nep-bec New Economics Papers
on Business Economics
Issue of 2012‒07‒23
25 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Firm Dynamics: Employment Growth Rates of Small Versus Large Firms in Canada By Dixon, Jay<br/> Rollin, Anne-Marie
  2. The Tenuous Relationship between Effort and Performance Pay By Kvaløy, Ola; Olsen, Trond E.
  3. Liquidity, Assets and Business Cycles By Shouyong Shi
  4. Globalization and Multiproduct Firms By Nocke, Volker; Yeaple, Stephen R
  6. Countercyclical Markups and News-Driven Business Cycles By Oscar Pavlov; Mark Weder
  7. Financial frictions and fluctuations in volatility By Cristina Arellano; Yan Bai; Patrick J. Kehoe
  8. Better Workers Move to Better Firms: A Simple Test to Identify Sorting By Cristian Bartolucci; Francesco Devicienti
  9. News about Aggregate Demand and the Business Cycle By Jang-Ting Guo; Anca-Ioana Sirbu; Mark Weder
  10. Do oil prices help forecast U.S. real GDP? the role of nonlinearities and asymmetries By Lutz Kilian; Robert J. Vigfusson
  11. Incentives to Motivate By Kvaløy, Ola; Schöttner, Anja
  12. The Long Persistence of Regional Entrepreneurship Culture: Germany 1925–2005 By Michael Fritsch; Michael Wyrwich
  13. Influence of Management on Ontario Beef Operation Margins By Bredahl, Maury E.; Marks, Leonie A.
  14. Trade wedges, inventories, and international business cycles By George Alessandria; Joseph Kaboski; Virgiliu Midrigan
  15. The impact of a culturally diverse workforce on firms’ market size: An empirical investigation on Germany By Stephan Brunow; Peter Nijkamp
  16. Boarding a Sinking Ship? An Investigation of Job Applications to Distressed Firms By Jennifer Brown; David A. Matsa
  17. Pratiques des employeurs en matière de licenciements : une analyse sur données d'entreprises. By Camille Signoretto; Julie Valentin
  18. The hold-up problem, innovations, and limited liability By Schmitz, Patrick W
  19. Determinants of Headquarters Location Choices and Productivity Sorting: Evidence from Japanese firm-level data (Japanese) By MATSUURA Toshiyuki
  20. Market Thickness, Prices and Honesty: A Quality Demand Trap By Siddhartha Bandyopadhyay
  21. Understanding Change in Board Composition: Determinants of board composition and effects of outside directors (Japanese) By MIYAJIMA Hideaki; OGAWA Ryo
  22. Does input trade liberalization boost downstream firms’ exports? Theory and firm-level evidence By Chevassus-Lozza, Emmanuelle; Gaigne, Carl; Le Mener, Leo
  23. Housing starts in Canada, Japan, and the United States: Do forecasters herd? By Pierdzioch, Christian; Rülke, Jan Christoph; Stadtmann, Georg
  24. Organizations, Autonomy and Leadership: the importance of the context By Jocelyne Robert
  25. On the Price Effects of Horizontal Mergers : A Theoretical Interpretation By Emilie Dargaud; Carlo Reggiani

  1. By: Dixon, Jay<br/> Rollin, Anne-Marie
    Abstract: This paper examines whether Canadian firms of different sizes (in terms of employment) grow at different rates year-on-year. The data are from Statistics Canada's Longitudinal Employment Analysis Program and cover the 1999-to-2008 period. The methodology is similar to that used by Haltiwanger, Jarmin and Miranda (2010) for the United States: controls are used for firm age, and possible bias from short-term regression to the mean is removed by sizing firms according to their average number of employees in both previous and current years.
    Keywords: Business performance and ownership, Entry, exit, mergers and growth, Small and medium-sized businesses
    Date: 2012–07–05
  2. By: Kvaløy, Ola (UiS Business School, University of Stavanger); Olsen, Trond E. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: When a worker is offered performance related pay, the incentive effect is not only determined by the shape of the incentive contract, but also by the probability of contract enforcement. We show that weaker enforcement may reduce the worker's effort, but lead to higher-powered incentive contracts. This creates a seemingly negative relationship between effort and performance pay.
