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on Business Economics |
| By: | Bargeron, Leonce (University of Pittsburgh); Schlingemann, Frederik P. (University of Pittsburgh and Erasmus University Rotterdam); Zutter, Chad J. (University of Pittsburgh); Stulz, Rene M. (OH State University and European Corporate Governance Institute) |
| Abstract: | While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the target's value is artificially depressed ahead of a private equity acquisition where the CEO is retained. |
| JEL: | G30 G34 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2012-26&r=bec |
| By: | Kouroche Vafaï (Université Paris Descartes - Sorbonne Paris Cité - IUT, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne) |
| Abstract: | To control, evaluate, and motivate their agents, firms employ supervisors. As shown by empirical investigations, biased evaluation by supervisors linked to collusion is a persistent feature of firms. This paper studies how deceptive supervision affects agency relationships. We consider a three-level firm where a supervisor is in charge of producing a verifiable report on an agent's output. Depending on the output he has observed, the supervisor may either collude with the agent or with the principal, and make an uniformative report. We show that the proliferation of collusive activities in firms : modifies the configuration of the optimal preventive policy, may increase the expected cost of preventing each type collusion, is beneficial to the supervisor and detrimental to the agent, and is not always harmful. |
| Keywords: | Firm; group decision; control; biased supervision |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00768900&r=bec |
| By: | Ann E. Harrison; Justin Yifu Lin; L. Colin Xu |
| Abstract: | Africa’s economic performance has been widely viewed with pessimism. In this paper, we use firm-level data for 89 countries to examine formal firm performance. Without controls, manufacturing African firms do not perform much worse than firms in other regions. But they do have structural problems, exhibiting much lower export intensity and investment rates. Once we control for geography and the political and business environment, formal African firms robustly lead in sales growth, total factor productivity levels and productivity growth. Africa’s conditional advantage is higher in low-tech than in high-tech manufacturing, and exists in manufacturing but not in services. While geography, infrastructure, and access to finance play an important role in explaining Africa’s disadvantage in firm performance, the key factor is party monopoly. The longer a single political party remains in power, the lower are firm productivity levels, growth rates, and sales growth for manufacturing. In contrast, the business environment and firm characteristics (except for foreign investment) do not matter as much. We also find evidence that the effects of the political and business environment are heterogeneous across sectors and firms of various levels of technology. |
| JEL: | O14 O4 O43 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18683&r=bec |
| By: | Chia-Lin Chang (National Chung Hsing University, Taiwan); Hui-Kuang Hsu (National Pingtung Institute of Commerce, Taiwan); Michael McAleer (Erasmus University Rotterdam, Kyoto University, Japan, and 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: | 2013–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130008&r=bec |
| By: | Bénabou, Roland; Tirole, Jean |
| Abstract: | This paper analyzes the impact of labor market competition and skill-biased technical change on the structure of compensation. The model combines multitasking and screening, embedded into a Hotelling-like framework. Competition for the most talented workers leads to an escalating reliance on performance pay and other high-powered incentives, thereby shifting effort away from less easily contractible tasks such as long-term investments, risk management and within-firm cooperation. Under perfect competition, the resulting efficiency loss can be much larger than that imposed by a single firm or principal, who distorts incentives downward in order to extract rents. More generally, as declining market frictions lead employers to compete more aggressively, the monopsonistic underincentivization of low-skill agents first decreases, then gives way to a growing overincentivization of high-skill ones. Aggregate welfare is thus hill-shaped with respect to the competitiveness of the labor market, while inequality tends to rise monotonically. Bonus caps and income taxes can help restore balance in agents' incentives and behavior, but may generate their own set of distortions. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26676&r=bec |
| By: | Belo, Frederico (University of MN); Lin, Xiaoji (OH State University) |
| Abstract: | Previous studies show that firms with low inventory growth outperform firms with high inventory growth in the cross-section of publicly traded firms. In addition, inventory investment is volatile and procyclical, and inventory-to-sales is persistent and countercyclical. We embed an inventory holding motive into the investment-based asset pricing framework by modeling inventory as a factor of production with convex and nonconvex adjustment costs. The augmented model simultaneously matches the large inventory growth spread in the data, as well as the time-series properties of the firm level capital investment, inventory investment, and inventory-to-sales. Our conditional single-factor model also implies that traditional unconditional factor models such as the CAPM should fail to explain the inventory growth spread, although not with the same large pricing errors observed in the data. |
| JEL: | E22 E23 E44 G12 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2012-23&r=bec |
| By: | Richter, Jan (Energiewirtschaftliches Institut an der Universitaet zu Koeln) |
| Abstract: | A Cournot oligopoly in which firms face incomplete information with respect to production capacities is studied. For the case where the firms’ capacities are stochastically independent, the functional form of equilibrium strategies is derived. If inverse demand is concave, a unique symmetric equilibrium exists, and if demand is linear, then every equilibrium is symmetric. In the case of duopoly, the impact on social welfare when firms commit ex-ante on exchanging information is analyzed. Sharing information increases expected output and social welfare in a large class of models. If the demand intercept is sufficiently large, sharing information increases producer surplus and decreases consumer surplus (and vice versa). |
| Keywords: | Oligopoly; Incomplete Information; Cournot; Capacity Constraints; Information Sharing |
