nep-bec New Economics Papers
on Business Economics
Issue of 2012‒02‒27
twenty-one papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Hiring Costs of Skilled Workers and the Supply of Firm-Provided Training By Blatter, Marc; Mühlemann, Samuel; Schenker, Samuel; Wolter, Stefan
  2. Age and gender composition of the workforce, productivity and profits: Evidence from a new type of data for German enterprises By Christian Pfeifer; Joachim Wagner
  3. Why Do Firms Engage in Selective Hedging? By Tim R. Adam; Chitru S. Fernando; Jesus M. Salas
  4. Low-Wage Countries’ Competition, Reallocation Across Firms and the Quality Content of Exports By Julien Martin; Isabelle Méjean
  5. Export, Productivity Pattern, and Firm Size Distribution By Sun, Churen; Zhang, Tao
  6. Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management By Maria Guadalupe; Hongyi Li; Julie Wulf
  7. Management Practices Across Firms and Countries By Nicholas Bloom; Christos Genakos; Raffaella Sadun; John Van Reenen
  8. The Slow Growth of New Plants: Learning about Demand? By Lucia Foster; John C. Haltiwanger; Chad Syverson
  9. Why Has China Grown So Fast? The Role of International Technology Transfer By John Van Reenen; Linda Yueh
  10. Managerial Overconfidence and Corporate Risk Management By Tim R. Adam; Chitru S. Fernando; Evgenia Golubeva
  11. The Firm as the Locus of Social Comparisons: Internal Labor Markets versus Up-or-Out By Auriol, Emmanuelle; Friebel, Guido; Lammers, Frauke
  12. Firm and industry effects on firm profitability: an empirical analysis of KSE By Raza, Syed Ali; Farooq, M. Shoaib; Khan, Nadeem
  13. Establishment Exits in Germany: The Role of Size and Age By Fackler, Daniel; Schnabel, Claus; Wagner, Joachim
  14. Wage bargaining with discount rates varying in time under exogenous strike decisions. By Ahmet Ozkardas; Agnieszka Rusinowska
  15. Differentiation and the relationship between product market competition and price discrimination By MANUEL BECERRA; JUAN SANTALO
  16. Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective By Kay Giesecke; Francis A. Longstaff; Stephen Schaefer; Ilya Strebulaev
  17. Does Institutional Quality Affect Firm Performance? Insights from a Semiparametric Approach By Bhaumik, Sumon K.; Dimova, Ralitza; Kumbhakar, Subal C.; Sun, Kai
  18. Corporate Governance and Prudential Regulation of Banks: Is There Any Connection? By Lawrence J. White
  19. The Relationship between the Level and Modality of HRM Metrics, Quality of HRM Practice and Organizational Performance By Nina Pološki Vokić
  20. A Primer on Private Equity at Work: Management, Employment, and Sustainability By Eileen Appelbaum; Rosemary Batt
  21. Minsky’s Financial Instability Hypothesis and the Leverage Cycle By Sudipto Bhattacharya; Charles Goodhart; Dimitrios Tsomocos; Alexandros Vardoulakis

  1. By: Blatter, Marc (University of Bern); Mühlemann, Samuel (University of Bern); Schenker, Samuel (University of Bern); Wolter, Stefan (University of Bern)
    Abstract: This paper analyzes how the costs of hiring skilled workers from the external labor market affect a firm's supply of training. Using administrative survey data with detailed information on hiring and training costs for Swiss firms, we find evidence for substantial and increasing marginal hiring costs. However, firms can invest in internal training of unskilled workers and thereby avoid costs for external hiring. Controlling for a firm's training investment, we find that a one standard deviation increase in average external hiring costs increases the number of internal training positions by 0.7 standard deviations.
