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on Business Economics |
| By: | Guadalupe, Maria (Columbia University); Li, Hongyi (Massachusetts Institute of Technology); Wulf, Julie M. (Harvard Business School) |
| 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." |
| Keywords: | communication, organizational design, functions, centralization, M-form, hierarchy, top management team, information technology, activities, diversification |
| JEL: | J24 J33 L25 D22 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6635&r=bec |
| By: | Hvide, Hans K. (University of Aberdeen); Kristiansen, Eirik Gaard (Norwegian School of Economics (NHH)) |
| Abstract: | We study how firm-specific complementary assets and intellectual property rights affect the management of knowledge workers. The main results show when a firm will wish to sue workers that leave with innovative ideas, and the effects of complementary assets on wages and on worker initiative. We argue that firms protected weakly by complementary assets must sue leaving workers in order to obtain positive profits. Moreover, firms with more complementary assets pay higher wages and have lower turnover, but the higher pay has a detrimental effect on worker initiative. Finally, our analysis suggests that strengthening firms' property rights protection reduces turnover costs but weakens worker initiative. |
| Keywords: | entrepreneurship, innovation, intellectual property rights, litigation, personnel economics, R&D, start-ups, worker mobility |
| JEL: | J30 J60 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6609&r=bec |
| By: | Stefan Krabel (Institute of Economics and Economic Policy Research, University of Kassel); Alexander Schacht (Graduate College "The Economics of Innovative Change", Friedrich Schiller University, Germany) |
| Abstract: | Previous studies of organizations have highlighted that leadership and organizational performance have a strong and long-term impact on employee behavior in private firms. In this study, we analyze whether similar effects can also be observed in academia by examining the commercialization behavior of academic scientists. The empirical analysis is based on panel data of commercialization for the period of 1980 - 2004 within the Max Planck Society, a leading research organization in Europe. The results suggest that director engagement in disclosure activity and the amount of royalties received lead to a significant increase in invention disclosure the following year. However, we do not find the same results when modeling longer time lags. Thus, academic scientists mimic successful behavior, while leadership behavior does not have long-lasting effects on commercialization behavior within the institute. We conclude that existing organizational theories need to be modified for academic organizations. |
| Keywords: | leadership effect, technology commercialization |
| JEL: | L24 O33 O39 |
| Date: | 2012–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2012-027&r=bec |
| By: | Christian Calmès (Chaire d'information financière et organisationnelle ESG-UQAM, Laboratory for Research in Statistics and Probability, Université du Québec (Outaouais)); Raymond Théoret (Chaire d'information financière et organisationnelle ESG-UQAM, Université du Québec (Montréal), Université du Québec (Outaouais)) |
| Abstract: | Traditional leverage ratios assume that bank equity captures all changes in asset values. However, in the context of market-oriented banking, capital can be funded by additional debt or asset sales without directly influencing equity. Given the new sources of liquidity generated by off-balance-sheet (OBS), time-varying indicators of leverage are better suited to capture the dynamics of aggregate leverage. In this paper, we introduce a Kalman filter procedure to study such elasticity-based measures of broad leverage. This approach enables the detection of the build-up in bank risk years before what the traditional assets to equity ratio predicts. Most elasticity measures appear in line with the historical episodes, well tracking the cyclical pattern of leverage. Importantly, the degree of total leverage suggests that OBS banking exerts a stronger influence on leverage during expansion periods. |
| Keywords: | Basel III; Banking stability; Macroprudential policy; Herding; Macroeconomic uncertainty. |
| JEL: | C32 G20 G21 |
| Date: | 2012–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:012012&r=bec |
| By: | Kuhnen, Camelia M.; Oyer, Paul |
| Abstract: | Drawing on insights from corporate finance and personnel economics, we show that firms consider potential employees using a real options approach, much as they do when making other types of capital investment decisions. Theoretically we find that firms’ hiring decisions are influenced by the uncertainty in workers’ productivity, competition in the labor market, adjustment costs, and redeployability concerns. Firms value probationary employment arrangements that provide the option to learn about the productivity of potential hires before permanent investment occurs. Higher uncertainty and adjustment costs hinder permanent investment and increase the value of the option to learn. Greater competition for workers speeds up firm investment and increases the value of probationary employment. Higher worker redeployability leads to more investment, if firms face sufficiently low competition. We test and confirm these predictions empirically using a novel dataset with detailed recruiting information from the labor market for MBA graduates. |
| Keywords: | investment; hiring; human capital; real options; exploration; MBA labor market |
| JEL: | G31 J44 M51 |
| Date: | 2012–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39411&r=bec |
| By: | Andreas Groth (Geosciences Department, Ecole Normale Supérieure, Paris, France, Environmental Research & Teaching Institute, Ecole Normale Supérieure); Michael Ghil (Geosciences Department, Ecole Normale Supérieure, Paris, France, Environmental Research & Teaching Institute, Ecole Normale Supérieure, Paris, France Department of Atmospheric & Oceanic Sciences and Institute of Geophysics & Planetary Physics, University of California); Stéphane Hallegatte (Centre International de Recherche sur l'Environnement et le Développement, Nogent-sur-Marne, France, Ecole Nationale de la Météorologie, Météo France); Patrice Dumas (Centre International de Recherche sur l'Environnement et le Développement, Nogent-sur-Marne) |
