nep-bec New Economics Papers
on Business Economics
Issue of 2012‒04‒10
25 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Nonlinear dynamics in a Cournot duopoly with relative profit delegation By Fanti, Luciano; Gori, Luca; Sodini, Mauro
  2. Does E-commerce Increase Employment in Japan? An empirical analysis based on the Establishment and Enterprise Census (Japanese) By KWON Hyeog Ug
  3. Performance Pay, CEO Dismissal, and the Dual Role of Takeovers By Mike Burkart; Konrad Raff
  4. Endogenous Entry, Product Variety and Business Cycles By Florin Bilbiie; Fabio Ghironi; Marc Melitz
  5. Market Expansion and Productivity Growth: Do New Domestic Markets Matter As Much As New International Markets? By Baldwin, John R.<br/> Yan, Beiling
  6. The Mystery of Zero-Leverage Firms By Ilya A. Strebulaev; Baozhong Yang
  7. Corporate Reputation: Is Your Most Strategic Asset at Risk? By Nathalie de Marcellis-Warin; Serban Teodoresco
  8. Who Suffers During Recessions? By Hilary W. Hoynes; Douglas L. Miller; Jessamyn Schaller
  9. Interpreting the Hours-Technology time-varying relationship By Cristiano Cantore; Filippo Ferroni; Miguel A León-Ledesma
  10. Revisiting system theories in Strategic Human Resource Management - A set-theoretic analysis of high performing firms in the UK By Johannes Meuer; Henric van der Ent
  11. The effect of risk preferences on the valuation and incentives of compensation contracts By Pierre Chaigneau
  12. Layoffs, Lemons and Temps By Christopher L. House; Jing Zhang
  13. Business credit information sharing and default risk of private firms By Maik Dierkes; Carsten Erner; Thomas Langer; Lars Norden
  14. Financing Constraints, Firm Dynamics, Export Decisions and Aggregate productivity By Andrea Caggese; Vincente Cunat
  15. Corporate balance sheet adjustment: stylized facts, causes and consequences By Eric Ruscher; Guntram Wolff
  16. Collusion and the Political Differentiation of Newspapers By Filistrucchi, L.; Antonielli, M.
  17. Product quality, competition, and multi-purchasing By Anderson, Simon P.; Foros, Øystein; Kind, Hans Jarle
  18. Strategic Investment, Industry Concentration and the Cross Section of Returns By Maria Cecillia Bustamante
  19. Complicated Firms By Lauren Cohen; Dong Lou
  20. Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion By Pierre Chaigneau
  21. Investment Busts, Reputation, and the Temptation to Blend in with the Crowd By Steven Grenadier; Andrey Malenko; Ilya A. Strebulaev
  22. Costly Labor Adjustment: Effects of China's Employment Regulations By Russell Cooper; Guan Gong; Ping Yan
  23. Diversified boundaries of the firm By Kimura, Koichiro
  24. Campaign Contributions over CEOs’ Careers By Adam R. Fremeth; Brian Kelleher Richter; Brandon Schaufele
  25. The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance By Robert G. Eccles; Ioannis Ioannou; George Serafeim

  1. By: Fanti, Luciano; Gori, Luca; Sodini, Mauro
    Abstract: The present study analyses the dynamics of a nonlinear Cournot duopoly with managerial delegation and bounded rational players. Problems concerning strategic delegation (based on relative performance evaluations) have recently received in depth attention in both the theoretical and empirical industrial economics literatures. In this paper, we take a dynamic view of this problem and assume that the owners of both firms hire a manager and delegate output decisions to him. Each manager receives a fixed salary plus a bonus offered in a publicly observable contract. The bonus entitled to the manager hired by the owner of every firm is based on relative (profit) performance. Managers of both firms may collude or compete. In such a context, we find, in either cases of collusion and low degree of competition, that synchronised dynamics takes place. However, when the degree of competition increases the dynamics can undergo symmetry-breaking bifurcations that may cause relevant global phenomena. In particular, on-off intermittency and blow-out bifurcations are observed for several parameter values. Moreover, coexistence of attractors may also occur. The global behaviour of the noninvertible map is investigated through the study of the transverse Lyapunov exponent and the folding action of the critical curves of the map. These phenomena are impossible under profit maximisation.
