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on Business Economics |
| By: | Antonio Falato; Dalida Kadyrzhanova |
| Abstract: | This paper develops a competitive equilibrium model of CEO compensation and industry dynamics. CEOs make product pricing and product improvement decisions subject to shareholders' compensation choices and idiosyncratic shocks to product quality. The choice of high-powered incentives optimally trades off the benefits from expected product improvements and the associated agency costs. In market equilibrium, the interaction between CEO pay and product market decisions affects the stationary distribution of firms. We characterize a dynamic feedback effect of industry structure on CEO incentives. As a result of this effect, we predict that the performance-based component of CEO pay should be higher, (i) across industries, when the degree of heterogeneity of industry structure is lower; (ii) within industries, when firms are laggards with respect to their industry peers. We empirically estimate pay-performance sensitivity for a large sample of U.S. CEOs and other top executives over the 1993 to 2004 period and find strong support for our theory. Our results offer a novel product market rationale for the increased reliance of CEO pay on bonuses and stock options over the 1990s. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2012-78&r=bec |
| By: | Aysit Tansel (Department of Economics, METU); Saziye Gazioglu (Department of Economics and Institute of Applied Mathematics, METU) |
| Abstract: | This paper investigates the job satisfaction in relation to managerial attitudes towards employees and firm size using the linked employer-employee survey results in Britain.We first investigate the management-employee relationships and the firm size using maximum likelihood probit estimation . Next various measues of job satisfaction are related to the management-employee relations via maximum likelihood ordered probit estimates. Four measures of job satisfaction that have not been used often are considered. They are satisfaction with influence over job; satisfaction with amount of pay; satisfaction with sense of achievement and satisfaction with respect from supervisors. Main findings indicate that management-employee relationships are less satisfactory in the large firms than in the small firms. Job satisfaction levels are lower in large firms. Less satisfactory management-employee relationships in the large firms may be a major source of the observed lower level of job satisfaction in them. These results have important policy implications from the point of view of the firm management while achieving the aims of their organizations in particular in the large firms in the area of management-employee relationships. Improving the management-employee relations in large firms will increase employee satisfaction in many respects as well as increase productivity and reduce turnover. The nature of the management-employee relations with firm size and job satisfaction has not been investigated before. |
| Keywords: | Job Satisfaction, Managerial Attitudes,Firm size, Linked Employer-Employee data, Britain |
| JEL: | J28 J5 J21 D23 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1211&r=bec |
| By: | Lilia Cavallari (Università degli Studi di Roma Tre) |
| Abstract: | This paper studies the business cycle implications of entry costs in a dynamic stochastic general equilibrium model with firm entry and nominal rigidity. Simulations show that my baseline model matches the dynamics observed in the data fairly well. Remarkably, it overcomes the well-known di¢ culties of business cycle models in reproducing the persistence, smoothness and cyclicality of macroeconomic aggregates. I stress that capital entry costs are essential for these results. |
| Keywords: | entry costs, firm entry, business cycle, investment costs. |
| JEL: | E31 E32 E52 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:rcr:wpaper:07_12&r=bec |
| By: | Hackl, Franz; Kummer, Michael E.; Winter-Ebmer, Rudolf; Zulehner, Christine |
| Abstract: | We investigate the effect of market structure on market performance in the market for consumer electronics. This research is novel, because we exploit product life cycle information to build an instrumental variable for the number of firms in a market, a variable which hitherto had to be treated as exogenous in comparable studies on seller-behavior in e-commerce. We combine data from Austria's largest online site for price comparisons with retail-data on whole sale 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. Using this information for 80 digital cameras, we generate instrumental variables based on the shops' entry decisions in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price-leader. -- |
| Keywords: | Retailing,Product Life Cycle,Market Structure,Market Performance,Markup,Price Dispersion |
| JEL: | L11 L13 L81 D43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:11084r&r=bec |
| By: | François Gourio; Nicolas A. Roys |
| Abstract: | In France, firms with 50 employees or more face substantially more regulation than firms with less than 50. As a result, the size distribution of firms is visibly distorted: there are many firms with exactly 49 employees. We model the regulation as a sunk cost that must be paid the first time the firm reaches 50 employees, and we estimate the model using indirect inference by fitting these salient features of the size distribution. The key finding is that the legislation acts like a sunk cost equivalent to approximately one year of an average employee salary. Removing the regulation improves labor allocation across firms, leading to a productivity gain of around 0.3%, holding the number of firms fixed. However, if firm entry is elastic, the steady-state gains are significantly smaller. |