| Abstract: | We apply the advanced time-and-frequency-domain method of singular spectrum analysis to study business cycle dynamics in a set of nine U.S. macroeconomic indicators. This method provides a robust way to identify and reconstruct shared oscillations, whether intermittent or modulated. We address the problem of spurious cycles generated by the use of detrending filters and present a Monte Carlo test to extract significant oscillations. Finally, we demonstrate that the behavior of the U.S. economy changes significantly between episodes of growth and recession; these variations cannot be generated by random shocks alone, in the absence of endogenous variability. |
| Keywords: | Advanced Spectral Methods, Comovements, Frequency Domain, Monte Carlo testing, Time Domain |
| JEL: | C15 C60 E32 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.26&r=bec |
| By: | Lorenzo Sacconi (Department of Economics, Universitˆ of Trento) |
| Abstract: | Length: 37 |
| URL: | http://d.repec.org/n?u=RePEc:ent:wpaper:wp39&r=bec |
| By: | Janick Christian Mollet (ETH Zurich); Andreas Ziegler (University of Kassel) |
| Abstract: | This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It extends the existing literature by considering both the US and the entire European stock markets as well as by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 reveals the appeal of a recently constructed financial databank comprising the common market return, size, value, and momentum factors according to Carhart (1997). These risk factors from the four-factor model allow us to estimate more reliable risk-adjusted returns than in the restrictive one-factor model based on the Capital Asset Pricing Model. In both the US and European stock markets we find that SRI is associated with large-sized firms. However, this investment strategy generally leads to insignificant abnormal returns when all four risk factors are considered so that we find no evidence that SRI is either penalized or rewarded by the stock markets. |
| Keywords: | Socially responsible investing, Corporate sustainability performance, Stock performance, Portfolio analysis, Asset pricing models, Risk factors |
| JEL: | G11 G12 Q56 M14 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201228&r=bec |
| By: | Christian Calmès (Chaire d'information financière et organisationnelle ESG-UQAM, Laboratory for Research in Statistics and Probability, Université du Québec (Outaouais)); Raymond Théoret (Chaire d'information financière et organisationnelle ESG-UQAM, Université du Québec (Montréal), Université du Québec (Outaouais)) |
| Abstract: | This paper investigates how banks, as a group, react to macroeconomic risk and uncertainty, and more specifically the way banks systemic risk evolves over the business cycle. Adopting the methodology of Beaudry et al. (2001), our results clearly suggest that the dispersion across banks traditional portfolios has increased through time. We introduce an estimation procedure based on EGARCH and refine Baum et al. (2002, 2004, 2009) and Quagliariello (2007, 2009) framework to analyze the question in the new industry context, i.e. shadow banking. Consistent with finance theory, we first confirm that banks tend to behave homogeneously vis-à-vis macroeconomic uncertainty. In particular, we find that the cross-sectional dispersions of loans to assets and non-traditional activities shrink essentially during downturns, when the resilience of the banking system is at its lowest. More importantly, our results also suggest that the cross-sectional dispersion of market-oriented activities is both more volatile and sensitive to the business cycle than the dispersion of the traditional activities. |
| Keywords: | Banking stability; Macroprudential policy; Herding; Macroeconomic uncertainty; Markov switching regime; EGARCH. |
| JEL: | C32 G20 G21 |
| Date: | 2012–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:pqs:wpaper:022012&r=bec |
| By: | Hackl, Franz; Kummer, Michael E; Winter-Ebmer, Rudolf; Zulehner, Christine |
| Abstract: | We investigate the causal effect of market structure on market performance in the consumer electronics. We combine data from Austria's largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game over the whole product lifecycle. Using this information for 70 digital cameras, we generate instrumental variables for the number of firms in the market based on the shops' entry decisions on other product markets in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price leader. |
| Keywords: | Market Performance; Market Structure; Markup; Price Dispersion; Product Lifecycle; Retailing |
| JEL: | D43 L11 L13 L81 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9001&r=bec |
| By: | Westling, Tatu |
| Abstract: | The knowledge theoretic view of organization of production postulates that ICT, tasks and hierarchies intertwine. Utilizing Occupational Employment Statistics and O*NET data, this study investigates the proposition by exploiting the substantial cross-industry variation in hierarchical forms, which are here captured by spans of control among middle and corporate managers. Information [IT] and communication technologies [CT] are explored separately, and the parsimonious task taxonomy depicts industries in four dimensions: tacit knowledge, cognitive, physical/technical and interaction. The key predictions of the knowledge hierarchy literature can hence be tested and the findings largely reverberate with theory. First, ICT influences middle and corporate manager spans dissimilarly reflecting technological asymmetries in hierarchies. Higher IT utilization narrows organizations yet CT expands middle management. Second, industry tasks govern organizational outcomes. Cognitive tasks flatten and technical/physical tasks narrow hierarchies. Third, the descriptive evidence suggests that hierarchies are highly non-pyramidal across U.S. industries. Finally, the key insight is that spans in top hierarchy are insular to tasks yet organizations down the middle management reflect the nature of industry. With some exceptions the results are robust to exogenous variation in ICT utilization. |
