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on Business Economics |
| By: | Burkart, Mike; Raff, Konrad |
| Abstract: | We propose that an active takeover market provides incentives by offering acquisition opportunities to successful managers. This allows firms to reduce performance-based compensation and can rationalize loss-making acquisitions. At the same time, takeovers remain a substitute for board dismissal in the replacement of poorly performing managers. The joint impact of the two mechanisms on managerial turnover is, however, multi-faceted: In firms with strong boards, turnover and performance-based pay are non-monotonic in the intensity of the takeover threat. In firms with weak boards, turnover (performance-based pay) increases (decreases) with the intensity of the takeover threat. When choosing its acquisition policy and the quality of its board, each firm ignores the adverse effect on other firms' acquisition opportunities and takeover threat. As a result, the takeover market is not sufficiently liquid and too few takeovers occur. |
| Keywords: | Board Interference; CEO Turnover; Compensation; Takeover |
| JEL: | G34 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8794&r=bec |
| By: | Pontuch, Peter |
| Abstract: | We analyze the interactions between financing constraints and product market competition. Financially constrained firms face restricted access to external finance during economic downturns, precisely when their internal funds decrease. This leads to vicious circle dynamics. We argue that in competitive industries cash flows are particularly sensitive to aggregate shocks, and the adverse dynamics are amplified. We find significant support for this hypothesis in firms' operating profitability and fixed investment. The adverse effects of financing constraints are increasing in the level of product market competition. Market valuations do not take into account these differences in fundamental risk. Unconstrained firms in competitive industries earn positive abnormal returns (on average 24-40 bp per month), especially following periods of macroeconomic distress. Furthermore, financing constraints affect competitive mechanisms within industries. The industry-average level of financing constraints tends to reduce the intra-industry mean-reversion of firm profitability. Again, this regularity is not priced: highly profitable firms earn alphas of 20-29 bp per month if they operate in industries with many constrained firms, but virtually no alphas if their industries have few constrained firms. |
| Keywords: | Financing constraints; product market competition; industry concentration; business cycle; profitability; investment; |
| JEL: | L11 G32 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/8540&r=bec |
| By: | Hunold, Matthias; Röller, Lars-Hendrik; Stahl, Konrad O |
| Abstract: | We analyze the effects of one or more downstream firms’ acquisition of pure cash flow rights in an efficient upstream supplier when firms compete in prices in both markets. With such an acquisition, downstream firms internalize the effects of their actions on that supplier’s and thus, their rivals’ sales. Double marginalization is enhanced. While vertical integration would lead to decreasing downstream prices, passive backwards ownership in the efficient supplier leads to increasing downstream prices and is more profitable, as long as competition is sufficiently intensive. Downstream acquirers strategically abstain from vertical control, inducing the efficient upstream firm to commit to a high price. Forbidding upstream price discrimination is then pro-competitive. All results are sustained when upstream suppliers are allowed to charge two part tariffs. |
| Keywords: | common agency; double marginalization; partial cross ownership; strategic delegation; vertical integration |
| JEL: | L22 L40 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8910&r=bec |
| By: | Acharya, Viral V; Pagano, Marco; Volpin, Paolo |
| Abstract: | We present a model of labor market equilibrium in which managers are risk-averse, managerial talent (‘alpha’) is scarce, and firms seek alpha, that is, compete for this talent. When managers are not mobile across firms, firms provide efficient long-term compensation, which allows for learning about managerial talent and insures low-quality managers. In contrast, when managers can move across firms, high-quality managers can fully extract the rents arising from their skill, which prevents firms from providing co-insurance among their employees. In anticipation, risk-averse managers may churn across firms before their performance is fully learnt and thereby prevent their efficient choice of projects. The result is excessive risk-taking with pay for short-term performance and build up of long-term risks. We conclude with analysis of policies to address the resulting inefficiency in firms' compensation. |
| Keywords: | executive compensation; managerial talent; managerial turnover; short-termism |
| JEL: | D62 G32 G38 J33 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8905&r=bec |
| By: | Fabbri, Francesca; Marin, Dalia |
| Abstract: | The compensation of executive board members in Germany has become a highly controversial topic since Vodafone's hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Based on unique panel data evidence of the 500 largest firms in Germany in the period 1977-2009 we test two prominent hypothesis in the literature on executive pay: the manager power hypothesis and the efficient pay hypothesis. We find support for the manager power hypothesis for Germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has contributed to the rise in executive pay in Germany. Lastly, we show that CEOs in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining device on CEO pay in Germany. |
| Keywords: | CEO pay in banks; CEO pay in the financial crisis; domestic and global competition for managers; efficient pay hypothesis; manager power hypothesis |
| JEL: | F23 J3 M12 M52 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8879&r=bec |