    Keywords: hiring costs, apprenticeship training, firm-sponsored training
    JEL: J23 J24 J32
    Date: 2012–02
  2. By: Christian Pfeifer (Leuphana University Lueneburg, Germany); Joachim Wagner (Leuphana University Lüneburg, Germany)
    Abstract: This empirical paper documents the relationship between composition of a firm's workforce (with a special focus on age and gender) and its performance (productivity and profitability) for a large representative sample of enterprises from manufacturing industries in Germany. We use unique newly available data that for the first time combine information from the statistics of employees covered by social security that is aggregated at the enterprise level and information from enterprise level surveys performed by the Statistical Offices. Our microeconometric analysis confirms previous findings of concave age-productivity profiles, which are consistent with human capital theory, and adds a new finding of a rather negative effect of age on firms' profitability, which is consistent with deferred compensation considerations. Moreover, our analysis reveals for the first time that the ceteris paribus lower level of productivity in firms with a higher share of female employees does not go hand in hand with a lower level of profitability in these firms. If anything, profitability is (slightly) higher in firms with a larger share of female employees. This finding might indicate that lower productivity of women is (over)compensated by lower wage costs for women, which might be driven by general labor market discrimination against women.
    Keywords: Ageing, firm performance, gender, productivity, profitability, Germany
    JEL: D22 D24 J21 J24 L25
    Date: 2012–02
  3. By: Tim R. Adam; Chitru S. Fernando; Jesus M. Salas
    Abstract: Surveys of corporate risk management document that selective hedging, where managers incorporate their market views into firms’ hedging programs, is widespread in the U.S. and other countries. Stulz (1996) argues that selective hedging could enhance the value of firms that possess an information advantage relative to the market and have the financial strength to withstand the additional risk from market timing. We study the practice of selective hedging in a 10-year sample of North American gold mining firms and find that selective hedging is most prevalent among firms that are least likely to meet these valuemaximizing criteria -- (a) smaller firms, i.e., firms that are least likely to have private information about future gold prices; and (b) firms that are closest to financial distress. The latter finding provides support for the alternative possibility suggested by Stulz that selective hedging may also be driven by asset substitution motives. We detect weak relationships between selective hedging and some corporate governance measures, especially board size, but find no evidence of a link between selective hedging and managerial compensation.
    Keywords: Corporate risk management, selective hedging, speculation, financial distress, corporate governance, managerial compensation
    JEL: G11 G14 G32 G39
    Date: 2012–02
  4. By: Julien Martin; Isabelle Méjean
    Keywords: Firm-Level Data, Quality Heterogeneity, Low-Wage Countries’ Competition, Within-product specialization
    JEL: F12 F14 A A A
    Date: 2012–02
  5. By: Sun, Churen; Zhang, Tao
    Abstract: We show in the Chinese Annual Survey of Industrial Firms that size distributions of non-exporters and exporters have different shapes, which can only be explained by assuming that their productivity distributions have different shapes. Empirical estimations verify this assumption. This paper also analyzes the relationship between firms' size and productivity distributions and shows that: 1) productivity and size distributions change accordingly, and 2) productivity is deterministic for size distribution.
    Keywords: Heterogeneous firm; Pareto distribution; Production size; Productivity heterogeneity
    JEL: D21 F12 D24
    Date: 2012–01–03
  6. By: Maria Guadalupe; Hongyi Li; Julie Wulf
    Abstract: This paper shows that top management structures in large US firms radically changed since the mid-1980s. While the number of managers reporting directly to the CEO doubled, the growth was driven primarily by functional managers rather than general managers. Using panel data on senior management positions, we explore the relationship between changes in executive team composition, firm diversification, and IT investments—which arguably alter returns to exploiting synergies through corporate-wide coordination by functional managers in headquarters. We find that the number of functional managers closer to the product (“product” functions i.e., marketing, R&D) increase as firms focus their businesses, while the number of functional managers farther from the product (“administrative” functions i.e., finance, law, HR) increase with IT investments. Finally, we show that general manager pay decreases as functional managers join the executive team suggesting a shift in activities from general to functional managers—a phenomenon we term “functional centralization.”