    Keywords: Effort; performance pay; incentive contract
    JEL: J30
    Date: 2012–07–10
  3. By: Shouyong Shi
    Abstract: I construct a tractable model to evaluate the liquidity shock hypothesis that exogenous shocks to equity market liquidity are an important cause of the business cycle. After calibrating the model, I find that a large and persistent negative liquidity shock can generate large drops in investment, employment and output. Contrary to the hypothesis, however, a negative liquidity shock generates an equity price boom. This counterfactual response of equity price is robust, provided that a negative liquidity shock tightens firms' financing constraint on investment. Also, I demonstrate that the same counterfactual response of equity price arises when there is a financial shock to a firm's collateral constraint on borrowing. For equity price to fall as it typically does in a recession, the negative liquidity/financial shock must be accompanied or caused by other changes that relax firms' financing constraint on investment. I discuss some candidates of these concurrent changes.
    Keywords: Liquidity; Assets; Business cycles; Collateral
    JEL: E32 E5 G1
    Date: 2012–07–03
  4. By: Nocke, Volker; Yeaple, Stephen R
    Abstract: We present an international trade model of multiproduct firms where firms differ in their endowment of managerial resources and in how effectively these resources can be used in making production more efficient. The model gives rise to a trade-off between conglomerate and specialization strategies of firms, yielding testable predictions on the relationship between firm size, scope and productivity. More efficient firms become exporters, but not all exporters are large and not all large firms export. Following a trade liberalization, non-exporters experience a fall in their market-to-book ratio and consolidate the number of products they manage to lower their marginal costs while the opposite holds for exporters.
    Keywords: diversification discount; firm heterogeneity; multiproduct firms; productivity; trade liberalization
    JEL: F12 F15
    Date: 2012–07
  5. By: Michael Kopel (University of Graz); Marco Marini (La Sapienza University)
    Abstract: The main aim of this paper is to derive properties of an optimal compensation scheme for consumer cooperatives (Coops) in situations of strategic interaction with profit- maximizing firms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a straight salary to its manager whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, due to consumers' preferences, a Coop is per se highly expansionary in term of output and, therefore, does not need to provide strong strategic incentives to their managers to expand output aggressively by undercutting its rival.
    Keywords: Consumer Cooperatives, Strategic Incentives, Price Competition, Oligopoly.
    JEL: C70 C71 D23 D43
    Date: 2012
  6. By: Oscar Pavlov (School of Economics, University of Adelaide); Mark Weder (School of Economics, University of Adelaide)
    Abstract: The standard one-sector real business cycle model is unable to generate expectations-driven fluctuations. The addition of countercyclical markups and modest investment adjustment costs offers an easy fix to this conundrum. The simulated model generates quantitatively realistic business cycles with news shocks accounting for over half of the variance of technology shocks.
    Keywords: expectations-driven business cycles, markups
    JEL: E32
    Date: 2012–01
  7. By: Cristina Arellano; Yan Bai; Patrick J. Kehoe
    Abstract: During the recent U.S. financial crisis, the large decline in economic activity and credit was accompanied by a large increase in the dispersion of growth rates across firms. However, even though aggregate labor and output fell sharply during this period, labor productivity did not. These features motivate us to build a model in which increased volatility at the firm level generates a downturn but has little effect on labor productivity. In the model, hiring inputs is risky because financial frictions limit firms' ability to insure against shocks that occur between the time of production and the receipt of revenues. Hence, an increase in idiosyncratic volatility induces firms to reduce their inputs to reduce such risk. We find that our model can generate about 67% of the decline in output of the Great Recession of 2007–2009.
    Keywords: Recessions ; Credit
    Date: 2012
  8. By: Cristian Bartolucci; Francesco Devicienti
    Abstract: We propose a test that uses information on workers’ mobility, wages and firms’ profits to identify the sign and strength of assortative matching. The basic intuition underlying our empirical strategy is that, in the presence of positive (negative) assortative matching, good workers are more (less) likely to move to better firms than bad workers. Assuming that agents’ payoffs are increasing in their own types allows us to use within-firm variation on wages to rank workers by their types and firm profits to rank firms. We exploit a panel data set that combines Social Security earnings records for workers in the Veneto region of Italy with detailed balance-sheet information for employers. We find robust evidence that positive assortative matching is a pervasive phenomenon in the labor market. This result is in contrast with what we find from correlating the worker and firm fixed effects in standard Mincerian wage equations.
    Keywords: Assortative matching, workers’ mobility, matched employer-employee data.