| By: | Andersson, Martin (CIRCLE, Lund University); Klepper, Steven (Carnegie Mellon University) |
| Abstract: | We analyze the rate of formation, the characteristics, and the performance of different types of new firms in Sweden over a decade. Comparisons to Denmark, Brazil, and the U.S. suggest that the environment for new firm formation in Sweden is not markedly different than elsewhere. In line with previous studies, spinoffs of incumbents perform better than other types of new firms, particularly if their parent firm continues to operate. A novel findings is that the rate of employment growth of spinoffs is greater the larger the size of their parent, which contrast sharply with findings for firms with a single owner. |
| Keywords: | Sweden; spinoffs; new firm formation; entrepreneurship; performance; employment growth |
| JEL: | J60 M13 |
| Date: | 2012–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lucirc:2012_004&r=bec |
| By: | Lucia Foster; John 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. |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:12-06&r=bec |
| By: | Di Comite, Francesco; Thisse, Jacques-François; Vandenbussche, Hylke |
| Abstract: | The pattern of trade observed from firm-product-country data calls for a new generation of models. To address the unexplained variation in the data, we propose a new model of monopolistic competition where varieties enter preferences non-symmetrically, capturing both horizontal and vertical differentiation in an unprecedented way. Together with a variable elasticity of substitution, competition effects, varying markups and prices across countries, this results in a tractable model that rationalizes the empirical finding that firm-product quantities show systematically more variability than prices across export destinations. Accounting for unexplained data variation, our model can thus be used to improve demand identification. |
| Keywords: | heterogenous firms; horizontal differentiation; monopolistic competition; non-symmetric varieties; vertical differentiation |
| JEL: | D43 F12 F14 L16 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8752&r=bec |
| By: | Dolado, Juan J.; Ortigueira, Salvador; Stucchi, Rodolfo |
| 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: | firing costs; Firms' TFP; temporary workers; worker's effort |
| JEL: | C14 C52 D24 J24 J41 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8763&r=bec |
| By: | Zhiguo He; Gregor Matvos |
| Abstract: | We illustrate the welfare benefit of tax subsidies to corporate debt financing. Two firms engage in a socially wasteful competition for survival in a declining industry. Firms differ on two dimensions: exogenous productivity and endogenously chosen amount of debt financing, resulting in a two dimensional war of attrition. Debt financing increases incentives to exit, which, while socially beneficial, is costly for the firm. Therefore the planner can increase welfare by subsidizing debt financing. The duration of industry distress determines the tradeoff between the welfare benefit illustrated in our model and the costs of subsidizing corporate debt from the existing literature. Our theory also sheds light on why the IRS considers "conflict of interest" as one of the key determinants in identifying securities that are qualified for tax-benefits. |
| JEL: | D82 G32 H25 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17920&r=bec |
| By: | Carlos M. F-Jardón |
| Abstract: | Sources of competitive advantage are firm characteristics that allow setting up in a better position than its competitors. From the Resources Based Theory is usual to consider these sources as internal and external factors of business. Entrepreneur organizes core competences combining these factors. They are competitive advantages when firm gets better performance than the competition. The process to obtain better performance from core competences isn’t well known. In this paper we define fifth core competencies: human and technological resources management, zone resources management, customer management, product marketing and innovativeness. We determine which is the process of influence of core competencies on business performance by PLS techniques. Findings indicate a causal process in generating business performance. Only innovativeness affect to performance. But better innovativeness is achieved combining from human and technological resources. This is improved by zone resources management. In turn, this I determined by management customers, associated with produc6 management. |
| Keywords: | Sources of Competitive Advantage, Resources based Theory; firm performance, SMEs, Core competencies. |
| JEL: | L21 L25 M21 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:vig:wpaper:1106&r=bec |
| By: | Auriol, Emmanuelle; Friebel, Guido; Lammers, Frauke |
| 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: | Incentives; Promotion hierarchies; Sorting; Status |
| JEL: | J3 L2 M5 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8831&r=bec |
| By: | Henry Hyatt; Erika McEntarfer |
| Abstract: | Job-to-job flows represent one of the most significant opportunities for the development of new economic statistics, having been made possible by the increased availability of matched employer-employee datasets for statistical tabulation. In this paper, we analyze a new database of job-to-job flows from 1999 to 2010 in the United States. This analysis provides definitive benchmarks on gross employment flows, origin and destination industries, nonemployment, and associated earnings. To demonstrate the usefulness of these statistics, we evaluate them in the context of the recessions of 2001 and 2007, as well as the economic expansion between the two. We find a sharp drop in job mobility in the Great Recession, much sharper than the previous recession, and higher earnings penalties for job transitions with an intervening nonemployment spell. This fall in job mobility is found within all age groups but is largest among younger workers. We also examine outcomes for displaced workers and examine labor market adjustment in several specific industries. Generally, we find higher rates of nonemployment upon job separation, increasing rates of industry change and higher earnings penalties from job change in the Great Recession. |