    Keywords: Cournot; Managerial delegation; Nonlinear dynamics; Oligopoly; Relative profits
    JEL: L13 D43 C62
    Date: 2012–04–04
  2. By: KWON Hyeog Ug
    Abstract: Using firm-level data from the Establishment and Enterprise Census for 2001 and 2006, we explore the effects of e-commerce on the employment growth rate. In the regression analysis for only the surviving firms between 2001 and 2006, we find that employment grew more rapidly for firms which adopted e-commerce, even when controlling for firm size, age, ownership structure, and industry characteristics. To examine the difference of effects of e-commerce across industries, we divide the whole sample into manufacturing, commerce, and service. We find that e-commerce has a positive influence on employment, irrespective of industries.
    Date: 2012–03
  3. By: Mike Burkart; Konrad Raff
    Abstract: We propose that an active takeover market provides incentives by o¤ering acqui- sition opportunities to successful managers. This allows ?rms 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 per- forming managers. The joint impact of the two mechanisms on managerial turnover is, however, multi-faceted: In ?rms with strong boards, turnover and performance- based pay are non-monotonic in the intensity of the takeover threat. In ?rms with weak boards, turnover (performance-based pay) increases (decreases) with the in- tensity of the takeover threat. When choosing its acquisition policy and the quality of its board, each ?rm ignores the adverse e¤ect on other ?rms?acquisition oppor- tunities and takeover threat. As a result, the takeover market is not su¢ ciently liquid and too few takeovers occur.
    Date: 2011–11
  4. By: Florin Bilbiie (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Fabio Ghironi (Department of Economics - Boston College); Marc Melitz (Department of Economics - Harvard university (Cambridge, USA))
    Abstract: This paper builds a framework for the analysis of macroeconomic fluctuations that incorporates the endogenous determination of the number of producers and products over the business cycle. Economic expansions induce higher entry rates by prospective entrants subject to irreversible investment costs. The sluggish response of the number of producers (due to sunk entry costs and a time-to-build lag) generates a new and potentially important endogenous propagation mechanism for real business cycle models. The return to investment (corresponding to the creation of new productive units) determines household saving decisions, producer entry, and the allocation of labor across sectors. The model performs at least as well as the benchmark real business cycle model with respect to the implied second-moment properties of key macroeconomic aggregates. In addition, our framework jointly predicts procyclical product variety and procyclical profits even for preference specifications that imply countercyclical markups. When we include physical capital, the model can simultaneously reproduce most of the variance of GDP, hours worked, and total investment found in the data.
    Keywords: Business cycle propagation; Entry; Markups; Product creation; Profits; Variety
    Date: 2012
  5. By: Baldwin, John R.<br/> Yan, Beiling
    Abstract: This paper asks how market expansion contributes to productivity growth. It investigates whether entry to both new international markets and new domestic markets is associated with greater productivity growth. It also examines whether exit from export markets is necessarily associated with deteriorating performance or whether it too can lead to success when associated with movements to new markets. Finally, the paper examines the strategy of firms that move to new markets after they withdraw from export markets in order to examine the differences that set them apart from their counterparts that do not find themselves able to adapt because they simply withdraw to their home domestic markets.
    Keywords: International trade, Manufacturing, Business performance and ownership, Economic accounts, Merchandise exports, Business adaptation and adjustment, Merchandise imports, Productivity accounts, Trade patterns
    Date: 2012–03–20
  6. By: Ilya A. Strebulaev; Baozhong Yang
    Abstract: This paper documents the puzzling evidence that a substantial number of large public non-financial US firms follow a zero-debt policy. Over the 1962-2009 period, on average 10.2% of such firms have zero debt and almost 22% have less than 5% book leverage ratio. Neither industry nor size can account for such puzzling behavior. Zero-leverage behavior is a persistent phenomenon, with 30% of zero-debt firms refrain from debt for at least five consecutive years. Particularly surprising is the presence of a large number of zero-leverage firms who pay dividends. They are more profitable, pay higher taxes, issue less equity, and have higher cash balances than their proxies chosen by industry and size. These firms also pay substantially higher dividends than their proxies and thus their total payout ratio is virtually independent of leverage. Firms with higher CEO ownership and longer CEO tenure are more likely to follow a zero-leverage policy, especially if boards are smaller and less independent. Family firms are also more likely to be zero-levered. Our results suggest that managerial and governance characteristics are related to the zero-leverage phenomena in an important way.
