nep-bec New Economics Papers
on Business Economics
Issue of 2012‒10‒06
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. The macroeconomic forecasting performance of autoregressive models with alternative specifications of time-varying volatility By Todd E. Clark; Francesco Ravazzolo
  2. Agency, Firm Growth and Managerial Turnover By Anderson, Ronald W.; Bustamante, Maria Cecilia; Guibaud, Stéphane
  3. Does size or age of innovative firms affect their growth persistence? -Evidence from a panel of innovative Spanish firms- By Daria Ciriaci; Pietro Moncada-Paternò-Castello; Peter Voigt
  4. Mediocrity and induced reciprocity By Natalia Montinari; Antonio Nicolo; Regine Oexl
  5. Quality Differentiation and Trade Intermediation By Heiwai Tang; Yifan Zhang
  6. Does CEO turnover matter in China? Evidence from the stock market By Pessarossi, Pierre; Weill, Laurent
  7. Rewarding Idleness By Andrea Canidio; Thomas Gall
  8. From Boom to Bust and Back Again: A dynamic analysis of IT services By Maican, Florin G.
  9. News and Financial Intermediation in Aggregate and Sectoral Fluctuations By Görtz, Christoph; Tsoukalas, John D.
  10. Sentiments and aggregate demand fluctuations By Jess Benhabib; Pengfei Wang; Yi Wen
  11. Separations, Sorting and Cyclical Unemployment By Mueller, Andreas I.
  12. Menu-Dependent Emotions and Self-Control By Joaquin Gomez-Minambres; Eric Schniter
  13. Littératie financière et préparation à la retraite au Québec et dans le reste du Canada By Thomas Lalime; Pierre-Carl Michaud
  14. The heterogeneity of the development process of new technology-based firms By Ugo Rizzo; Francesco Nicolli; Laura Ramaciotti
  15. Principal-Agent Settings with Random Shocks By Jared Rubin; Roman Sheremeta
  16. How can firm benefit from access to knowledge-intensive producer services? By Johansson , Börje; Lööf , Hans; Nabavi, Pardis
  17. Uncertainty Shocks in a Model of Effective Demand By Susanto Basu; Brent Bundick
  18. Orphan versus non-orphan IPOs: the difference analyst coverage makes By Boissin, Romain

  1. By: Todd E. Clark; Francesco Ravazzolo
    Abstract: This paper compares alternative models of time-varying macroeconomic volatility on the basis of the accuracy of point and density forecasts of macroeconomic variables. In this analysis, we consider both Bayesian autoregressive and Bayesian vector autoregressive models that incorporate some form of time-varying volatility, precisely stochastic volatility (both with constant and time-varying autoregressive coeffi cients), stochastic volatility following a stationary AR process, stochastic volatility coupled with fat tails, GARCH, and mixture-of-innovation models. The comparison is based on the accuracy of forecasts of key macroeconomic time series for real-time post–War-II data both for the United States and United Kingdom. The results show that the AR and VAR specifications with widely used stochastic volatility dominate models with alternative volatility specifications, in terms of point forecasting to some degree and density forecasting to a greater degree.
    Keywords: Simulation modeling ; Economic forecasting ; Bayesian statistical decision theory
    Date: 2012
  2. By: Anderson, Ronald W.; Bustamante, Maria Cecilia; Guibaud, Stéphane
    Abstract: We study managerial incentive provision under moral hazard in a firm subject to stochastic growth opportunities. In our model, managers are dismissed after poor performance, but also when an alternative manager is more capable of growing the firm. The optimal contract may involve managerial entrenchment, such that growth opportunities are foregone after good performance. Firms with better growth prospects have higher managerial turnover and more front-loaded compensation. Firms may pay severance to incentivize their managers to report truthfully the arrival of growth opportunities. By ignoring the externality of the dismissal policy onto future managers, the optimal contract implies excessive retention.
    Keywords: agency; compensation policy; firm growth; managerial turnover; optimal contracting; severance pay
    JEL: G30 G35
    Date: 2012–09
  3. By: Daria Ciriaci (JRC-IPTS); Pietro Moncada-Paternò-Castello (JRC-IPTS); Peter Voigt (Institut d'Economia de Barcelona, IEB)
    Abstract: This study examines serial correlation in employment, sales and innovative sales growth rates in a balanced panel of 3,300 Spanish firms over the years 2002-2009, obtained by matching different waves of the Spanish Encuesta sobre Innovacion en las Empresas, the Spanish innovation survey conducted annually by the Spanish National Statistics Institute (INE). The main objective is to verify whether the changes (increase/decrease) in these figures are persistent over time, whether such persistence (if any) differs between SMEs and larger firms, and if it is affected by a firm's age. To do so, we adopted a semi-parametric quantile regression approach. This methodology is well suited to cases where outliers (high-growth firms) are the subject of investigation and/or when they have to be assumed as being very heterogeneous. Empirical results indicate that among those innovative firms experiencing high employment growth, the smaller and younger grow faster than larger firms, but the jobs they create are not persistent over time. However, while being smaller and younger helps growing more in terms of employment and sales, it is not an advantage when innovative sales growth is considered: in this case larger firms experience faster growth.