| Keywords: | job flows, matched employer-employee data |
| JEL: | J63 J64 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:12-04&r=bec |
| By: | Armstrong, Mark |
| Abstract: | This paper extends the standard model of bundling as a price discrimination device to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. Product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the model with additive preferences), while substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers coordinate on an inter-firm discount, they can use the discount to overturn product substitutability and relax competition. |
| Keywords: | Price discrimination; bundling; oligopoly |
| JEL: | L13 D82 D4 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37375&r=bec |
| By: | Georges Dionne; Marc Santugini |
| Abstract: | We analyze firms’ production and hedging decisions under imperfect competition with potential entry. Specifically, we consider an oligopoly industry producing a homogeneous output in which risk-averse firms incur a sunk cost upon entering the industry, and, then, compete in Cournot with one another. Each firm faces uncertainty in the input cost when making production decision, and has access to the futures market to hedge its random cost. We provide two sets of results. First, we show that there exists a unique equilibrium in which, in contrast to previous results in the literature, production and output price depend on the distribution of the spot price and risk aversion, i.e., there is no separation when the firms have access to the futures market. Second, we study the effect of access to the futures market on entry, production, and prices. The effect of access to the futures market on the number of firms is ambiguous depending on the value of the futures price and the parameters of the model. We also show that hedging induces the risk-averse firm to produce more, while speculating reduces production. |
| Keywords: | Cournot, Entry, Futures, Hedging, Imperfect competition |
| JEL: | D21 D43 D80 G32 L13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1215&r=bec |
| By: | Halldin, Torbjörn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper investigates whether born global firms perform differently compared to other newly founded manufacturing firms. A rigorous quantitative treatment of born global firms has been absent in the international entrepreneurship literature. The quantitative focus of the paper adds to this literature. To a simple OLS estimation is added a matching approach in order to circumvent the absence of counterfactual for born global firms had they not chosen to pursue a born global strategy. Measuring performance five years after firm foundation, born global firms are found to have higher growth in employment and sales per employee but no such effect is found when performance is measured by profitability or labor productivity. For robustness purposes, similar results are found when the analysis is augmented to include a wider spread of born global firm definitions and having performance measured three to seven years subsequent to firm foundation. |
| Keywords: | Born global firms; firm performance manufacturing firms |
| JEL: | F14 L25 L26 M13 M21 |
| Date: | 2012–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0269&r=bec |
| By: | Takuya Iwasaki (Faculty of Commerce, Kansai University, Japan); Shota Otomasa (Faculty of Commerce, Kansai University, Japan); Atsushi Shiiba (Graduate School of Economics, Osaka University, Japan); Akinobu Shuto (Research Institute for Economics and Business Administration, Kobe University, Nada-ku, Kobe, Japan) |
| Abstract: | In order to test the implication of Watts's (2003) argument that accounting conservatism can increase the efficiency of executive compensation contracts, we investigate the relationship between the adoption of accounting conservatism and the payment of excess executive compensation in Japanese firms. We focus on the executive compensation practice in Japan because the demand for accounting conservatism is likely to be larger for Japanese firms than it is for U.S. firms because of the lack of explicit compensation contracts in Japan. Consistent with the proposed arguments, we find that accounting conservatism is negatively related to excess cash compensation. We also find that this negative relationship is larger for firms with higher compensation earnings coefficients. These results suggest that the adoption of conservatism in accounting reduces the possibility of managers receiving excess cash compensation and that the demand for accounting conservatism in executive compensation contracts is larger when the ex post settling up problem is more serious. |
| Keywords: | accounting conservatism; compensation contract; excess compensation; ex post settling up problem; implicit contract |
| JEL: | M41 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2012-08&r=bec |
| By: | Halldin, Torbjörn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper studies the performance of KIBS firms that are aimed for global markets from inception. Despite the increasing importance of KIBS, no previous study has investigated born global firms in this sector of the economy. Three definitions are used to categorize firms as born global. Both OLS and a nearest neighbor matching approach are implemented to find evidence of higher growth in employment and sales per employee five years after firm foundation. Finally, the findings are robust to a finer array of born global definitions and time horizons of firm performance. |
| Keywords: | Born global firms; firm performance; knowledge intensive business sector |
| JEL: | F14 L25 L26 M13 M21 |
| Date: | 2012–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0270&r=bec |
| By: | Yue Ma; Heiwai Tang; Yifan Zhang |
| 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 firms. 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 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0761&r=bec |