    JEL: D22 J31 L2 M12 M5
    Date: 2012–02
  7. By: Nicholas Bloom; Christos Genakos; Raffaella Sadun; John Van Reenen
    Abstract: For the last decade we have been using double-blind survey techniques and randomized sampling to construct management data on over 10,000 organizations across twenty countries. On average, we find that in manufacturing American, Japanese, and German firms are the best managed. Firms in developing countries, such as Brazil, China and India tend to be poorly managed. American retail firms and hospitals are also well managed by international standards, although American schools are worse managed than those in several other developed countries. We also find substantial variation in management practices across organizations in every country and every sector, mirroring the heterogeneity in the spread of performance in these sectors. One factor linked to this variation is ownership. Government, family, and founder owned firms are usually poorly managed, while multinational, dispersed shareholder and private-equity owned firms are typically well managed. Stronger product market competition and higher worker skills are associated with better management practices. Less regulated labor markets are associated with improvements in incentive management practices such as performance based promotion.
    JEL: M1
    Date: 2012–02
  8. By: Lucia Foster; John C. Haltiwanger; Chad Syverson
    Abstract: It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants’ idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants’ past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.
    JEL: D2 E23 L1 L6
    Date: 2012–02
  9. By: John Van Reenen; Linda Yueh
    Abstract: Chinese economic growth has been spectacular in the last 30 years. We investigate the role of International Joint Ventures with Technology Transfer agreements, an understudied area. Technology transfer is the traditional mechanism for developing countries to "catch up" and has been a key component of Chinese economic policy. We collect original survey data on Chinese firms and their joint ventures and match this to administrative data on firm performance. To identify the causal effect of joint ventures we use time-varying and province-specific policies at the time when a firm was born. International joint ventures have large effects on productivity especially when combined with a technology transfer component. We estimate that without International joint ventures China's growth would have been about one percentage point lower per annum over the last three decades.
    Keywords: China, technology transfer, joint ventures, productivity
    JEL: O32 O33
    Date: 2012–02
  10. By: Tim R. Adam; Chitru S. Fernando; Evgenia Golubeva
    Abstract: We show that managerial overconfidence, which has been found to influence a number of corporate financial decisions, also affects corporate risk management. We find that managers increase their speculative activities using derivatives following speculative gains, while they do not reduce their speculative activities following speculative losses. This asymmetric response follows from selective selfattribution: successes tend to be attributed to one’s own skill, while failures tend to be attributed to bad luck. Thus, our results show that managerial behavioral biases can also impact corporate risk management.
    Keywords: corporate risk management, behavioral biases, managerial overconfidence, speculation
    JEL: G11 G14 G32 G39
    Date: 2012–02
  11. By: Auriol, Emmanuelle (Toulouse School of Economics); Friebel, Guido (Goethe University Frankfurt); Lammers, Frauke (University of Bern)
    Abstract: We suggest a parsimonious dynamic agency model in which workers have status concerns. A firm is a promotion hierarchy in which a worker's status depends on past performance. We investigate the optimality of two types of promotion hierarchies: (i) internal labor markets, in which agents have a job guarantee, and (ii) "up-or-out", in which agents are fired when unsuccessful. We show that up-or-out is optimal if success is difficult to achieve. When success is less hard to achieve, an internal labor market is optimal provided the payoffs associated with success are moderate. Otherwise, up-or-out is, again, optimal. These results are in line with observations from academia, law firms, investment banks and top consulting firms. Here, up-or-out dominates, while internal labor markets dominate where work is less demanding or payoffs are more compressed, for instance, because the environment is less competitive. We present some supporting evidence from academia, comparing US with French economics departments.