    JEL: J6 J31 L2
    Date: 2012
  9. By: Jang-Ting Guo (Department of Economics, University of California-Riverside); Anca-Ioana Sirbu (Department of Economics, University of California-Riverside); Mark Weder (School of Economics, University of Adelaide)
    Abstract: We show that a one-sector real business cycle model with variable capital utilization and mild increasing returns-to-scale is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news shocks to future consumption demand. In sharp contrast to many studies in the existing expectations-driven business cycle literature, our results do not rely on non-separable preferences or investment adjustment costs.
    Keywords: News Shocks; Aggregate Demand; Business Cycles
    JEL: E32
    Date: 2012–01
  10. By: Lutz Kilian; Robert J. Vigfusson
    Abstract: There is a long tradition of using oil prices to forecast U.S. real GDP. It has been suggested that the predictive relationship between the price of oil and one-quarter ahead U.S. real GDP is nonlinear in that (1) oil price increases matter only to the extent that they exceed the maximum oil price in recent years and that (2) oil price decreases do not matter at all. We examine, first, whether the evidence of in-sample predictability in support of this view extends to out-of-sample forecasts. Second, we discuss how to extend this forecasting approach to higher horizons. Third, we compare the resulting class of nonlinear models to alternative economically plausible nonlinear specifications and examine which aspect of the model is most useful for forecasting. We show that the asymmetry embodied in commonly used nonlinear transformations of the price of oil is not helpful for out-of-sample forecasting; more robust and more accurate real GDP forecasts are obtained from symmetric nonlinear models based on the three-year net oil price change. Finally, we quantify the extent to which the 2008 recession could have been forecast using the latter class of time-varying threshold models.
    Date: 2012
  11. By: Kvaløy, Ola (UiS); Schöttner, Anja (University of Bonn)
    Abstract: We present a model in which a motivator can take costly actions - or what we call motivational effort - in order to reduce the effort costs of a worker, and analyze the optimal combination of motivational effort and monetary incentives. We distinguish two cases. First, the firm owner chooses the intensity of motivation and bears the motivational costs. Second, another agent of the firm chooses the motivational actions and incurs the associated costs. In the latter case, the firm must not only incentivize the worker to work hard, but also the motivator to motivate the worker. We characterize and discuss the conditions under which monetary incentives and motivational effort are substitutes or complements, and show that motivational effort may exceed the efficient level.
    Keywords: Incentives; Motivate
    JEL: A10
    Date: 2012–07–17
  12. By: Michael Fritsch; Michael Wyrwich
    Abstract: We investigate the persistence of levels of self-employment and new business formation in different time periods and under different framework conditions. The analysis shows that high levels of regional self-employment and new business formation tend to be persistent for periods as long as 80 years and that such an entrepreneurial culture can even survive abrupt and drastic changes in the politic-economic environment. We thus conclude that regional entrepreneurship cultures do exist and that they have long-lasting effects.
    Keywords: entrepreneurship, self-employment, new business formation, persistence, culture
    JEL: L26 R11 O11
    Date: 2012–07
  13. By: Bredahl, Maury E.; Marks, Leonie A.
    Abstract: The long term prospects for cattle farmers in the province of Ontario will depend on their ability to stay competitive in a changing business environment: managing the returns to farm operations will be critical to their long run viability. Focusing on good management practices that reduce operational inefficiencies and that increase gross margins may be the best strategy available to producers for reducing costs and increasing output (Kalirajan, 1981). Such short run management decision making should translate into long run business viability. Groth (1992, p.3) argues that businesses operate under an “operating cycle.” An operating cycle includes the assets, cash, raw materials, work-in-process, finished goods and accounts receivable of the business – with each component varying by type of business. Managed properly the operating cycle is the origin of economic returns to the business operation. Operating cycles are important because: (1) managers can affect the cycle over short time periods – hence, management decisions and actions can yield immediate results; (2) the manager often has the authority to make changes and implement them right away; and (3) greater levels of economic returns can be achieved through effective management which reduce operating risk and lower the cost of capital over the long run. We use contribution margin to measure operational performance of Ontario cow-calf farms for these reasons. We focus on how Ontario beef farmers can improve their operational efficiency by (1) benchmarking their performance against competitors using key performance indicators (KPIs) of effective enterprise management; and (2) understanding the management practices of high margin farms in order to improve industry performance.