| By: | Nurski, Laura; Verboven, Frank |
| Abstract: | Exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market. We ask whether such contracts may act as an entry barrier, and provide an empirical analysis of the European car market. We first estimate a demand model with product and spatial differentiation, and quantify the role of a dense distribution network in explaining the car manufacturers' market shares. We then perform policy counterfactuals to assess the profit incentives and entry-deterring effects of exclusive dealing. We find that there are no individual incentives to maintain exclusive dealing, but there can be a collective incentive by the industry as a whole, even absent efficiencies. Furthermore, a ban on exclusive dealing would shift market shares from the larger European firms to the smaller entrants. More importantly, consumers would gain substantially, mainly because of the increased spatial availability and less so because of intensified price competition. Our findings suggest that the European Commission's recent decision to facilitate exclusive dealing in the car market may not have been warranted. |
| Keywords: | automotive industry; exclusive dealing; foreclosure; vertical restraints |
| JEL: | L14 L42 L62 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8762&r=bec |
| By: | Hashem, Nawar; Ugur, Mehmet |
| Abstract: | The debate on competition and innovation has produced a wide range of theoretical and empirical findings. Recently, corporate governance quality has emerged as an additional factor that may complement or substitute for competition’s effect on innovation. We aim to contribute to the debate by investigating whether product-market competition and corporate governance quality affect firm-level innovation, utilising a dataset for 1,400 non-financial US-listed companies. Using two-way cluster-robust estimation, we report several findings. First, the relationship between industry-level competition and input as well as output measures of innovation is non-linear. Secondly, the non-linear relationship is of an inverted-U shape with respect to input measures of innovation, but the relationship has a U-shape when output measure of innovation is estimated. Third, corporate governance indicators such as anti-takeover defences and insider control tend to have a negative effect on input measures of innovation but their effect is positive with respect to the output measure. Finally, when interacted with market concentration, anti-takeover defences and insider control emerge as substitutes, leading to sign reversals in the relationship between competition and innovation. The results are obtained by using two-way cluster-robust estimation that controls for dependence within company/year and industry/year clusters, but they are robust to different estimation methods including fixed-effect and Fama-Macbeth procedure. |
| Keywords: | Innovation, competition, corporate governance, two-way cluster-robust estimation |
| JEL: | D21 G3 O31 L1 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37481&r=bec |
| By: | Marin, Dalia; Rousová, Linda |
| Abstract: | Recent literature on international trade has established that the most productive firms become multinationals. But our data reveal a startling variation in productivity levels of foreign affiliates across the countries in Eastern Europe of the same European multinational parent firms suggesting that not all multinationals transplant their home productivity advantage to the new EU Member States and Emerging Europe. One candidate for this startling difference in productivity levels among foreign affiliates is the ability of European multinationals to transport their business model abroad. This paper examines the conditions under which European multinationals give autonomy to their subsidiaries and delegate authority to them. We also analyse the conditions under which European multinationals transplant their business model to Eastern Europe. We collect original and unique matched parent and affiliate data on the internal organization of 660 German and Austrian parent firms and 2200 of their subsidiaries in Eastern Europe including the former Soviet Union. We test the hypothesis that the ability of European multinationals to transplant their business model to foreign affiliates is determined by the organization of European multinationals on the one hand and the market environment their affiliate firms face in Eastern Europe on the other hand. We show that the business culture of parent firms accounts for about 50 percent of the variation of the organization of subsidiaries, while the market environment of subsidiaries contributes the rest. |
| Keywords: | level of decentralisation; multinational firms with endogenous organisation; organisational transfer across countries; trust |
| JEL: | D21 F23 L22 O1 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8881&r=bec |
| By: | Uzi Yaari (Rutgers School of Business, Camden, NJ); Andrei Nikiforov (Rutgers School of Business, Camden, NJ); Emel Kahya (Rutgers School of Business, Camden, NJ); Yochanan Shachmurove (City College and Graduate Center of the City University of New York) |
| Abstract: | This paper seeks to draw attention to a flaw in the Free Cash Flow model and related statement widely accepted in Corporate Finance. We argue that the offset of any Current Liabilities against Current Assets distorts the FCF size, composition and volatility, thereby misstating the firm or project size, debt and assets composition, financial leverage, risk profile, and estimated value. As viewed by the firm’s debt and equity suppliers, an arbitrary offset means an ambiguous distortion in those parameters. We demonstrate empirically that the offset opens opportunities to systematically overstate the FCF and understate its volatility. We propose to reverse the offset and rename the standardized statement "Valuation Cash Flow" (VCF) |
| Keywords: | Financial Reporting, Free Cash Flow, Net Working Capital, Cost of Capital,Corporate Valuation |
| JEL: | G30 G31 G32 G35 G38 H32 K22 L21 M14 M40 M41 |