| Keywords: | Organization; hierarchy; span of control; tasks; ICT; cross-industry |
| JEL: | L23 J21 L22 |
| Date: | 2012–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39403&r=bec |
| By: | Douglas W. Diamond; Zhiguo He |
| Abstract: | Debt maturity influences debt overhang: the reduced incentive for highly- levered borrowers to make real investments because some value accrues to debt. Reducing maturity can increase or decrease overhang even when shorter-term debt’s value depends less on firm value. Future overhang is more volatile for shorter-term debt, making future investment incentives volatile and influencing immediate investment incentives. With immediate investment, shorter-term debt typically imposes lower overhang; longer-term debt can impose less if firm value is more volatile in bad times. For future investments, reduced correlation between the value of assets-in-place and profitability of investment increases the overhang of shorter-term debt. |
| JEL: | G32 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18160&r=bec |
| By: | Shane Greenstein; Feng Zhu |
| Abstract: | We examine whether collective intelligence helps achieve a neutral point of view using data from a decade of Wikipedia’s articles on US politics. Our null hypothesis builds on Linus’ Law, often expressed as “Given enough eyeballs, all bugs are shallow.” Our findings are consistent with a narrow interpretation of Linus’ Law, namely, a greater number of contributors to an article makes an article more neutral. No evidence supports a broad interpretation of Linus’ Law. Moreover, several empirical facts suggest the law does not shape many articles. The majority of articles receive little attention, and most articles change only mildly from their initial slant. |
| JEL: | L17 L3 L86 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18167&r=bec |
| By: | Sckokai, Paolo; Varacca, A. |
| Abstract: | This article employs a nation-wide sample of supermarket scanner data to study product and brand competition in the Italian breakfast cereal market. An Almost Ideal Demand System (AIDS) modelled to include Distance Metrics (DMs) and consistent with the methodology proposed by Pinske, Slade and Brett (2002), is estimated to study demand responses, substitution patterns, own-price and cross-price elasticities. Estimation results indicate a certain level of brand loyalty and opposite attitudes towards product type. Elasticities point out the presence of patterns of substitution within products sharing the same brand and similar nutritional characteristics. |
| Keywords: | Industrial Organization, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aieacp:124102&r=bec |
| By: | Ghazala Azmat; Rosa Ferrer Zarzuela |
| Abstract: | This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike most high-skilled professions, the legal profession has widely-used objective methods to measure and reward lawyers' productivity: the number of hours billed to clients and the amount of new-client revenue generated. We find clear evidence of a gender gap in annual performance with respect to both measures. Male lawyers bill ten-percent more hours and bring in more than double the new-client revenue. We show that the differential impact across genders in the presence of young children and the differences in aspirations to become a law-firm partner account for a large part of the difference in performance. These performance gaps have important consequences for gender gaps in earnings. While individual and firm characteristics explain up to 50 percent of earnings gap, the inclusion of performance measures explains most of the remainder. |
| Keywords: | performance measures, gender gaps, lawyers |
| JEL: | M52 J16 K40 J44 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1300&r=bec |
| By: | DiSegni, Dafna; Huly, Moshe; Akron, Sagi |
| Abstract: | In this study we statistically assess the relationship between corporate characteristics, environmental contribution, and financial performance. To this end, we compare the financial performance of all US corporations that have composed the Dow Jones Sustainability Indexs (DJSI), being the most proactive companies in providing services and goods while maintaining ethical responsibility and environmental sustainability. Performance is compared to mean performance of the related industry, sector, and the market portfolio. Our analysis suggest that firms who are proactive supporting Social Responsibility and Environmental Sustainability (SRER corporations) are characterized by significantly higher profit measures than the industry and the sector, though not higher than the entire market; have lower short term liquidity than that of the industry and the related sector, and surprisingly their long term leverage is significantly higher. High SRER corporations are characterized by significantly higher managerial efficiency ratios than the respective industry and the sector. Interestingly, the per-worker ratios are significantly lower than all the benchmarks. These results illustrate the strong relation between social and environmental sustainability and the long term business plan. Results extend existing literature that has restricted attention to Corporate Social Responsibility and financial performance, but have left aside sustainability. |
| Keywords: | Corporate Social Responsibility, Financial indicators, Sustainability, Environmental Economics and Policy, Financial Economics, Institutional and Behavioral Economics, G30, Q01, Q56, |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:124636&r=bec |
| By: | Wang, Sun Ling; McPhail, Lihong Lu |