    Keywords: status, promotion hierarchies, incentives, sorting
    JEL: J3 M5 L2
    Date: 2012–02
  12. By: Raza, Syed Ali; Farooq, M. Shoaib; Khan, Nadeem
    Abstract: The study meant to explore the external and internal factors which influence firm’s profitability i.e. “Firm and Industry Effects on Firm Profitability”. In this research ROA and ROE has taken as profitability measure and their dependency has checked with firm effect, industry effect and market share. Data has extracted from “Balance Sheet Analysis of Joint Stock Companies Listed on the Karachi Stock Exchange Volume-II 2004-2009” which is state bank of Pakistan publications and it represents six year financial statements of the firms. By using Regression analysis technique result has found which represent that all three independent factor i.e. firm effect, industry effect and market share are significant with ROA and ROE.
    Keywords: Return on Assets (ROA); Return on Equity (ROE); market share
    JEL: E62
    Date: 2011–07–04
  13. By: Fackler, Daniel (University of Erlangen-Nuremberg); Schnabel, Claus (University of Erlangen-Nuremberg); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: Using comprehensive data for West Germany, this paper investigates the determinants of establishment exit. We find that between 1975 and 2006 the average exit rate has risen considerably. In order to test various "liabilities" of establishment survival identified in the literature, we analyze the impact of establishment size and put a special focus on differences between young and mature establishments. Our empirical analysis shows that the mortality risk falls with establishment size, which confirms the liability of smallness. The probability of exit is substantially higher for young establishments which are not more than five years old, thus confirming the liability of newness. There also exists a liability of aging since exit rates first decline over time, reaching a minimum at ages 15 to 18, and then rise again somewhat. The determinants of exit differ substantially between young and mature establishments, suggesting that young establishments are more vulnerable in a number of ways.
    Keywords: firm exits, Germany
    JEL: L2
    Date: 2012–02
  14. By: Ahmet Ozkardas (Turgut Özal Üniversitesi et Centre d'Economie de la Sorbonne); Agnieszka Rusinowska (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: In this paper, we present a non-cooperative wage bargaining model in which preferences of both parties, a union and a firm, are expressed by sequences of discount factors varying in time. We determine subgame perfect equilibria for three cases when the strike decision of the union is exogenous : the case when the union is supposed to go on strike in each period in which there is a disagreement, the case when the union is committed to go on strike only when its own offer is rejected, and the case when the union is supposed to go never on strike.
    Keywords: Union, firm bargaining, strike, alternating offers, varying discount rates, subgame perfect equilibrium.
    JEL: J52 C78
    Date: 2012–02
  15. By: MANUEL BECERRA (Instituto de Empresa); JUAN SANTALO (Instituto de Empresa)
    Abstract: We investigate how the effect of competition on price discrimination varies depending on the level of quality provided by companies in the hospitality industry. Our findings reconcile conflicting results of previous literature on this topic. Namely, we provide strong empirical evidence that competition affects differently the price of single and double rooms of hotels with greater quality versus those with lower quality. In the presence (absence) of differentiation, competition increases (decreases) price discrimination. Our findings are robust to the use of econometric techniques that alleviate endogeneity concerns.
    Date: 2011–12
  16. By: Kay Giesecke; Francis A. Longstaff; Stephen Schaefer; Ilya Strebulaev
    Abstract: Using an extensive new data set on corporate bond defaults in the U.S. from 1866 to 2010, we study the macroeconomic effects of bond market crises and contrast them with those resulting from banking crises. During the past 150 years, the U.S. has experienced many severe corporate default crises in which 20 to 50 percent of all corporate bonds defaulted. Although the total par amount of corporate bonds has often rivaled the amount of bank loans outstanding, we find that corporate default crises have far fewer real effects than do banking crises. These results provide empirical support for current theories that emphasize the unique role that banks and the credit and collateral channels play in amplifying macroeconomic shocks.