| Date: | 2012–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:12-009&r=bec |
| By: | Tong, Hui; Wei, Shang-Jin |
| Abstract: | How does increasing globalization affect corporate transparency? Freer trade represents two facets and in theory has ambiguous effects on corporate transparency. On the one hand, by exposing firms to more product market competition, it could discourage discretionary disclosure. On the other hand, by opening up foreign markets and enhancing firms’ growth opportunities, it may promote more transparency. Rather than simply estimating a net effect, this paper pursues an approach that allows separate estimation of the two potentially opposing channels. We employ three different measures of corporate transparency and track their evolutions for 4061 firms in 49 countries during 1992-2005. By using detailed product-level tariff schedules for these countries, we construct a measure of growth opportunities enabled by foreign tariff liberalizations at the sector-country-year level, and a second measure of globalization-induced product market competition based on a country’s own tariff liberalization (again at the sector--country-year level). We find strong evidence that higher growth opportunities engendered by globalization promotes corporate transparency, especially in industries that depend heavily on external financing. At the same time, we find somewhat weaker evidence that greater product market competition engendered by globalization discourages corporate transparency. The results demonstrate the importance of disentangling the multiple and potentially conflicting effects of globalization. |
| Keywords: | disclosure; globalization; trade liberalisation; transparency |
| JEL: | G3 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8836&r=bec |
| By: | Halldin, Torbjörn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper examines the relationship between collateralizable assets and export market entry. The ability to finance the sunk entry costs associated with an international expansion is one of the factors determining whether or not a firm starts engaging in export activities. Using a large panel of Swedish manufacturing firms over the 1997-2006 period, a firm’s access to external finance is proxied by its degree of collateralizable assets. The main finding of the paper is that tangible assets, which can be pledged as collateral in loan applications, constitute an important determinant of export market entry. However, accounts receivable and inventories as an alternative means of facilitating the access to external finance, is not found to influence the entry decision. Previous literature has made little attempt in explaining why future exporters might encounter difficulties in obtaining external finance. Therefore, the novelty of the paper and its contribution to the existing literature on financially constrained exporters is that it investigates an underlying reason to why firms might experience difficulties in financing an export market entry through external finance. |
| Keywords: | Export market entry; collateralizable assets; firm heterogeneity; sunk costs |
| JEL: | F14 G32 M21 |
| Date: | 2012–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0268&r=bec |
| By: | Wagner, Robert; Zwick, Thomas |
| Abstract: | This paper jointly analyses the consequences of adverse selection and signalling on entry wages of skilled employees. It uses German linked employer employee panel data (LIAB) and introduces a measure for relative productivity of skilled job applicants based on apprenticeship wages. It shows that post-apprenticeship employer changers are a negative selection from the training firms' point of view. Negative selection leads to lower average wages of employer changersin the first skilled job in comparison to stayers. Entry wages of employer changers are specifically reduced by high occupation and training firm retention rates. Additional training firm signals are high apprenticeship wages that signal a positive selection of apprenticeship applicants, works councils and establishment size. Finally, positive individual signals such as schooling background affect the skilled entry wages of employer changers positively. -- |
| Keywords: | entry wages,employer change,adverse selection,signalling |
| JEL: | J24 J31 J62 J63 M52 M53 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12014&r=bec |
| By: | Stüber, Heiko (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "So far little empirical evidence exists on how real wages of newly hired workers react to business cycle conditions. This paper aims at filling this gap for Germany by analyzing the cyclical behavior of real wages of newly hired workers while controlling for 'cyclical upgrading' and 'cyclical downgrading' in employee/employer matches over the cycle. The analysis is undertaken for the 1977 to 2009 period using administrative longitudinal matched employer-employee wage data. I find that an increase in the unemployment rate of one percentage point decreases the real wages of job entries within given firm-jobs by about 1.27 percent. In light of the magnitude of the entry-wage cyclicality it seems that introducing wage rigidity in the Mortensen- Pissarides model in order to amplify realistic volatility of unemployment is not supported by the data. Further I show that the procyclicality of the employment/ population ratio is identical to the procyclicality of real entry wages. This counters the view of many macroeconomists that wages are much less cyclical than employment and unemployment." (Author's abstract, IAB-Doku) ((en)) |
| Keywords: | Reallohn, Lohntheorie, Lohnelastizität, Konjunkturzyklus, Arbeitslosigkeit, Lohnstarrheit |
| JEL: | E24 J31 E32 |
| Date: | 2012–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201206&r=bec |
| By: | Stuetzer, Michael; Obschonka, Martin; Schmitt-Rodermund, Eva |