| Abstract: | This study proposes to use a structural VAR model, using annual percentage change series on U.S. gasoline prices, agricultural productivity, real GDP, agricultural exports, and agricultural commodity prices, to assess the impact of energy shocks on U.S. agricultural productivity growth and food price variations. These data span the period 1948 to 2009. Study results indicate that in the short-run (1 year) an energy shock and a productivity shock each accounts equally for 10 percent of the food price volatility. However, the impact from an energy shock overweighs the contribution of a productivity shock in the intermediate term (3 years), where an energy shock’s contribution increases to twice as much as a productivity shock’s contribution (16 percent compared to 8 percent). Besides the specific food market shock, the global demand shock in U.S. agricultural exports is the major factor in explaining the volatility in U.S. food prices, and accounts for one-third of the food price fluctuations. |
| Keywords: | Energy shock, Total Factor Productivity (TFP), U.S. agriculture, food price, Structural VAR model, Agricultural and Food Policy, Resource /Energy Economics and Policy, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:124892&r=bec |
| By: | Christa N. Brunnschweiler (Norwegian University of Science and Technology, Norway and OxCarre, University of Oxford, U.K.); Colin Jennings (University of Strathclyde, U.K.); Ian A. MacKenzie (ETH Zurich, Switzerland) |
| Abstract: | In this paper we challenge the conventional view that strikes are caused by asymmetric information regarding firm profitability such that union members are uninformed. Instead, we build an expressive model of strikes where the perception of unfairness provides the expressive benefit of voting for a strike. The model predicts that larger union size increases both wage offers and the incidence of strikes. Furthermore, while asymmetric information is still important in causing strikes, we find that it is the employer who is not fully informed about the level of emotionality within the union, thereby contributing to strike incidence. An empirical test using UK data provides support for the predictions. In particular, union size has a positive effect on the incidence of strikes and other industrial actions even when asymmetric information regarding profitability is controlled for. |
| Keywords: | strikes, expressive voting |
| JEL: | D03 D72 J52 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:12-162&r=bec |
| By: | Light, Audrey (Ohio State University); McGee, Andrew (Simon Fraser University) |
| Abstract: | We ask whether the role of employer learning in the wage-setting process depends on skill type and skill importance to productivity. Combining data from the NLSY79 with O*NET data, we use Armed Services Vocational Aptitude Battery scores to measure seven distinct types of pre-market skills that employers cannot readily observe, and O*NET importance scores to measure the importance of each skill for the worker's current three-digit occupation. Before bringing importance measures into the analysis, we find evidence of employer learning for each skill type, for college and high school graduates, and for blue and white collar workers. Moreover, we find that the extent of employer learning – which we demonstrate to be directly identified by magnitudes of parameter estimates after simple manipulation of the data – does not vary significantly across skill type or worker type. Once we allow parameters identifying employer learning and screening to vary by skill importance, we find evidence of distinct tradeoffs between learning and screening, and considerable heterogeneity across skill type and skill importance. For some skills, increased importance leads to more screening and less learning; for others, the opposite is true. Our evidence points to heterogeneity in the degree of employer learning that is masked by disaggregation based on schooling attainment or broad occupational categories. |
| Keywords: | employer learning |
| JEL: | J31 D83 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6623&r=bec |
| By: | Alex Bryson; John Forth; Minghai Zhou |
| Abstract: | Using panel data for all of China's public listed firms over the period 2001-2010 we examine how firms have recruited and rewarded their executives over a decade of huge growth and turbulence. CEO pay is sensitive to firm performance, although the elasticities are lower than for the United States and Europe, especially with respect to returns on assets (ROA). CEO pay rises with firm size and growth, with elasticities resembling those for the United States. We find no dramatic response to the stock market crash of 2007/08. The elasticity of pay to stock returns falls to zero after the crash, while elasticities with respect to sales and ROA remain significant. Executive cash compensation rose steeply throughout the period - in contrast to the United States. There are steep gradients in executive compensation within firms, consistent with tournament prizes, and around two-thirds of CEO appointments are internal promotions. Within-firm executive compensation rose at a faster rate than executive compensation across firms, helping to explain why CEO turnover rates declined a little over the decade. Turnover rates did not spike with the stock market crash. Privatisation and reforms to corporate governance contributed to growth in executive compensation. A picture emerges of an executive labour market in which firms are linking pay to performance and relying on incentive structures within firms to foster executive talent. |
| Keywords: | executive compensation, CEOs, corporate governance, tournaments, firm-specific human capital, China |
| JEL: | G34 J31 J33 M12 M52 O16 P31 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1148&r=bec |
| By: | Can Tian (Department of Economics, University of Pennsylvania) |
| Abstract: | Cross-sectional productivity dispersion is countercyclical, at the plant level and at the firm level. I incorporate a firm’s project choice decision into a firm dynamics model with business cycle features to explain this empirical .finding both qualitatively and quantitatively. In particular, all projects available have the same expected flow return and differ from one another only in the riskiness level. The endogenous option of exiting the market and limited funding for new investment jointly play an important role in motivating firms’ risk-taking behavior. The model predicts that relatively small firms are more likely to take risk and that the cross-sectional productivity dispersion, measured as the variance/standard deviation of firm-level profitability, is larger in recessions. |