| JEL: | C72 D43 L13 |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2013_001&r=bec |
| By: | Ozgen, Ceren (VU University Amsterdam); Nijkamp, Peter (VU University Amsterdam); Poot, Jacques (University of Waikato) |
| Abstract: | To investigate econometrically whether cultural diversity of a firm's employees boosts innovation, we create a unique linked employer‐employee dataset that combines data from two innovation surveys in The Netherlands with administrative and tax data. We calculate three distinct measures of diversity. We find that firms that employ fewer foreign workers are generally more innovative, but that diversity among a firm's foreign workers is positively associated with innovation activity. The positive impact of diversity on product or process innovations is greater among firms in knowledge-intensive sectors and in internationally‐oriented sectors. The impact is robust to accounting for endogeneity of foreign employment. |
| Keywords: | immigration, innovation, cultural diversity, knowledge spillovers, linked administrative and survey data |
| JEL: | D22 F22 O31 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7129&r=bec |
| By: | Bayo-Moriones, Alberto (University of Navarra); Galdon-Sanchez, Jose Enrique (Universidad Pública de Navarra); Gil, Ricard (Johns Hopkins University) |
| Abstract: | In this paper we empirically explore the 'make-or-buy' decisions of peripheral services in manufacturing plants using detailed information on a data set from a new plant-level survey from 926 plants distributed in all manufacturing industries in Spain. In particular, survey respondents are asked how their contracting practices of peripheral services had changed in the last three years. The answer to this question is informative of the changes in the importance of backward integration for each of the plants interviewed. Using other information provided in the survey, we relate reported changes in backward integration to changes in other relevant plant characteristics. We show that increases in outsourcing of services are positively correlated with increases in the plant's market share as well as increases in product market competition and product prices. These findings are robust to controlling for whether plants belong to single-plant or multi-plant firms. This result is consistent with the view that market size limits the degree of specialization at the plant level in the Spanish manufacturing industry. |
| Keywords: | make-or-buy, peripheral services, manufacturing, market share, competition, outsourcing |
| JEL: | L23 L22 L60 J29 J59 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7138&r=bec |
| By: | Alexander B. Matthies; ; ; |
| Abstract: | Standard explanatory variables that determine credit ratings do not achieve significant effects in a sample of 100 US non-financial firms in an ordered probit panel estimation. Sample size and selection as well as the distribution of explanatory variables across rating classes may be the cause this problem. Furthermore, we find evidence to suggest that variable coefficients vary over rating classes when analysed with an unordered loogit model. The sample reproduces well-established macroeconomic effects of credit ratings found by Blume et al. (1998) and highlights the influence of the rating agencies’ through-the-cycle approach on rating transitions. |
| Keywords: | Rating agency, Business cycle, Through-the-cycle rating methodology, Method comparison |
| JEL: | G20 G24 G30 G32 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013-002&r=bec |
| By: | Iossa, Elisabetta (DEF, University of Rome Tor Vergata, CEPR, CMPO and EIEF); Rey, Patrick (TSE,IDEI) |
| Abstract: | We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent’s productivity can evolve exogenously (random shocks) or improve endogenously through investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects. |
| Keywords: | Career concerns, contract duration,contract renewal, reputation and dynamic incentives. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:26678&r=bec |
| By: | Seppo Kari; Jussi Laitila |
| Abstract: | This paper analyses the implications of a non-linear dividend tax in a life-cycle model of the firm. In the model new firms first enter markets, then grow, financing from retained earnings and finally distribute their profits in the steady state. We find that under a non-linear tax the owners prefer a smooth flow of dividends, which encourages the firms to start distributions right from the beginning. This slows down investments and leads to delayed growth of production. There is, however, an opposing effect resulting from an increase in the start-up size of the firm, which speeds growth. Simulations nevertheless show that a revenue-neutral switch from a linear to a progressive tax exacerbates production losses. We further find that this distortion can be substantially reduced by carrying forward unused tax allowances with interest. |
| Keywords: | dividend tax, progressive tax, nucleus theory, firm behavior |
| JEL: | H32 H24 G35 |
| Date: | 2012–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:fer:wpaper:41&r=bec |
| By: | Jean-Philippe Boussemart (University of Lille 3 and IESEG School of Management (LEM-CNRS)); Benoît Demil (University of Lille 1 (IAE), LEM (UMR 8179)); Aude Deville (University of Nice Sophia-Antipolis, IAE de Nice, GRM); Olivier de la Villarmois (University of Lille 1 (IAE), LEM (UMR 8179)); Xavier Lecocq (University of Lille 1 (IAE) and IÉSEG School of Management, LEM (UMR 8179)); Hervé Leleu (CNRS-LEM and IESEG School of Management) |
| Keywords: | Profit, Profit Decomposition, Managerial Efficiency, Size Efficiency, Bennet Index, Price Index |
| JEL: | D21 D24 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:e201301&r=bec |
| By: | Schubert, Jens |
| Abstract: | This article reports the results of a laboratory experiment that examines the strategic effect of forward contracts on market power in infinitely repeated duopolies. Two competing effects motivate the experimental design. Allaz and Vila (1993) argue that forward markets act like additional competitors in that they increase quantity competition among firms. Conversely, Liski and Montero (2006) argue that forward contracting can facilitate collusive outcomes by enabling firms to soften competition. The experiment provides a first simultaneous test of these rival effects. Contrary to previous experimental studies, the results do not support the quantity-competition effect. Further, the findings provide evidence in support of the collusive hypothesis. |
| Keywords: | Cournot oligopoly; Collusion; Experiments; Forward markets; Electricity markets |
| JEL: | L13 Q49 D43 C91 C72 |
| Date: | 2013–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43768&r=bec |