| Abstract: | This paper examines the effects and origins of balanced skills among nascent entrepreneurs. In a first step we apply Lazear’s jack-of-all-trades theory to investigate performance effects of a balanced skill set. Second, we investigate potential sources of balanced skills, thereby testing the investment hypothesis against the endowment hypothesis. Analyzing data on high-potential nascent projects, we find support for the notion that balanced skills are important for making progress in the venture creation process. Regarding the origins of balanced skills, the data support both hypotheses. In line with the investment hypothesis an early interest in an entrepreneurial career, prior managerial and entrepreneurial experience are significantly related with a more balanced skill set. Supporting the endowment hypothesis, an entrepreneurial personality profile indicating entrepreneurial talent is correlated with a balanced skill set. Our results thus hint at the need for theories on the origins of a balanced skill set that integrate both views. |
| Keywords: | Nascent entrepreneurship; balanced skills; human capital; new venture creation; entrepreneurship |
| JEL: | L26 J24 M13 |
| Date: | 2012–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37524&r=bec |
| By: | König, Michael; Lorenz, Jan; Zilibotti, Fabrizio |
| Abstract: | We develop a tractable dynamic model of productivity growth and technology spillovers that is consistent with the emergence of real world empirical productivity distributions. Firms can improve productivity by engaging in in-house R&D, or alternatively, by trying to imitate other firms’ technologies subject to limits to their absorptive capacities. The outcome of both strategies is stochastic. The choice between in-house R&D and imitation is endogenous, and based on firms’ profit maximization motive. Firms closer to the technological frontier have less imitation opportunities, and tend to choose more often in-house R&D, consistent with the empirical evidence. The equilibrium choice leads to balanced growth featuring persistent productivity differences even when starting from ex-ante identical firms. The long run productivity distribution can be described as a traveling wave with tails following Zipf’s law as it can be observed in the empirical data. Idiosyncratic shocks to firms’ productivities of R&D reduce inequality, but also lead to lower aggregate productivity and industry performance. |
| Keywords: | absorptive capacity; growth; innovation; productivity difference; quality ladder; spillovers |
| JEL: | E10 O40 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8843&r=bec |
| By: | Giancarlo Corsetti (Cambridge University); Luca Dedola (European Central Bank); Francesca Viani (Banco de España) |
| Abstract: | We decompose the correlation between relative consumption and the real exchange rate into its dynamic components at different frequencies. Using multivariate spectral analysis techniques we show that, at odds with a high degree of risk-sharing, in most OECD countries the dynamic correlation tends to be quite negative, and signifi cantly so, at frequencies lower than two years —the appropriate frequencies for assessing the performance of international business cycle models. Theoretically, we show that the dynamic correlation over different frequencies predicted by standard open-economy models is the sum of two terms: a term constant across frequencies, which can be negative when uninsurable risk is large; and a term variable across frequencies, which in bond economies is necessarily positive, refl ecting the insurance that intertemporal trade provides against forecastable contingencies. Numerical analysis suggests that leading mechanisms proposed by the literature to account for the puzzle are consistent with the evidence across the spectrum. |
| Keywords: | Consumption-exchange rate anomaly, incomplete markets, frequency domain analysis |
| JEL: | F41 F42 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1212&r=bec |
| By: | Vasconcelos, Helder |
| Abstract: | This paper studies the role of the failing firm defense (FFD) concept in merger control in a Cournot setting where: (i) endogenous mergers are motivated by prospective efficiency gains; and (ii) mergers must be submitted to an Antitrust Authority which might require partial divestiture for approval. It is shown that when the FFD concept is available in merger control, firms can strategically embark on a merger which makes other firms fail and then buy over the exiting outsider firm(s), leading to complete monopolization of the industry. This in turn implies that, in some circumstances, the consumers'-surplus-maximizing market structure cannot be achieved if the FFD concept is available, whereas it would be achieved if the FFD concept were ruled out. |
| Keywords: | Efficiency gains; Endogenous mergers; Failing firm defense; Merger review |
| JEL: | D43 L13 L41 L51 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8878&r=bec |
| By: | Felbermayr, Gabriel; Hauptmann, Andreas (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Schmerer, Hans-Jörg (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "In theoretical trade models with variable markups and collective wage bargaining, export exposure may reduce the exporter wage premium. We test this prediction using linked German employer-employee data from 1996 to 2007. To separate the rent-sharing mechanism from assortative matching, we exploit individual worker information to construct profitability measures that are free of skill composition. We find that rent-sharing is less pronounced in more export intensive firms or in more open industries. The exporter wage premium is highest for low productivity firms. In line with theory, these findings are unique to the subsample of plants covered by collective bargaining." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | F16 J51 E24 J3 |
| Date: | 2012–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201207&r=bec |
| By: | Barlo, Mehmet; Ayca, Ozdogan |