    Keywords: Serial correlation; quantile regression model; Spanish firms; firm size, firm age; job creation; fast growing firms
    JEL: L11 L25
    Date: 2012–09
  4. By: Natalia Montinari; Antonio Nicolo; Regine Oexl
    Abstract: We report evidence from an experiment where a principal chooses an agent out of two to perform a task for a fixed compensation. The principal's payoff depends on the agent's ex-ante ability and on a non-contractible effort that the agent has to exert once employed. We find that a significant share of principals select the mediocre agent (i.e. the one with the lower ex-ante ability). When the principal is allowed to send a message, mediocre agents exert more effort than agents with higher ability, and principals who choose mediocre agents on average have a larger payoff than principals who select agents with higher ability. This difference in effort overcompensates the difference in ability. Mediocre agents reciprocate more than agents who have ex-ante higher ability when the principals are able to make them feeling indebted.
    Keywords: reciprocity, communication, incentives, mediocrity
    JEL: C9
    Date: 2012–09
  5. By: Heiwai Tang; Yifan Zhang
    Abstract: Existing studies show that intermediaries can help verify or screen product quality for buyers. This paper examines this claim both theoretically and empirically in the context of international trade. We develop a heterogeneous-firm model that features vertical and horizontal differentiations of products, a coexistence of direct exporting and indirect exporting through intermediaries, and firms' investment in quality signaling. When complete contracts are not available, intermediaries underinvest in quality signaling from the perspective of the producer. For products that are more horizontally differentiated, competition is less intense and even low-quality firms export via intermediaries. These two mechanisms yield a negative (positive) cross-product relation between vertical (horizontal) differentiation and the prevalence of trade intermediation. Intermediation is more prevalent in the more (both physically and culturally) distant destinations, more so for the more vertically and horizontally differentiated products. Using detailed product-level data from China, we find supporting evidence for these predications.
    Keywords: Trade intermediation, vertical differentiation, product differentiation
    JEL: F12 L15
    Date: 2012
  6. By: Pessarossi, Pierre (BOFIT); Weill, Laurent (BOFIT)
    Abstract: We study the consequences of CEO turnover announcements on the stock prices of firms in China, where most listed firms remain majority-owned by the state. Our proposition is that state ownership may affect stock market reaction to CEO replacement because state-owned firms often pursue multiple, potentially contradictory, objectives, i.e. economic performance and social objectives. Applying standard event study methodology to a sample of 1,094 announcements from 2002 to 2010, we find that CEO turnover typically produces a positive stock market reaction. The reaction is significantly positive, however, only for enterprises owned by the central government, and not significant for enterprises owned by local governments or privately owned enterprises. These results suggest that a CEO turnover in a central state-owned enterprise signals a renewed commitment to the economic performance objective by state officials. The small size of CEO labor market suggests that other shareholders have a relatively small pool of CEO talent to proceed to managerial improvement when a CEO turnover takes place.
    Keywords: CEO turnover; corporate governance; state ownership; China; event study
    JEL: G30 M51 O16 P34
    Date: 2012–09–24
  7. By: Andrea Canidio; Thomas Gall
    Abstract: Market wages reflect expected productivity by using signals of past performance and past experience. These signals are generated at least partially on the job and create incentives for agents to choose high-profile and highly visible tasks. If agents have private information about the profitability of different tasks, firms may wish to prevent over- investment in visible tasks by increasing their opportunity costs. Firms can do so, for instance, by using employee perks. Heterogeneity in employee types induces substantial diversity in organizational and contractual choices, particularly regarding the extent to which conspicuous activities are tolerated or encouraged, the use of employee perks, and contingent wages
    Date: 2012–09–12
  8. By: Maican, Florin G. (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Aggregate shocks in demand such as the burst of the 2001 dot-com bubble affect firms’ behavior and, therefore, the market structure. This paper proposes a fully dynamic oligopoly model to evaluate the impact of aggregate demand shocks on entry and exit costs as well as on investment and labor adjustment costs in IT services. The empirical application builds on an eight year panel dataset that includes every IT service firm in Sweden. The paper finds higher fixed investment and labor adjustment costs for software but lower for operational services after the dot-com bust. The entry costs for software were six times lower than for operational services, which might explain the large number of entrants in software. Entrants are found less productive than incumbents and net exit contributed the most to productivity growth in the IT services after the dot-com bust. For policy makers, the changes in cost structure give key information about industry dynamics and its impact on high-skilled jobs.<p>
    Keywords: IT services; Imperfect Competition; Dynamic Estimation; Industry Dynamics; Strategic Interactions