    Keywords: Farm Management, Livestock Production/Industries,
    Date: 2012
  14. By: George Alessandria; Joseph Kaboski; Virgiliu Midrigan
    Abstract: The large, persistent fluctuations in international trade that cannot be explained in standard models by changes in expenditures and relative prices are often attributed to trade wedges. We show that these trade wedges can reflect the decisions of importers to change their inventory holdings. We find that a two-country model of international business cycles with an inventory management decision can generate trade flows and wedges consistent with the data. Moreover, matching trade flows alters the international transmission of business cycles. Specifically, real net exports become countercyclical and consumption is less correlated across countries than in standard models. We also show that ignoring inventories as a source of trade wedges substantially overstates the role of trade wedges in business cycle fluctuations.
    Keywords: Exports ; Trade
    Date: 2012
  15. By: Stephan Brunow (Institute for Employment Research); Peter Nijkamp (VU University)
    Abstract: There is evidence from the literature that firms enjoy higher productivity levels when the workforce employed is culturally more diverse. It is an open question whether this gain is utilized to shift the supply curve and set lower prices, in order to achieve a higher demand and possibly higher revenues. This knowledge gap is not addressed in the existing literature, and forms the departure of our research. We introduce a reduced-form model, inspired by the study of Melitz and Ottaviano (2008) on heterogeneous firms, and add labour productivity by using the approach of Ottaviano and Peri (2005) on cultural diversity. In our empirical study, we employ German data, while the field of research is conducted for single plants, and industry-specific effects are taken into account. Our analysis shows significant positive effects of the cultural diversity of the high-skilled workforce on the market size of single establishments. We conclude that emerging productivity gains are not just paid as dividend or factor rewards but are also used to set lower prices in order to achieve higher demand.
    Keywords: cultural diversity, firm heterogeneity, market size
    JEL: J15 L11 L25 R12
    Date: 2012–07
  16. By: Jennifer Brown; David A. Matsa
    Abstract: This paper examines the impact of corporate financial distress on firms’ ability to attract job applicants. Using novel, proprietary data from a leading online job search platform, we find that firms’ financial health impacts job seekers’ perceptions and behavior. First, using survey responses, we find that job seekers accurately perceive firms’ financial health, as measured by the companies’ credit default swap prices and other proxies. Second, we analyze responses to job postings by major financial firms during the recent financial crisis and find that these perceptions affect job seekers’ application decisions. An increase in an employer’s financial distress results in fewer applicants for job openings at the firm. We find fewer applications even when comparing applications to the exact same positions before and after entering distress. These effects are particularly evident in locations where the social safety net provides workers with weaker protections against unemployment and for positions requiring advanced training.
    JEL: G20 G32 G33 J64 M5
    Date: 2012–07
  17. By: Camille Signoretto (Centre d'Economie de la Sorbonne); Julie Valentin (
    Abstract: The main purpose of the article is to analyze employers' practices in terms of layoffs over the period 1999-2009. Our empirical approach is based on firm dataset from matching worker movements data (EMMO-DMMO) and accounting data (EAE). We want to identify the factors linking the two types of layoffs (for economic reason and for personal reason). The results of the econometric analysis show a separation between dismissal for personal reason and dismissal for economic reason : on the one hand, the economic indicators have a more systematic influence on dismissal for economic reason ; on the other hand, worker management variables are clearly more associated with the use of dismissal for personnal reason.
    Keywords: Layoffs, workforce reduction, firm performance, firm database, bivariate probit.
    JEL: J63 L25 D22 K31
    Date: 2012–07
  18. By: Schmitz, Patrick W
    Abstract: An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor's investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor's investment incentives may be decreasing in his bargaining power.
    Keywords: hold-up problem; incomplete contracts; limited liability; research and development
    JEL: D86 L23 O31
    Date: 2012–07
  19. By: MATSUURA Toshiyuki
    Abstract: This paper explores the timing and location of firms' headquarters relocation using Japanese firm-level data. The issue on the location choices for corporate headquarters has attracted the attention of not only academic researchers but also policy makers. Since the agglomeration of headquarters increases the demand for educated workers and service outsourcing businesses, it is important to clarify the determinants of the location choices of headquarters. In addition, in this paper, we pay attention to the heterogeneous impact of productivity on location choices. Our result suggests that high productivity firms are more likely to relocate their headquarters to high wage regions.