| JEL: | E23 L11 L25 O1 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18657&r=bec |
| By: | Antonella Tutino (Federal Reserve Bank of Dallas); Anton Cheremukhin (Federal Reserve Bank of Dallas) |
| Abstract: | We document new evidence on the link between business failures, markups and business cycle asymmetry in the U.S. economy. We study a model where costly information-processing constraints affect exit decisions of heterogeneous firms in the presence of an aggregate demand externality. We show that such a model is capable of explaining both the novel and the classical empirical evidence on output growth asymmetry, the asymmetry between entry and exit rates, as well as counter-cyclical variations in profit margins. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:161&r=bec |
| By: | Federico Cingano; Paolo Pinotti |
| Abstract: | Interpersonal trust favors the expansion of organizations by allowing the delegation of decisions and tasks among anonymous others or people that interact only infrequently. We document these facts for a representative survey of Italian manufacturing firms and use this source of data to construct an industry-specific measure of need-for-delegation in production. We then show that trust shapes comparative advantage, as high-trust regions and countries exhibit larger value added and export shares in delegation-intensive industries relative to other industries. Such effects are associated with an increase in average firm size, while the number of firms is not significantly affected. Larger average size reflects in turn a shift of the distribution away from the smallest firms, consistently with the idea that trust allows organizations to expand beyond the narrow circle of family members and close friends. |
| Keywords: | Trust, delegation, firm size, comparative advantage |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:don:donwpa:053&r=bec |
| By: | Bouckaert, J.M.C.; Degryse, H.A.; Dijk, T. van (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: We study the competitive and welfare consequences when only one firm must commit to uniform pricing while the competitor’s pricing policy is left unconstrained. The asymmetric no-discrimination constraint prohibits both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that an asymmetric no-discrimination constraint only leads to higher profits for the unconstrained firm if the monopolistic segment is large enough. Therefore, a regulatory policy objective of encouraging entry is not served by an asymmetric no-discrimination constraint if the monopolistic segment is small. Only when the monopolistic segment is small and rivalry exists in the competitive segment does the asymmetric no-discrimination constraint enhance welfare. |
| Keywords: | Dominant firms;price discrimination;competition policy;regulation. |
| JEL: | D11 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012004&r=bec |
| By: | Okamuro, Hiroyuki; Ikeuchi, Kenta |
| Abstract: | Business start-ups are expected to make major contributions to economic growth. However, most of them lack internal business resources that are necessary for survival and growth. Therefore, business and financial networks that provide business opportunity and external resources are essential for the post-entry performance of start-ups. However, previous studies have regarded such networks as exogenous and not explicitly investigated the determinants of network formation. We argue that the formation of business and financial networks by start-up firms depends on founder’s human capital measured by university education and work experience, and empirically test it with our original survey data of recent Japanese start-ups. Moreover, we focus not only on the size of such networks, but also their quality measured as the status of major partners. Empirical results show that founder’s industry experience for 10 or more years has positive and significant effect on the size of both business and financial networks, while founder’s university education positively affects not only the size, but also the quality of both business and financial networks. Moreover, we also find that founder’s specific strength and personality also significantly affect network formation. We find no distinct differences between the determinants of business and financial network. |
| Keywords: | business network, financial network, start-up, founder, human capital |
| JEL: | L25 L26 M13 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:hit:cinwps:21&r=bec |
| By: | Vasco Cúrdia; Marco Del Negro; Daniel L. Greenwald |
| Abstract: | We estimate a DSGE model where rare large shocks can occur, but replace the commonly used Gaussian assumption with a Student´s t-distribution. Results from the Smets and Wouters (2007) model estimated on the usual set of macroeconomic time series over the 1964-2011 period indicate that 1) the Student´s t specification is strongly favored by the data, even when we allow for low-frequency variation in the volatility of the shocks, and 2) the estimated degrees of freedom are quite low for several shocks that drive U.S. business cycles, implying an important role for rare large shocks. This result holds even if we exclude the Great Recession from the sample. We also show that inference about low-frequency changes in volatility—and, in particular, inference about the magnitude of the Great Moderation—is different once we allow for fat tails. |