    JEL: G3 G32 G34 G35
    Date: 2012–03
  7. By: Nathalie de Marcellis-Warin; Serban Teodoresco
    Abstract: Corporate reputation is increasingly identified as the most important strategic asset in value creation for a company. Scholarly interest in the concept of corporate reputation has led to a five-fold increase in the number of peer-reviewed articles and studies over the past decade (Barnett et al., 2006). Yet, there is no commonly accepted definition. <p> We propose a definition of corporate reputation based on a number of academic sources as well as work by practitioners. Corporate reputation is an intangible asset that is built up over time and represents the value and trust that stakeholders have for the company. It is a key asset, which favours the achievement of strategic objectives such as value creation, profitable growth, and sustainable competitive advantage. <p> Companies’ reputations are more vulnerable than ever today because of globalization, increasing business complexity, economic and financial turbulence, the exponential growth of social media, and the speed of the news cycle. These factors can provoke difficult to predict crises which can destroy even the most carefully built reputations. Recently, both corporate board members and risk management professionals identified risk to reputation as the number one risk facing companies (EisnerAmper, 2011; Economist Intelligence Unit, 2005). <p> We are all aware of crises that have severely damaged well established corporate reputations, causing at the same time a dramatic loss of stock market value. One example is Canada’s largest, most prestigious tech company, Research In Motion. RIM began 2011 as Canada’s fifth most admired company in ratings established by Canadian Business magazine and the Reputation Institute (Canadian Business, May 19, 2011). Then, a failed product launch and a disastrous loss of service to millions of Blackberry users set the company on a steep slide in value. The loss of trust in RIM intensified when company executives waited three days before offering a public explanation and apology for the loss of service. RIM shares dropped 75 percent in value between March and December of 2011 (Canadian Business, January 19, 2012). A more recent case, in February 2012, is that of Canada’s most respected engineering firm SNC-Lavalin, which has seen its shares drop by over 20 percent due to issues of questionable expenses. <p> This report combines the authors’ exploratory study of Quebec’s top companies with the review of most of the current studies and research on corporate reputation published over the last 12 years. <p> Our Quebec survey shows that only half the companies surveyed recognize the importance of reputation. None appear to be managing reputation in a proactive way. <p> CIRANO and Preventa will introduce a framework and processes to improve the way organizations manage their most valuable asset. This report provides a road map for companies to make the transition from reactive management to proactive management of reputation. <P>
    Date: 2012–03–01
  8. By: Hilary W. Hoynes; Douglas L. Miller; Jessamyn Schaller
    Abstract: In this paper we examine how business cycles affect labor market outcomes in the United States. We conduct a detailed analysis of how cycles affect outcomes differentially across persons of differing age, education, race, and gender, and we compare the cyclical sensitivity during the Great Recession to that in the early 1980s recession. We present raw tabulations and estimate a state panel data model that leverages variation across US states in the timing and severity of business cycles. We find that the impacts of the Great Recession are not uniform across demographic groups and have been felt most strongly for men, black and Hispanic workers, youth, and low education workers. These dramatic differences in the cyclicality across demographic groups are remarkably stable across three decades of time and throughout recessionary periods and expansionary periods. For the 2007 recession, these differences are largely explained by differences in exposure to cycles across industry-occupation employment.
    JEL: J11 J21
    Date: 2012–03
  9. By: Cristiano Cantore; Filippo Ferroni; Miguel A León-Ledesma
    Abstract: We investigate the time variation in the correlation between hours and technology shocks using a structural business cycle model. We propose an RBC model with a Constant Elasticity of Substitution (CES) production function that allows for capital- and labor-augmenting technology shocks. We estimate the model using US data with Bayesian techniques. In the full sample, we find (i) evidence in favor of a less than unitary elasticity of substitution (rejecting Cobb-Douglas) and (ii) a sizable role for capital augmenting shock for business cycles fluctuations. In rolling sub-samples, we document that the impact of technology shocks on hours worked varies over time and switches from negative to positive towards the end of the sample. We argue that this change is due to the increase in the elasticity of factor substitution. That is, labor and capital became less complementary throughout the sample inducing a change in the sign and size of the the response of hours. We conjecture that this change may have been induced by a change in the skill composition of the labor input.