| Abstract: | This paper analyzes optimal contracts in a linear hidden-action model with normally distributed returns possessing two moments that are governed jointly by two agents, who can observe each others' effort levels and draft enforceable side-contracts on chosen effort levels and realized returns. After showing that standard constraints, resulting in incentive-contracts, may fail to ensure implementability, we examine (centralized) collusion-proof contracts and (decentralized) team-contracts. We prove that optimal team-contracts provide the highest implementable returns to the principal. In other words, the principal may restrict attention to outsourcing/decentralization without any loss of generality. Moreover, situations in which incentive-contracts are collusion-proof, thus implementable, are fully characterized. |
| Keywords: | Principal-agent problems; moral hazard; linear contracts; side--contracting; collusion; team; outsourcing; decentralization |
| JEL: | D82 M12 J30 |
| Date: | 2012–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37449&r=bec |
| By: | Camacho, Maximo; Pérez-Quirós, Gabriel; Poncela, Pilar |
| Abstract: | We extend the Markov-switching dynamic factor model to account for some of the specificities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as ragged edges and mixed frequencies. We examine the theoretical benefits of this extension and corroborate the results through several MonteCarlo simulations. Finally, we assess its empirical reliability to compute real-time inferences of the US business cycle. |
| Keywords: | Business Cycles; Output Growth; Time Series |
| JEL: | C22 E27 E32 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8866&r=bec |
| By: | Stephan Manning; Silvia Massini; Carine Peeters; Arie Lewin |
| Abstract: | This paper studies the co-evolution of firm boundaries and capabilities by examining the influence and interplay of process commoditization, changing external availability of capabilities and firm specific paths of governance decisions, along with strategic drivers guiding these decisions. We test hypotheses on a unique and comprehensive panel of global services sourcing projects from early experiments in 1980s through 2011. Our findings suggest that initial firm governance decisions are strongly influenced by process commoditization, external availability of services, and firm strategic objectives. With experience, governance decisions are primarily affected by past decisions and emerging – internal and/or external – sourcing capabilities. The results indicate persistent heterogeneity of boundary configurations as firm and supplier capabilities develop and differentiate over time. |
| Keywords: | Disintegration; task commoditization; global service providers; capabilities; path dependence; global sourcing |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/113020&r=bec |
| By: | Alessandro Bucciol (Department of Economics (University of Verona)); Marco Piovesan (Harvard Business School) |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:12/2012&r=bec |
| By: | Lincoln, James R.; Doerr, Bernadette |
| Abstract: | This paper uses 1980’s survey data on large samples of American and Japanese factories and their employees to examine how organization (factory) cultures then differed between Japan and the U. S. and how they affected employee loyalty – intention to leave or stay. Central to the analysis is the idea, taken from Blau’s seminal 1962 paper, that cultural effects may operate at the individual-level through the values, beliefs, and norms employees accept and “internalize†but also at the group- (including organization-) level through the mechanism of social pressure aimed at inducing conformity. Following Benedict’s classic attribution of a “shame†culture to Japan and “guilt†culture to the U. S., we predict and find that cultural dimensions pertaining to company paternalism/familism and group work shape employee loyalty chiefly at the organization-level in Japan and chiefly at the individual-level in the U. S. This conclusion is qualified, however, by the finding that in both countries the “strength†(within-plant variance) of the culture conditions the size of the cultural effects. They are larger when the culture is stronger. Apart from question of the level at which cultural effects operate, we find, consistent with most expectations, that Japanese employees are more loyal (that is, less inclined to quit) in the presence of organization cultures favoring paternalism/familism, groupism, and vertical cohesion (close/frequent supervision). The reverse is in general true of the American employees. |
| Keywords: | Human Resources Management and Services, International Business, Employee Loyalty, Japan, United States |
| Date: | 2012–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:indrel:qt8sc9k91b&r=bec |
| By: | Lagerlöf, Johan N. M. |
| Abstract: | Although naive intuition may indicate the opposite, the existing literature suggests that uncertainty about costs in the homogeneous-good Bertrand model intensifies competition: it lowers price and raises total surplus (but also makes profits go up). Those results, however, are derived under two assumptions that, if relaxed, conceivably could reverse the results. The present paper first shows that the results hold also if drastic innovations are possible. Next, the paper assumes asymmetric cost distributions, a possibility that is empirically highly plausible but which has been neglected in the previous literature. Using numerical methods it is shown that, under this assumption, uncertainty lowers price and raises total surplus even more than with identical distributions. However, if the asymmetry is large enough, industry profits are lower under uncertainty; this is in contrast to the known results and reinforces the notion that uncertainty intensifies competition rather than softens it. |
| Keywords: | asymmetric auctions; asymmetric firms; auctions with endogenous quantity; Bertrand competition; boundary value method; Hansen-Spulber model; information sharing; oligopoly; private information |
| JEL: | D43 D44 L13 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8817&r=bec |