    JEL: C01 L13 L44 L52 L86
    Date: 2012–09–27
  9. By: Görtz, Christoph; Tsoukalas, John D.
    Abstract: We estimate a two-sector DSGE model with financial intermediaries—a-la Gertler and Karadi (2011) and Gertler and Kiyotaki (2010)—and quantify the importance of news shocks in accounting for aggregate and sectoral fluctuations. Our results indicate a significant role of financial market news as a predictive force behind fluctuations. Specifically, news about the value of assets held by financial intermediaries, reflected one to two years in advance in corporate bond markets, generate countercyclical corporate bond spreads, affect the supply of credit, and are estimated to be a significant source of aggregate fluctuations, accounting for approximately 31% of output, 22% of investment and 31% of hours worked variation in cyclical frequencies. Importantly, asset value news shocks generate both aggregate and sectoral co-movement with a standard preference specification. Financial intermediation is key for the importance and propagation of asset value news shocks.
    Keywords: news; financial intermediation; business cycles; DSGE; Bayesian estimation
    JEL: E2 E3
    Date: 2012–09
  10. By: Jess Benhabib; Pengfei Wang; Yi Wen
    Abstract: We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made un- der imperfect information about aggregate demand, optimal decisions based on sentiments can generate stochastic self-fulfilling rational expectations equilibria in standard economies without aggregate shocks, externalities, persistent informational frictions, or even any strategic comple- mentarity. Our general equilibrium model is deliberately simple, but could serve as a benchmark for more complicated equilibrium models with additional features.
    Keywords: Keynesian economics ; Equilibrium (Economics)
    Date: 2012
  11. By: Mueller, Andreas I. (Columbia University)
    Abstract: This paper establishes a new fact about the compositional changes in the pool of unemployed over the U.S. business cycle and evaluates a number of theories that can potentially explain it. Using micro-data from the Current Population Survey for the years 1962-2011, it documents that in recessions the pool of unemployed shifts towards workers with high wages in their previous job. Moreover, it shows that these changes in the composition of the unemployed are mainly due to the higher cyclicality of separations for high-wage workers, and not driven by differences in the cyclicality of job-finding rates. A search-matching model with endogenous separations and worker heterogeneity in terms of ability has difficulty in explaining these patterns, but an extension of the model with credit-constraint shocks does much better in accounting for the new facts.
    Keywords: sorting, unemployment, business cycles, search-matching, vacancies
    JEL: E24 E32 J63
    Date: 2012–09
  12. By: Joaquin Gomez-Minambres (Economic Science Institute, Chapman University); Eric Schniter (Economic Science Institute, Chapman University)
    Abstract: We study a dynamic model of self-control where the history of one's decisions (understood as emotions) has influence on subsequent decision making. We propose that effort and regret are emotions produced by previous decisions to either resist or yield to temptation, respectively. When recalled, these emotions affect an individual's preferences, in turn affecting self-control decision at a particular point in time. Our model provides a unified explanation for several empirical regularities puzzling economists and cognitive scientists. We explain non-stationary consumption paths characterized by compensatory indulgence and restraint cycles, why the amplitude of consumption cycles increases with foresight and decreases with emotional memory, and, finally, we show how unavoidable options that might show up on one's menu influence choices, consequent emotions, consumption paths, and preferences for commitment.
    Date: 2012
  13. By: Thomas Lalime; Pierre-Carl Michaud
    Abstract: Dans cet article, nous démontrons, en utilisant des données de l’Enquête canadienne sur les capacités financières, que le Québec tire de l’arrière par rapport au reste du Canada non seulement en termes de niveau de littératie financière et d’éducation financière, mais aussi en termes d’épargne et de préparation à la retraite. Nous analysons la possibilité que ces différences soient expliquées par des différences socioéconomiques et explorons la possibilité que des spécificités institutionnelles telles que la prépondérance des régimes de retraite d’employeur à prestations déterminées au Québec puisse expliquer ces différences.