    Keywords: Real Business Cycles models; Constant Elasticity of Substitution production function; Hours worked dynamics
    JEL: E32 E37 C53
    Date: 2012–01
  10. By: Johannes Meuer (Department of Business Administration, University of Zurich and Rotterdam School of Management, Erasmus University); Henric van der Ent (Rotterdam School of Management, Erasmus University)
    Abstract: Prior research has produced ambiguous support for theories on the nature and construction of Human Resource Management (HRM) systems. This ambiguity may be a function of the inherent limitations of the methodologies used in previous studies. We resume efforts by using a configurational methodology to analyze high performing HRM systems of 374 UK based firms. We reveal the multi-dimensional nature of successful and unsuccessful HRM systems. By providing a typology for comparing the interdependencies among vital and peripheral functions, we are able to describe and explain competitive advantages that rest in the orchestrating themes and integrative mechanisms of HRM systems.
    Keywords: Strategic HRM, Organizational configurations, fsQCA
    JEL: O15 L22
    Date: 2012–03
  11. By: Pierre Chaigneau
    Abstract: We use a comparative approach to study the incentives provided by dierent types of compensation contracts, and their valuation by risk averse managers, in a fairly general setting. We show that concave contracts tend to provide more incentives to risk averse managers, while convex contracts tend to be more valued by prudent managers. Thus, prudence can contribute to explain the prevalence of stock-options in executive compen- sation. We also present a condition on the utility function which enables to compare the structure of optimal contracts associated with dierent risk preferences.
    Date: 2012–01
  12. By: Christopher L. House; Jing Zhang
    Abstract: We develop a dynamic equilibrium model of labor demand with adverse selection. Firms learn the quality of newly hired workers after a period of employment. Adverse selection makes it costly to hire new workers and to release productive workers. As a result, firms hoard labor and under-react to labor demand shocks. The adverse selection problem also creates a market for temporary workers. In equilibrium, firms hire a buffer stock of permanent workers and respond to changing business conditions by varying their temp workers. A hiring subsidy or tax can improve welfare by discouraging firms from hoarding too many productive workers.
    JEL: D82 E24 J23
    Date: 2012–03
  13. By: Maik Dierkes (Finance Center Mnster, University of Mnster); Carsten Erner (Finance Center Mnster, University of Mnster); Thomas Langer (Finance Center Mnster, University of Mnster); Lars Norden (Rotterdam School of Management, Erasmus University)
    Abstract: We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms' payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher for smaller and less distant firms. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.
    Keywords: Asymmetric information, Credit bureau, Credit risk, Hard and soft information, Private firms
    JEL: D82 G21 G32 G33
    Date: 2012–03
  14. By: Andrea Caggese; Vincente Cunat
    Abstract: We develop a dynamic industry model where financing frictions affect the entry decisions of new firms in the home market, as well as the riskiness of operating firms. These two factors in turn determine a joint endogenous distribution of firms across productivity, volatility and financial wealth. We show that this endogenous distribution is crucial to understand export and productivity dynamics after a trade liberalization. In particular, the calibrated model predicts that financing frictions have an ambiguous effect on the number of firms starting to export. They reduce the ability of firms to finance the fixed costs necessary to start exporting, but they also change the distribution of domestic firms so that most of them find more profitable to access foreign markets. More importantly, the model predicts that financing constraints, even when they have a negligible net effect on the number of exporting firms, reduce the aggregate productivity gains induced by trade liberalization by 30% to 50%, because they distort the selection into export of the most productive firms. In the second part of the paper we verify the main predictions of the model with a rich dataset of Italian manufacturing firms for the period 1995-2003.
    Date: 2011–06
  15. By: Eric Ruscher; Guntram Wolff
    Abstract: Using national account data, we define corporate balance sheet adjustment episodes as periods during which major increases in non-financial corporations' net lending/borrowing are experienced. An analysis of such episodes in Germany and Japan, and a more systematic exploration of a sample of 30 countries, show that corporate balance sheet adjustment tends to be long lasting and associated with significant effects on current accounts, wages and investment. The adjustment is generally achieved by reducing investment and increasing savings on the back of a falling wage share. A panel econometric exercise shows that balance sheet adjustment periods are triggered by macroeconomic downturns as well as balance sheet stress due to high debt, low liquidity and negative equity price shocks.