    JEL: E3 E32 E44 G01 G21 G33
    Date: 2012–02
  17. By: Bhaumik, Sumon K. (Aston University); Dimova, Ralitza (University of Manchester); Kumbhakar, Subal C. (Binghamton University, New York); Sun, Kai (Aston University)
    Abstract: Using a novel modeling approach, and cross-country firm level data for the textiles industry, we examine the impact of institutional quality on firm performance. Our methodology allows us to estimate the marginal impact of institutional quality on productivity of each firm. Our results bring into question conventional wisdom about the desirable characteristics of market institutions, which is based on empirical evidence about the impact of institutional quality on the average firm. We demonstrate, for example, that once both the direct impact of a change in institutional quality on total factor productivity and the indirect impact through changes in efficiency of use of factor inputs are taken into account, an increase in labor market rigidity may have a positive impact on firm output, at least for some firms. We also demonstrate that there are significant intra-country variations in the marginal impact of institutional quality, such that the characteristics of "winners" and "losers" will have to be taken into account before policy is introduced to change institutional quality in any direction.
    Keywords: institutional quality, firm performance, marginal effect, textiles industry
    JEL: C14 D24 K31 O43
    Date: 2012–02
  18. By: Lawrence J. White
    Date: 2011
  19. By: Nina Pološki Vokić
    Abstract: The paper explores the relationship between the way organizations measure HRM and overall quality of HRM activities, as well as the relationship between HRM metrics used and financial performance of an organization. In the theoretical part of the paper modalities of HRM metrics are grouped into five groups (evaluating HRM using accounting principles, evaluating HRM using management techniques, evaluating individual HRM activities, aggregate evaluation of HRM, and evaluating HRM department). In the empirical part of the paper researched concepts are assessed through questionnaires distributed to Croatian organizations with more than 500 employees. Respondents (HRM managers) provided information about HRM metrics their organizations use, overall quality of HRM practice, and financial performance of their organizations. Based on the acquired data, relationships between modality of HRM metrics, quality of HRM and organizational performance are explored.
    Keywords: HRM metrics, HRM evaluation, HRM quality, organizational performance, Croatia
    JEL: M12 M5
    Date: 2011–12–01
  20. By: Eileen Appelbaum; Rosemary Batt
    Abstract: Private equity, hedge funds, sovereign wealth funds and other private pools of capital form part of the growing shadow banking system in the United States; these new financial intermediaries provide an alternative investment mechanism to the traditional banking system. Private equity and hedge funds have their origins in the U.S., while the first sovereign wealth fund was created by the Kuwaiti Government in 1953. While they have separate roots and distinct business models, these alternative investment vehicles increasingly have been merged into overarching asset management funds that encompass all three alternative investments. These funds have wielded increasing power in financial and non-financial sectors – not only via direct investments but also indirectly, as their strategies – such as high use of debt to fund investments – have been adopted by investment arms of banks and by publicly-traded corporations. This primer focuses on private equity (PE) because this is the new financial intermediary that most directly affects the management of, and employment relations in, operating companies that employ millions of U.S. workers. However, as the boundaries among alternative investment funds have begun to blur, we will touch on hedge funds and sovereign wealth funds as their activities relate to private equity.
    Keywords: private equity
    JEL: J J5 F G G3 G32 G33 G34 G35 G38
    Date: 2012–02
  21. By: Sudipto Bhattacharya; Charles Goodhart; Dimitrios Tsomocos; Alexandros Vardoulakis
    Abstract: Busts after periods of prolonged prosperity have been found to be catastrophic. Financial institutions increase their leverage and shift their portfolios towards projects that were previously considered too risky. This results from institutions rationally updating their expectations and becoming more optimistic about the future prospects of the economy. Default is inevitably harsher when a bad shock occurs after periods of good news. Commonly used measures to forecast risk in the system, such as VIX, fail to capture this phenomenon, as they are also biased by optimistic expectations. Competition among financial institutions for better relative performance exacerbates the boom-bust cycle. We explore the relative advantages of alternative regulations in reducing financial fragility, and suggest a novel criterion for improvement of aggregate welfare.
    Date: 2011–09

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