| Keywords: | Countercyclical Productivity Dispersion, Business Cycles, Firm Dynamics |
| JEL: | E32 L11 L25 |
| Date: | 2012–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:12-025&r=bec |
| By: | Karle, Heiko; Peitz, Martin |
| Abstract: | We address the effect of contextual consumer loss aversion on firm strategy in imperfect competition. Consumers are fully informed about match value and price at the moment of purchase. However, some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match—value and price distribution, while others are perfectly informed all the time. We show that, in duopoly, a larger share of informed consumers leads to a less competitive outcome if the asymmetry between firms is sufficiently large and that narrowing the set of products which consumers consider leads to a more competitive outcome. |
| Keywords: | Contextual loss aversion , reference-dependent utility , behavioral industrial organization , imperfect competition , product differentiation |
| JEL: | D83 L13 L41 M37 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mnh:wpaper:31642&r=bec |
| By: | Almut Balleer, Thijs van Rens |
| Abstract: | Over the past two decades, technological progress in the United States has been biased towards skilled labor. What does this imply for business cycles? We construct a quarterly skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long-run restrictions. Hours fall in response to skill-biased technology shocks, indicating that at least part of the technology-induced fall in total hours is due to a compositional shift in labor demand. Investment-specific technology shocks reduce the skill premium, indicating that capital and skill are not complementary in aggregate production |
| Keywords: | skill-biased technology, skill premium, VAR, long-run restrictions, capital-skill, complementarity, business cycle |
| JEL: | E24 E32 J24 J31 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1775&r=bec |
| By: | Norbäck, Pehr-Johan; Persson, Lars; Tag, Joacim |
| Abstract: | We investigate how temporary ownership by private equity firms affects industry structure, competition and welfare. Temporary ownership leads to strong investment incentives because equilibrium resale prices are determined partly by buyers' incentives to block rivals from obtaining assets. These strong incentives benefit consumers, but harm rivals in the industry. Evaluating optimal antitrust policy, we point out that an active private equity market can aid antitrust authorities by triggering welfare enhancing mergers and by preventing concentration in the industry. By spreading costs of specializing in restructuring over multiple markets, private equity firms have stronger incentives than incumbents to invest in acquiring specialized restructuring skills. |
| Keywords: | antitrust; competition policy; leveraged buyouts; mergers and acquisitions; private equity; temporary ownership |
| JEL: | G32 G34 L13 L22 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8992&r=bec |
| By: | Zhang, Wenhui; Shi, Guanming |
| Abstract: | We investigate the market and firm-specific factors that may impact firms’ product choices in the U.S. biotech corn seed market. Specifically, we estimate how the competition effects, the conglomeration effect, the similarity effect, and other market shifters influence firms’ variety choices under imperfect competition. In addition, we examine and compare such responses among different types of firms, including integrated biotech firms versus seed companies, and the incumbent firms versus the entrant firms. |
| Keywords: | variety choice, imperfect competition, biotech seeds, Crop Production/Industries, Research Methods/ Statistical Methods, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:124758&r=bec |
| By: | Mário Centeno; Álvaro A. Novo |
| Abstract: | Portuguese firms engage in intense reallocation, most employers simultaneously hire and separate from workers, resulting in high excess worker turnover flows. These flows are constrained by the employment protection gap between open-ended and fixed-term contracts. We explore a reform that increased the employment protection of open-ended contracts and generated a quasi-experiment. The causal evidence points to an increase in the share and in the excess turnover of fixed-term contracts in treated rms. The excess turnover of open-ended contracts remained unchanged. This result is consistent with a high degree of substitution between open-ended and fixed-term contracts. At the firm level, we also show that excess turnover is quite heterogeneous and quantify its association with firm, match, and worker characteristics. |
| JEL: | J21 J23 J63 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201205&r=bec |
| By: | L. Filippini; C. Vergari |
| Abstract: | We study the licensing incentives of an independent input producer owning a patented product innovation which allows the downstream firms to improve the quality of their final goods. We consider a general two-part tariff contract for both outside and incumbent innovators. We find that technology diffusion critically depends on the nature of market competition (Cournot vs. Bertrand). Moreover, the vertical merger with either downstream firm is always privately profitable and it is welfare improving for large innovations: this implies that not all profitable mergers should be rejected. |
| JEL: | L15 L13 L24 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp833&r=bec |
| By: | Burguet, Roberto; Caminal, Ramon |
