are robust to various alternative specifications. Overall, our results indicate that corporate governance mechanisms in Japan are important factors affecting the costs of public debt financing.
    Keywords: Yield spreads; Ownership structure; Corporate governance
    JEL: G32 G34
    Date: 2011–12
  18. By: Guillaume Blache (Centre d'Economie de la Sorbonne)
    Abstract: This paper tries to go beyond regulation regimes to depict national uses of flexibility. On the basis of a company survey we are able to assess that a significant number of Danish firms applies a mix of internal and external modes of flexibility simultaneously. The second part of our analysis underscores that these strategies are addressed to different groups of employees according to their characteristics. The contractual segmentation incited by strict employment protection legislation is thus replaced by new forms of segmentation between core workers who benefit from internal mobilities and peripheral workers subject to external numerical flexibility.
    Keywords: Flexible firm, labour market segmentation, factor analysis.
    JEL: C38 J71
    Date: 2011–11
  19. By: Yue Ma (Lingnan University); Heiwai Tang (Tufts University, Centro Studi Luca d\'Agliano and MIT Sloan); Yifan Zhang (Lingnan University)
    Abstract: This paper analyzes the causal relations between firms’ productivity, factor intensity and export participation. Using propensity score matching techniques and firm-level panel data for Chinese manufacturing firms over the 1998-2007 period, we find strong evidence of domestic firms self-selecting into export markets with higher productivity ex ante, and enhanced productivity ex post. No such pattern is observed among foreign-invested .rms. We also find that both domestic and foreign new exporters exploit China’s low labor costs and specialize in their core competence, that is, firms become less capital-intensive after exporting, relative to the matched non-exporting counterparts in the same industry. To rationalize these results that contrast with most findings in the existing literature, we develop a variant of the multi-product model of Bernard, Redding, and Schott (2010) to consider varying capital intensity across products. Using transaction-level export data, we find evidence that Chinese exporters add new products that are more labor-intensive than existing products and drop products that are less labor-intensive, supporting the model predictions. Firms with a bigger decline in capital intensity after exporting are found to have a larger increase in measured TFP.
    Keywords: Exporters; Productivity; Factor Intensity; Multi-product Firms
    JEL: F11 L16 O53
    Date: 2011–12–27
  20. By: Jarko, Fidrmuc; Iikka, Korhonen; Ivana, Bátorová
    Abstract: We analyze globalization and business cycles in China and selected OECD countries using dynamic correlation analysis. We show that dynamic correlations of business cycles of OECD countries and China are negative at business-cycle frequencies and positive for short-run developments. Furthermore, trade and financial flows of OECD countries and China reduce the degree of business cycle synchronization within the OECD area, especially at business-cycle frequencies. Thus, different degrees of participation in globalization can explain the differences between the business cycles of OECD countries.
    Keywords: Globalization, business cycles, synchronization, trade, FDI, dynamic correlation
    JEL: E32 F15 F41
    Date: 2011–12
  21. By: Sun, Churen; Tian, Guoqiang; Zhang, Tao
    Abstract: This paper realizes the Melitz-Pareto model using firm-level data from 40 Chinese manufacturing industries from 1998 and 2007. Under the hypothesis that the productivity of firms in each industry follows a Pareto distribution, we show that the domestic sales of non-exporters and the foreign sales of exporters in each industry also follow a Pareto distribution, respectively. We then estimate industrial productivity Pareto distributions, and cut-offs of domestic sales of non-exporters and foreign sales of exporters for each industry. Together this yields all the parameters of the Melitz-Pareto model. Our result shows that the Melitz-Pareto model may not fully apply to Chinese firms.
    Keywords: Melitz-Pareto model; Pareto distribution; productivity heterogeneity; export
    JEL: D23 F12
    Date: 2011–10–31
  22. By: Wagner, Joachim (Leuphana University Lüneburg); Weche Gelübcke, John Philipp (Leuphana University Lüneburg)
    Abstract: This paper documents the relationship between foreign ownership and firm survival for enterprises in Germany using unique tailor-made new representative data that merge information from surveys performed by the Statistical Offices, from administrative data collected by the Tax Authorities and from a commercial data provider. It contributes to the literature by providing the first evidence on the role of foreign ownership for firm survival in Germany, one of the most important destination countries for foreign direct investments. Our micro-econometric analysis reveals a ceteris paribus higher risk of exit for foreign owned firms in West Germany but not in East Germany.
    Keywords: foreign ownership, firm survival, Germany
    JEL: F23 L60
    Date: 2011–12
  23. By: Dunia López-Pintado (Department of Economics, Universidad Pablo de Olavide; CORE, Université catholique de Louvain); Juan D. Moreno-Ternero (Department of Economics, Universidad Pablo de Olavide; CORE, Université catholique de Louvain)
    Abstract: We study optimal wage schemes for teams, under the presence of budget constraints, in a model in which agents’ effort decisions are mapped into the probability of the team’s success. We show that (first-best) efficiency can only be attained with complex contracts that are vulnerable to ex post manipulations and off-equilibrium path violations of the budget constraints. Within the domain of simple (and budget-balanced) contracts, an interesting scheme, which treats equal members of the team unequally, emerges as optimal
    Keywords: Team production, budget constraints, efficiency, manipulability, impartiality
    JEL: C70 D23 D78
    Date: 2011–12

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