| By: | Halldin, Torbjörn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | This paper investigates whether employee characteristics matter for firm survival. The focus of the paper is on born global firms both within the manufacturing and KIBS industries. A Cox proportional hazard model is implemented to find hazard ratios of the included employee and control variables. The results show little significance of individual employee characteristics as determinant for survival rates when born global firms are investigated. Furthermore, neither spinouts nor firms categorized as future exporters show much significance on individual characteristics. However, when the sample is extended to include the total amount of new firms, we see that individual employee characteristics matter for survival. This is especially true for measurements of education levels, which affect survival rates positively. |
| Keywords: | Born global firms; firm survival; employee characteristics; Cox proportional hazard model |
| JEL: | F14 L25 L26 M13 M21 |
| Date: | 2012–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0271&r=bec |
| By: | Alvarez, Fernando E; Lippi, Francesco |
| Abstract: | We model the pricing decisions of a multi-product firm that faces a fixed 'menu' cost: once the cost is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm’s decision in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products that are sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The cumulative response of output to a monetary shock is the product of three terms: the steady state standard deviation of price changes, the average time elapsed between price changes, and a function of both the number of products and the size of the monetary shock. The size of the cumulative response of output and the length of the half-life of the response of aggregate prices to a monetary shock increase with the number of products, both of them more than double as the number of products goes from 1 to ten, quickly converging to the ones of Taylor’s staggered price model. |
| Keywords: | economies of scope in price changes; fixed costs; impulse responses; menu cost; monetary shocks; optimal control in multiple dimensions; quasi-variational inequalities |
| JEL: | E3 E5 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8863&r=bec |
| By: | Leonel Muinelo-Gallo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | This paper analyses the relationship between productivity, innovation and research at firm level using an extension of CDM's model. The study es performed for spanish manufacturing sector firms using information fron the "Encuesta sobre innovación tecnológica en las empresas" 2000 and 2004. The empirical results suggests that public funds, size of the firms and participation in internationalized markets plays an important role in the decisions to perform internal research activities. In addition, the firms that perform an internal effort in research activities are more probable that become innovative of product and/or of process. Finally, the estimations also emphasize that increases in productivity are positively correlated with the introduction of new products and/or processes and the intensity of the physical capital. |
| Keywords: | innovation, research, productivity |
| JEL: | O31 O32 D24 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-02-12&r=bec |
| By: | Fabra, Natalia; García, Alfredo |
| Abstract: | We develop a continuous-time dynamic model with switching costs. In a relatively simple Markov Perfect equilibrium, the dominant firm concedes market share by charging higher prices than the smaller firm. In the short-run, switching costs might have two types of anti-competitive effects: first, higher switching costs imply a slower transition to a symmetric market structure and a slower rate of decline for average prices; and second, if firms are sufficiently asymmetric, an increase in switching costs also leads to higher current prices. However, as market structure becomes more symmetric, price competition turns fiercer and in the long-run, switching costs have a pro-competitive effect. From a policy perspective, we conclude that switching costs should only raise concerns in concentrated markets. |
| Keywords: | continuous-time model; firms' asymmetries; Markov-perfect equilibrium; switching costs |
| JEL: | C61 L13 L41 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8849&r=bec |
| By: | Bigoni, Maria; Potters, Jan; Spagnolo, Giancarlo |
| Abstract: | Flexibility - the ability to react swiftly to others' choices - facilitates collusion by reducing gains from defection before opponents react. Under imperfect monitoring, however, flexibility may also hinder collusion by inducing punishment after too few noisy signals. The combination of these forces predicts a non-monotonic relationship between flexibility and collusion. To test this subtle prediction we implement in the laboratory an indefinitely repeated Cournot game with noisy price information and vary how long players have to wait before changing output. We find that (i) the facilitating role of flexibility is lost under imperfect monitoring, and (ii) with learning, collusion unravels with low or high flexibility, but not with intermediate flexibility. |
| Keywords: | Collusion; Cooperation; Flexibility; Imperfect monitoring; Oligopoly; Repeated games. |
| JEL: | C73 C92 D43 L13 L14 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8877&r=bec |
| By: | Weeds, Helen |
| Abstract: | The paper examines incentives for exclusive distribution of premium television content such as live sports and Hollywood movies. Static analysis shows that a pay TV operator with premium content always chooses to supply its retail rival, using per-subscriber fees to soften competition. Incorporating platform competition, however, exclusive content gives its holder a market share advantage that is amplified by dynamic effects. Under some conditions this benefit outweighs the opportunity cost of forgone wholesale fees, making exclusivity the equilibrium choice. The analysis explains the observed incidence of content exclusivity in pay TV. Specific dynamic mechanisms are explored, and welfare and policy implications are discussed. |
| Keywords: | exclusivity; foreclosure; pay TV |
| JEL: | D43 L13 L41 L82 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8781&r=bec |