| Abstract: | In this paper we study the optimal ex-ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates. We allow for firm asymmetries and, in particular, we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms. The model demonstrates that, under some circumstances, relatively inefficient mergers may take place. That is, a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits. Such bargaining failures have important implications for the ex-ante optimal merger policy. We show that a more stringent policy than the ex-post optimal reduces the scope of these bargaining failures and raises expected consumer surplus. We use a bargaining model that is flexible, in the sense that its strategic structure does not place any exogenous restriction on the dendogenous likelihood of feasible mergers. |
| Keywords: | bargaining; endogenous mergers; merger policy; synergies |
| JEL: | L13 L41 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8989&r=bec |
| By: | Román Fossati (Universidad Carlos III de Madrid) |
| Abstract: | Empirical evidence shows that vertically integrated producers are more productive, bigger and are matched to better suppliers (with high productivity and size). I present a dynamic stochastic model of an industry with heterogeneous firms interacting as buyers and sellers, and market frictions that induce a hold-up problem to the manufacturers to account for these facts. In the model economy, an industrial structure emerges as the result of optimal investment decisions that firms undertake under uncertainty. Firms choose whether to integrate, link to external sellers or buy inputs in the market. This theoretical environment provides a natural framework to answer several questions: Why do supply relations vary across industries and across firms within industries? Why aren’t all large firms vertically integrated? How do changes in the properties of uncertainty at firm level determine differences in the vertical structure of an industry? We find that higher uncertainty is associated with higher likelihood of outsourcing; vertically integrated firms are larger and more efficient; otherwise identical downstream firms may differ in their vertical structure, and those that are vertically integrated can end up disintegrated or remain integrated. We also analyze the effects of changes in costs of vertical integration and outsourcing on welfare, aggregate output and productivity. |
| Keywords: | firm dynamics; vertical integration; industrial structure; idiosyncratic uncertainty |
| JEL: | D21 D40 D92 L10 L22 |
| Date: | 2012–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:imd:wpaper:wp2012-07&r=bec |
| By: | Sumon Bhaumik; Ralitza Dimova; Subal C. Kumbhakar; Kai Sun |
| 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: | 2012–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2012-1029&r=bec |
| By: | Bargain, Olivier (University of Aix-Marseille II); El Badaoui, Eliane (University Paris Ouest-Nanterre); Kwenda, Prudence (University College Dublin); Strobl, Eric (Ecole Polytechnique, Paris); Walsh, Frank (University College Dublin) |
| Abstract: | We develop a model where formal sector firms pay tax and informal ones do not, but informal firms risk incurring the penalty associated with non-compliance. Workers may enter self-employment or search for jobs as employees. Workers with higher managerial skills will run larger firms while workers with lower will manage smaller firms and will be in self-employment only when they cannot find a salary job. For these workers self-employment is a secondary/informal form of employment. The Burdett and Mortensen (1998) equilibrium search model turns out to be a special case that we amend by incorporating taxes and a penalty for non-payment of taxes. Our model is also consistent with some of the empirical literature in that the informal wage penalty does appear to be limited to low wage/skill workers while firm size is an important determinant of the employee formal sector premium. We test theoretical predictions using empirical evidence from Mexico and find that firm size wage effects for employees and self-employed workers are broadly consistent with the model. |
| Keywords: | informality, self-employment, Burdett and Mortensen model |
| JEL: | J31 O17 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6604&r=bec |
| By: | Liu, Yizao; Shen, Shu |
| Abstract: | This paper investigates the relationship between price discrimination and vertical product differentiation, using National Brands and Private Labels in the Carbonated Soft Drink market as a case study. We decompose prices difference into quantity dis- count and cost difference across packagings and recover marginal cost by a structural demand model of consumer preference and firm behavior. Our results suggest that in the carbonated soft drinks market, both national brands and private labels offers quantity discount to consumers: consumers pay lower unit prices when buying larger packed soft drinks. In addition, the price curvature parameter is lower for private la- bels, implying that the price schedule is more curved for private label soft drinks than national brands. This means in the CSD market, private labels have more ability to perform price discrimination, segment consumers, and generate high revenues, com- paring to national brands. This result, to some extent, explains the growing market shares of private label soft drinks and the significant percentage of total sales from private labels goods for retailers, such as Wal-Mart and Target. |
| Keywords: | Consumer/Household Economics, Industrial Organization, Marketing, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:124619&r=bec |
| By: | Banerji, Sanjay (University of Nottingham); Raj, Rajesh S.N. (Centre for Multi-Disciplinary Development Research (CMDR)); Sen, Kunal (University of Manchester) |
| Abstract: | The vast majority of firms in developing economies are micro and small enterprises owned by families whose members also provide the labour to the units. Often, they fail to grow in size even with the relaxation of credit constraints. In this paper, we show that frictions in the labour market leading to monitoring costs tend to reduce the growth of the firm via two channels: (1) it forces the entrepreneur to devote more time on monitoring hired labour from outside family which curtails her time on productive activities leading to failures of firm's projects. (2) The need to pay a premium wage over the market rate in order to incentivize workers makes it costlier for the firm to expand in size via hiring outside labour. In this framework, we show that possibility of an inverted U- shaped relationship between the credit supply and the size of the firm, measured by hiring of non family labour, indicating frictions in the labour market may outweigh the effects of the easing of borrowing constraints of the firm. We then use a unique data-set comprising large nationally representative surveys of small and micro-enterprises in Indian manufacturing and find support for the existence of such a non-monotonic relationship attributed to both frictions in the credit and labour markets. |