    Date: 2012–07
  20. By: Siddhartha Bandyopadhyay
    Abstract: We analyze how product quality, prices and demand interact in a dynamic model of asymmetric information. We show that in markets for experience goods, even in the absence of certification, trade may occur, arising from a relation between market thickness and the incentive of sellers to produce high quality. We characterize the equilibrium prices, which depend on the distribution of buyer valuations. Finally, we show that the relationship between market thickness and incentive to produce high quality goods exists up to a certain threshold level of demand.
    Keywords: Market Thickness, Endogenous Quality, Multiple Equilibria, Price Mechanism
    JEL: L14 L15 O12 O17
    Date: 2012–07
  21. By: MIYAJIMA Hideaki; OGAWA Ryo
    Abstract: This paper examines the determinants of board composition and the effects of outside directors using a sample of Japanese firms listed on the Tokyo Stock Exchange (TSE) first section from 2005 to 2010. Our empirical results are mainly consistent with the hypothesis that firms choose board composition based on the benefits and costs of advising and monitoring. Together, our results show that the effects of outside directors depend on the difficulty of their acquisition of information. Further, we find that some firms with low information cost tend not to appoint outside directors voluntarily for managerial entrenchment reasons, although such directors are strongly associated with better performance when appointed to firms whose cost of acquiring information is low. We conclude that certain measures that encourage firms to appoint outside directors are indispensable. However, the finding that regulations imposing uniform requirements on board composition entail not only benefits but also costs suggests that the one-size-fits-all approach of board regulations may be misguided.
    Date: 2012–07
  22. By: Chevassus-Lozza, Emmanuelle; Gaigne, Carl; Le Mener, Leo
    Abstract: We analyze the impact of input tariffs on the export status and export performance of processing firms. From a theoretical model with heterogeneous downstream firms, we show that lower input tariffs may increase the export sales of the high productivity firms at the expense of low productivity firms and may decrease the probability of firms entering foreign markets. We compare the predictions of the theoretical model with firm-level data from the French agrifood sector by developing a two-stage estimation procedure that uses an equation for selection into export markets in the first stage and an exports equation in the second stage. Liberalization of agricultural trade appears to favor the reallocation of market share from low to high productive firms. In addition, our result suggests that, whether lower input tariffs increase total exports sales and jobs, a large fraction of least productive exporting firms may lose from an additional decrease in agricultural product tariffs.
    Keywords: Input tariffs, heterogeneous donwstream firms, exports, Agricultural and Food Policy, Industrial Organization, International Relations/Trade, F12, L11, L66,
    Date: 2012–01
  23. By: Pierdzioch, Christian; Rülke, Jan Christoph; Stadtmann, Georg
    Abstract: Recent price trends in housing markets may reflect herding of market participants. A natural question is whether such herding, to the extent that it occurred, reflects herding in forecasts of professional forecasters. Using survey data for Canada, Japan, and the United States, we did not find evidence of forecaster herding. On the contrary, forecasters anti-herd and, thereby, tend to intentionally scatter their forecasts around the consensus forecast. The extent of anti-herding seems to vary over time. For Canada and the United States, we found that more pronounced anti-herding leads to lower forecast accuracy. --
    Keywords: Housing starts,Forecasting,Herding
    JEL: E37 D84 C33
    Date: 2012
  24. By: Jocelyne Robert (management et leadership - Université de Liège)
    Abstract: We want to present the place of autonomy and freedom to take initiatives in the organisation. The response is one balance between control and autonomy. Corporate culture, leadership and corporate social responsibility play one essential role in contextual situations
    Keywords: Leadership; Organisations; Autonomy; Freedom
    Date: 2012–01
  25. By: Emilie Dargaud (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Carlo Reggiani (School of Social Sciences - Economics, University of Manchester, Manchester, M13 9PL, UK)
    Abstract: Horizontal mergers are usually under the scrutiny of antitrust authorities due to their potential undesirable effects on prices and consumer surplus. Ex-post evidence, however, suggests that not always these effects take place and even relevant mergers may end up having negligible price effects. The analysis of mergers in the context of non-localized spatial competition may offer a further interpretation to the ones proposed in the literature : in this framework both positive and zero price effects are possible outcomes of the merger activity.
    Keywords: horizontal mergers, price effects, spokes model.
    JEL: D43 L11 L13
    Date: 2012

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