    JEL: E62 H20 H30
    Date: 2012–02
  16. By: Filistrucchi, L.; Antonielli, M. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We analyse a newspaper market where two editors first choose the political position of their newspaper, then set cover prices and advertising tariffs. We build on the work of Gabszewicz, Laussel and Sonnac (2001, 2002), whose model of competition among newspaper publishers we take as the stage game of an infinitely repeated game, and investigate the incentives to collude and the properties of the collusive agreements in terms of welfare and pluralism. We analyse and compare two forms of collusion: in the first, publishers cooperatively select both prices and political position; in the second, publishers cooperatively select prices only. We show that collusion on prices reinforces the tendency towards a Pensée Unique discussed in Gabszewicz, Laussel and Sonnac (2001), while collusion on both prices and the political line would tend to mitigate it. Our findings question the rationale for Joint Operating Agreements among US newspapers, which allow publishers to cooperate in setting cover prices and advertising tariffs but not the editorial line. We also show that, whatever the form of collusion, incentives to collude first increase, then decrease as advertising revenues per reader increase.
    Keywords: collusion;newspapers;two-sided markets;indirect network effects;pluralism;spatial competition.
    JEL: L41 L82 D43 K21
    Date: 2012
  17. By: Anderson, Simon P.; Foros, Øystein; Kind, Hans Jarle
    Abstract: In a Hotelling duopoly model, we introduce quality that is more appreciated by closer consumers. Then higher common quality raises equilibrium prices, in contrast to the standard neutrality result. Furthermore, we allow consumers to buy one out of two goods (single-purchase) or both (multi-purchase). Prices are strategically independent when some consumers multi-purchase because suppliers price the incremental benefit to marginal consumers. In a multi-purchase regime, there is a hump-shaped relationship between equilibrium prices and quality when quality functions overlap. If quality is sufficiently good, it might be a dominant strategy for each supplier to price high and eliminate multi-purchase.
    Keywords: content competition; hotelling model with quality; incremental pricing; multi-purchase
    JEL: D12 D71 D82 H41 O12
    Date: 2012–04
  18. By: Maria Cecillia Bustamante
    Abstract: This paper provides an alternative real options framework to assess how firms strategic interaction under imperfect competition a¤ects the industrial dynamics of investment, concentration, and expected returns. When firms have similar production technologies, the cross sectional variation in expected returns is low, firms investments are more synchronized, .rms. expected returns co-move positively, and the industry is less concentrated. Conversely, in more heterogeneous industries, the cross sectional variation in expected returns is high, there are leaders and followers whose expected returns co-move negatively, and the industry is more concentrated. The model rationalizes several empirical facts, including: (i) that firms returns co-move more positively in less concentrated industries; (ii) that booms and busts in industry returns are more pronounced in less concentrated industries; and (iii) that less concentrated industries earn higher returns on average.
    Date: 2011–06
  19. By: Lauren Cohen; Dong Lou
    Abstract: We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyse firms to their more complicated peers. Specifically, a simple portfolio strategy that takes advantage of this straightforward vs. complicated information processing classification yields returns of 118 basis points per month. Consistent with processing complexity driving the return relation, we further show that the more complicated the firm, the more pronounced the return predictability. In addition, we find that sell-side analysts are subject to these same information processing constraints, as their forecast revisions of easy-to-analyse firms predict their future revisions of more complicated firms.
    Date: 2011–06
  20. By: Pierre Chaigneau
    Abstract: It is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if CRRA preferences are postulated. However, we demonstrate that this model has potentially a high explanatory power with preferences with decreasing relative risk aversion, in the sense that a typical CEO contract is approximately optimal for plausible preference parameters.