| Keywords: | household enterprises, credit constraint, monitoring costs, entrepreneurship, India |
| JEL: | D22 G10 O16 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6594&r=bec |
| By: | Sumru Altug (Koc University and CEPR); Fabio Canova (EUI, ICREA-UPF, CREMED, CREI, and CEPR) |
| Abstract: | We examine the relationship between institutions, culture and cyclical fluctuations for a sample of 45 European, Middle Eastern and North African countries. Better governance is associated with shorter and less severe contractions and milder expansions. Certain cultural traits, such as lack of acceptance of power distance and individualism, are also linked business cycle features. Business cycle synchronization is tightly related to similarities in the institutional environment. Mediterranean countries conform to these general tendencies. |
| Keywords: | Business cycles, institutions, culture, Mediterranean countries, synchronization. |
| JEL: | C32 E32 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1217&r=bec |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Employing the price-quality competition model in a horizontally differentiated products market, we analyze how a demand spillover effect associated with upgrading the quality level of a product affects the strategic relationship between firms and the property of a subgame perfect Nash equilibrium. In particular, we show that the strategic relationship depends on the degree of a demand spillover effect. Then, we consider the cases of second-best policy and cooperative quality choice. Furthermore, we illustrate that there exists a natural Stackelberg equilibrium under asymmetric demand spillover effects that is Pareto superior to other equilibria. Finally, we examine an optimal policy with international R&D rivalry. |
| Keywords: | demand spillover effect, quality choice, product differentiation, Bertrand duopoly, a natural Stackelberg equilibrium, cooperative investment, optimal investment policy |
| JEL: | L12 L13 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:89&r=bec |
| By: | Stefano Colombo (DISCE, Università Cattolica); Luigi Filippini (DISCE, Università Cattolica) |
| Abstract: | We study optimal licensing contracts in a differentiated Bertrand duopoly, and show that per-unit contracts are preferred to ad valorem contracts by the patentee, while welfare is higher under the ad valorem contract. The difference between Cournot and Bertrand case is explained in terms of quantity effect and profits effect. |
| Keywords: | Two-part contracts; patent licensing, ad valorem royalties; Bertrand |
| JEL: | D45 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie6:itemq1262&r=bec |
| By: | Claudio Morana (Università di Milano Bicocca, CeRP-Collegio Carlo Alberto, Italy, Fondazione Eni Enrico Mattei, Italy and International Centre for Economic Research, ICER) |
| Abstract: | In this paper the oil price-macroeconomy relationship is investigated from a global perspective, by means of a large scale macro-financial-econometric model. In addition to real activity, fiscal and monetary policy responses and labor and financial markets are considered as well. We find that oil market shocks would have contributed to slowing down economic growth since the first Persian Gulf War episode. Among oil market shocks, supply side disturbances were the largest contributor to macro-financial fluctuations, accounting for up to 12% of real activity variance. The latter shocks would have exercised recessionary effects during the first and second Persian Gulf War and 2008 oil price episodes; preferences, speculative and volatility shocks would have also contributed to exacerbate the recessionary episodes. As long as oil supply will keep expanding at a lower pace than required by demand conditions, a recessionary bias, determined by higher and more uncertain real oil prices, may then be expected to persist also in the near future. |
| Keywords: | Oil Price, Oil Price-Macroeconomy Relationship, Macro-finance Interface, International Business Cycle, Factor Vector Autoregressive Models |
| JEL: | C22 E32 G12 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.28&r=bec |
| By: | Bocionek, Milena; Anders, Sven; Kiesel, Kristin |
| Abstract: | Relevance of the Topic: The rapid emergence of retail store brands, private labels (PL), over the past decades has created new and stiff competition for many established manufacturers of national grocery brands (NB). Apart from sizeable market shares in many staple food categories, retailers have successfully introduced new differentiated PL product lines to enter many higher quality segments (Dubois and Jódar-Rosell, 2010). PLs now account for 17% and 24% of the retail markets in the United States and Canada, respectively. Previous economic literature has addressed various issues and dimensions related to the competitive impact of PL including their economic significance to retail chains (Chintagunta et al. 2002), growth and development of PL product markets (Hoch and Banerji 1993), competitive interactions between PLs and NBs Cotterill et al. 2000; Bontemps et al. 2008; Karray and Herran 2009; Volpe 2010) and the use of private labels in exerting retail market power (Meza and Sudhir 2010). The economic literature has also taken great interest in retailer’s strategic use of PLs to counter the prior dominance of NB manufacturers (Richards, Hamilton and Patterson, 2010). However, the agri-food industrial organization literature has paid limited attention to the degree of price stability (rigidity) in the grocery-retailing sector given the otherwise high degree of price instability of many agricultural commodity and markets for intermediary goods. Of particular interest in this context has been the importance of the retail sales (discounting) phenomenon (Hosken and Reiffen 2001). Existing empirical studies show that many food products in retailing are characterized by relatively long periods of unchanged prices, followed by recurring periods of lower prices and after that a return to the initial level (Hosken and Reiffen 2001; Moeser 2002). Hosken, Matsa and Reiffen (2001) confirm that that within a product category the same items may be put on sale repeatedly, while others are rarely or never used in retail sales events. A number of possible triggers for price rigidity have been discussed. Differences in strategic management decisions between retail formats (Owen and Trzepacz 2002), the use of psychological pricing points (Slade 1998; Blinder et al. 1998; levy et al. 2011), and the economic literature evolving around concept of menu cost -the cost of changing retail shelf prices ((Levy et al. 1997; Owen and Trzepacz 2002). Despite the above evidence, still, empirical studies on price rigidity present in grocery retailing are underrepresented. And available evidence is mostly comprised of aggregate and largely descriptive analyses of cross-categorical data. Research Methodology: The objective of this paper to estimate the degree of price rigidity within vertically differentiated grocery-retail product categories that feature competing private labels and national brands. 1) To estimate price rigidity in categories where vertically differentiated PLs and NBs (basic, standard, premium) compete for consumer demand. The literature on retail private labels provides evidence of the increasing quality and differentiation of PLs used a strategic in the fight for market shares with established NBs in higher quality and premium product segments (e.g. organic). 2) To investigate the potential cost advantage if PLs and the impact of product-level retail margins as a determinant of price rigidity. In context of the increasing share of PLs bargaining power and PL retail margins have been discussed as potential contributors to retailer strategic pricing and promotional behavior. Available UPS-level wholesale price (price paid by the retailer) data enables us to analyze these components in the strategic uses of private labels and their potential impact on price rigidity across products and categories. 3) To test whether differences in underlying retailer management or distribution area (e.g. regional store management division), store size and configuration (e.g. store-storage area ratio), and store location (e.g. rural, urban, suburban) have an impact on price rigidity across vertically differentiated PLs and NBs. The analysis is based on a set of weekly store-level scanner data for a major North American retail chain with stores in the United States and Canada. Our data structure closely resembles the data set used by Eichenbaum, Jaimovich, and Rebelo (AER 2011) who assess the importance of nominal rigidities for retail pricing. The data is made available through the SIEPR-Giannini Data Center and covers 2004-2007 product-level sales in 200 UPC product categories for approximately 2,200 and 250 stores in the U.S. and Canada, respectively. Two case studies, salad dressing and packaged slide bacon, were chosen with regards to the paper’s focus of estimating rigidity among and between vertically differentiated PLs and NBs. The methodological framework is twofold. A regression approach used to explain price rigidity extends extents previous work by Herrmann et al. (2009) and Weber (2009). A second probabilistic model is used to estimate the probability of a price adjustment building on Kano’s (2007) paper. Potential for generating discussion during the meeting Our detailed case-study analysis of retail price rigidity and focus on vertically differentiated food–product categories reveals a number of interesting findings that go beyond existing research. Overall, our regression results indicate that retail price changes in both categories are not fully explained by retail sales and price jumps. We find some evidence of strategic retail behavior that deviates from the common ‘Hi-Lo’ retail price setting, where sales prices are followed by pre-promotion price levels. The results further reveal that price rigidity decreases as the share of discounts relative to the number of price observations increases. With sales increasing by 1%, price rigidity decreases by 0.5 %. We confirm the same qualitative effects for wholesale price adjustments on price rigidity. If the share of price wholesale price changes increases by 1%, price rigidity decreases by 0.035 %. Our results largely confirm previous results and offer several new contributions on the effect of wholesale price adjustments on retail price rigidity. |
| Keywords: | Price ridgity, private labels, quality levels, wholesale price, Demand and Price Analysis, Industrial Organization, Marketing, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:124529&r=bec |
| By: | Kellner, Christian; Riener, Gerhard |
| Abstract: | We test the implications of ambiguity aversion in a principal-agent problem with multiple agents. Models of ambiguity aversion suggest that, under ambiguity, comparative compensation schemes may become more attractive than independent wage contracts. We test this by presenting agents with a choice between comparative reward schemes and independent contracts, which are designed such that under uncertainty about output distributions (that is, under ambiguity), ambiguity averse agents (and only those) should typically prefer comparative reward schemes, independent of their degree of risk aversion. We indeed find that the share of agents who choose the comparative scheme is higher under ambiguity than in the case of known output distributions. -- |
| Keywords: | ambiguity aversion,comparative compensation schemes,Ellsberg urn,contract design |
| JEL: | D01 D03 D81 M55 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:55&r=bec |