    Keywords: Littératie financière, préparation à la retraite, épargne
    JEL: D12 D14 H31
    Date: 2012
  14. By: Ugo Rizzo; Francesco Nicolli; Laura Ramaciotti
    Abstract: This work investigates the variety of development processes of start up firms in a regional setting. The existing literature on entrepreneurship lacks accurate analysis of the processes that lead an idea of business to become an established firm. The present paper moves one step towards filling this gap by dynamically investigating the process development of a self-contained population of 78 new technology based firms (NTBFs) in the North Italian region of Emilia-Romagna. By clustering the firms in similar organisational configurations at three different points in time, the results show that it is possible to observe that firms develop along different, sometimes overlapping paths. Our findings contributes to the understanding of the dynamics of the entrepreneurial process and lead to important policy implications.
    Keywords: Entrepreneurship; Firm development process; New technology-based firms; Start-ups; Regional policies; Cluster analysis
    JEL: L26 L53 O32 O38
    Date: 2012–09–22
  15. By: Jared Rubin (Argyros School of Business and Economics, Chapman University); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: Using a gift exchange experiment, we show that the ability of reciprocity to overcome incentive problems inherent in principal-agent settings is greatly reduced when the agent’s effort is distorted by random shocks and transmitted imperfectly to the principal. Specifically, we find that gift exchange contracts without shocks encourage effort and wages well above standard predictions. However, the introduction of random shocks reduces wages and effort, regardless of whether the shocks can be observed by the principal. Moreover, the introduction of shocks significantly reduces the probability of fulfilling the contract by the agent, the payoff of the principal, as well as total welfare.
    Keywords: gift exchange, principal-agent model, contract theory, reciprocity, effort, shocks, laboratory experiment
    JEL: C72 C91 D63 D81 H50
    Date: 2012
  16. By: Johansson , Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf , Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Nabavi, Pardis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper empirically examines how systematic differences in firm productivity can be explained by a firm’s cumulated internal knowledge and access to external knowledge in its environment. To capture this conjunction of internal and external knowledge we use information about 5,000 Swedish firms in 290 municipalities and 72 functional regions and we use detailed information about individual firms’ accessibility to knowledge-intensive producer services. In addition, we observe the long-run frequency of R&D and innovation engagement for all these firms through 74.000 patent applications and three Community Innovation Surveys. Our panel data estimates for the period 1997-2008, suggest that only firms which commit themselves to accumulation of internal knowledge benefit from being located in places with a large mass of external knowledge. We also find strong evidence that innovators are more productive than other firms across all locations.
    Keywords: Innovation; Spillovers; Accessibility; Productivity; Patent; Community Innovation Survey
    JEL: C23 O31 O32
    Date: 2012–09–26
  17. By: Susanto Basu; Brent Bundick
    Abstract: Can increased uncertainty about the future cause a contraction in output and its components? This paper examines the role of uncertainty shocks in a one-sector, representative-agent, dynamic, stochastic general-equilibrium model. When prices are flexible, uncertainty shocks are not capable of producing business-cycle comovements among key macroeconomic variables. With countercyclical markups through sticky prices, however, uncertainty shocks can generate fluctuations that are consistent with business cycles. Monetary policy usually plays a key role in offsetting the negative impact of uncertainty shocks. If the central bank is constrained by the zero lower bound, then monetary policy can no longer perform its usual stabilizing function and higher uncertainty has even more negative effects on the economy. We calibrate the size of uncertainty shocks using fluctuations in the VIX and find that increased uncertainty about the future may indeed have played a significant role in worsening the Great Recession, which is consistent with statements by policymakers, economists, and the financial press.
    JEL: E32 E52
    Date: 2012–09
  18. By: Boissin, Romain
    Abstract: This paper examines the long-run performance of US IPOs carried out between 1991 and 2010. By using various methodologies, we find that IPOs in our sample performed abnormally relative to comparison portfolios over the 1991-2010 horizon. This abnormal long-run performance is much severe for orphan IPOs (without financial recommendation) than non-orphan IPOs from three to five-year horizon (statistically significant). The evidence suggests that analyst coverage is indeed important to issuing firm but the market does not fully incorporate the perceived value of this coverage. Further analysis reveals that this outperformance by non-orphan stems from high coverage. Investors pay more attention to non-orphan when IPOs have a large underwriting syndicate and are high underpriced. The difference between orphan and non-orphan subsists in VC backed or non VC backed IPOs and whatever the ownership structure of the IPOs. We establish that analyst coverage is significantly related to long-run performance of IPOs.
    Keywords: IPOs; analyst coverage; long-run performance
    JEL: G14 G24
    Date: 2012–09

This nep-bec issue is ©2012 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.