    Date: 2011–10
  21. By: Steven Grenadier; Andrey Malenko; Ilya A. Strebulaev
    Abstract: We provide a dynamic model of an industry in which agents strategically time liquidation decisions in an effort to protect their reputations. As in traditional models, agents delay liquidation attempting to signal their quality. However, when the industry faces a common shock that indiscriminately forces liquidation of a subset of projects, agents with bad enough projects choose to liquidate even if their projects are unaffected by the shock. Such "blending in with the crowd" creates an additional incentive to delay liquidation, further amplifying the shock. As a result, even minuscule common shocks can be evidenced by massive liquidations. As agents await common shocks, the industry accumulates "living dead" projects. Surprisingly, the potential for moderate negative common shocks often improves agents values.
    JEL: G01 G24 G31 G32 G33
    Date: 2012–03
  22. By: Russell Cooper; Guan Gong; Ping Yan
    Abstract: This paper studies the employment and productivity implications of new labor regulations in China. These new restrictions are intended to protect workers' employment conditions by, among other things, increasing firing costs and increasing compensation. We estimate a model of costly labor adjustment from data prior to the policy. We use the estimated model to simulate the effects of the policy. We find that increases in severance payments lead to sizable job creation, a significant reduction in labor reallocation and an increase in the exit rate. A policy of credit market liberalization will reduce employment, slightly increase labor reallocation and reduce exit. The estimated elasticity of labor demand is about unity so that an increase in the base wage leads to sizable job losses.
    JEL: E24 J08 J23 O38 O53 P2
    Date: 2012–03
  23. By: Kimura, Koichiro
    Abstract: We analyze diversification of boundaries of local firms in developing countries under the economic globalization. The globalization has an aspect of homogenization of the world economy, but also has another aspect of diversification through international economic activities. Focusing on boundary-level of the firm, this article shows that the diversification from a comparison with boundaries of foreign firms in developed countries is brought by a disadvantage of technology deficit and a home advantage as local firms.
    Keywords: Developing countries, China, Manufacturing industries, Industrial management, Globalization, Industrial technology, Telephone, Diversification, Technology gaps, Home advantage, Boundaries of firms
    JEL: D21 M11 O12 O14
    Date: 2012–03
  24. By: Adam R. Fremeth (Richard Ivey School of Business, University of Western Ontario, London, ON); Brian Kelleher Richter (Richard Ivey School of Business, University of Western Ontario); Brandon Schaufele (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: Individuals dominate money in politics, accounting for over 90% of campaign contributions, but studies of individuals’ giving are scarce. We show that individuals increase their personal contributions dramatically when they assume leadership roles at organizations such as labor unions, non-profits, and firms. Using a newly constructed dataset that focuses on personal contributions, we exploit variation in the leadership status of all 2,198 individuals who were S&P 500 CEOs at any point between 1991 and 2008 to identify a $4,000 jump in personal political giving when individuals become CEOs. Despite giving more money to more candidates, more political action committees (PACs), and more parties, active CEOs’ partisan orientations remain largely unchanged. Falsification tests of an underlying identification assumption demonstrate that these patterns hold whether an individual is promoted to CEO internally or appointed externally. While some fraction of CEOs’ contributions can be attributed to long-standing preferences, willingness, and ability to contribute, the striking change in behavior we identify cannot be explained by these factors alone.
    Keywords: Campaign Contributions, CEOs, Leaders, Personnel Economics, PACs
    JEL: D72 H89 K00 M59
    Date: 2012
  25. By: Robert G. Eccles; Ioannis Ioannou; George Serafeim
    Abstract: We investigate the effect of a corporate culture of sustainability on multiple facets of corporate behavior and performance outcomes. Using a matched sample of 180 companies, we find that corporations that voluntarily adopted environmental and social policies by 1993 – termed as High Sustainability companies – exhibit fundamentally different characteristics from a matched sample of firms that adopted almost none of these policies – termed as Low Sustainability companies. In particular, we find that the boards of directors of these companies are more likely to be responsible for sustainability and top executive incentives are more likely to be a function of sustainability metrics. Moreover, they are more likely to have organized procedures for stakeholder engagement, to be more long-term oriented, and to exhibit more measurement and disclosure of nonfinancial information. Finally, we provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. The outperformance is stronger in sectors where the customers are individual consumers, companies compete on the basis of brands and reputation, and in sectors where companies’ products significantly depend upon extracting large amounts of natural resources.
    JEL: G3 M14
    Date: 2012–03

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