| Keywords: | Equilibrium (Economics) ; Stochastic analysis ; Recessions ; Business cycles |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:585&r=bec |
| By: | Laura Alfaro; Anusha Chari |
| Abstract: | This paper examines the impact of the deregulation of compulsory industrial licensing in India on firm-size dynamics and the reallocation of resources within industries over time. Following deregulation, we find that the extent of resource misallocation declines and a considerable thickening of the left-hand tail of the firm-size distribution suggesting a significant increase in the number of small firms. However, the dominance and growth of large incumbents remains unchallenged. Quantile regressions reveal that the distributional effects of deregulation on firm size are significantly non-linear. The size distribution we observe—namely, a large number of small firms and a small number of large firms—can be characterized as the “missing middle” in Indian manufacturing and suggests that small firms may continue to face constraints in their attempts to grow. |
| JEL: | F43 G31 G38 L10 O12 O14 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18650&r=bec |
| By: | Marc J. Melitz; Stephen J. Redding |
| Abstract: | This paper reviews the new approach to international trade based on firm heterogeneity in differentiated product markets. This approach explains a variety of features exhibited in disaggregated trade data, including the higher productivity of exporters relative to non-exporters, within-industry reallocations of resources following trade liberalization, and patterns of trade participation across firms and destination markets. Accounting for these empirical patterns reveals new mechanisms through which the aggregate economy is affected by trade liberalization, including endogenous increases in average industry and firm productivity. |
| JEL: | F10 F12 F14 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18652&r=bec |
| By: | Christopher L. Foote; Richard W. Ryan |
| Abstract: | During the last few decades, labor markets in advanced economies have become “polarized” as relative labor demand grows for high- and low-skill workers while it declines for middle-skill workers. This paper explores how polarization has interacted with the U.S. business cycle since the late 1970s. Consistent with previous work, the authors find that recessions are strongly synchronized across workers with different skills. Even high-skill workers favored by polarization suffer during recessions; this is particularly true during the last two downturns. Additionally, there is no evidence that polarization is driving the recent drop in the job-finding rate that has caused an adverse shift in the Beveridge curve. With this synchronization in mind, the authors then investigate the labor-market transitions of unemployed workers during recessions. When job-finding rates fall in recessions, middle-skill workers appear no more apt to leave the labor force or take low- or high-skill jobs than they are during booms. All in all, the results imply that current distress in the U.S. labor market extends far beyond middle-skill workers, and that recessions in general do not induce reallocation of middle-skill workers to jobs with better long-term outlooks. |
| Keywords: | Labor market ; Unemployment ; Business cycles |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpp:12-8&r=bec |
| By: | Chia-Lin Chang (Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan); Hui-Kuang Hsu (Department of Finance and Banking National Pingtung Institute of Commerce, Taiwan); Michael McAleer (Econometric Institute Erasmus School of Economics Erasmus University Rotterdam and Tinbergen Institute, The Netherlands and Institute of Economic Research Kyoto University, Japan and Department of Quantitative Economics Complutense University of Madrid, Spain) |
| Abstract: | This paper examines the size effects of volatility spillovers for firm performance and exchange rates with asymmetry in the Taiwan tourism industry. The analysis is based on two conditional multivariate models, BEKK-AGARCH and VARMA-AGARCH, in the volatility specification. Daily data from 1 July 2008 to 29 June 2012 for 999 firms are used, which covers the Global Financial Crisis. The empirical findings indicate that there are size effects on volatility spillovers from the exchange rate to firm performance. Specifically, the risk for firm size has different effects from the three leading tourism sources to Taiwan, namely USA, Japan, and China. Furthermore, all the return series reveal quite high volatility spillovers (at over sixty percent) with a one-period lag. The empirical results show a negative correlation between exchange rate returns and stock returns. However, the asymmetric effect of the shock is ambiguous, owing to conflicts in the significance and signs of the asymmetry effect in the two estimated multivariate GARCH models. The empirical findings provide financial managers with a better understanding of how firm size is related to financial performance, risk and portfolio management strategies that can be used in practice. |
| Keywords: | Tourism, Size effects, Small-firm effects, Financial performance, Spillover effects, MGARCH, VARMA, BEKK. |
| JEL: | C22 G32 L83 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:839&r=bec |