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on Business Economics |
| By: | Yihui Pan; Tracy Yue Wang; Michael S. Weisbach |
| Abstract: | This paper documents the existence of a CEO Investment Cycle, in which firms disinvest early in a CEO’s tenure and increase investment subsequently, leading to “cyclical” firm growth in assets as well as in employment over CEO tenure. The CEO investment cycle occurs for both firings and non-performance related CEO turnovers, and for CEOs with different relationships with the firm prior to becoming CEO. The magnitude of the CEO cycle is substantial: The estimated difference in investment rate between the first three years of a CEO’s tenure and subsequent years is approximately 6 to 8 percentage points, which is of the same order of magnitude as the differences caused by other factors known to affect investment, such as business cycles or financial constraints. We present a variety of tests suggesting that this investment cycle is best explained by a combination of agency-based theories: Early in his tenure the CEO disinvests poorly performing assets that his predecessor established and was unwilling to give up on. Subsequently, the CEO overinvests when he gains more control over his board. There is no evidence that the investment cycles occur because of shifting CEO skill or productivity shocks. Overall, the results imply that public corporations’ investments deviate substantially from the first-best, and that governance-related factors internal to the firm are as important as economy-wide factors in explaining firms’ investments. |
| JEL: | G32 G34 M12 M51 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19330&r=bec |
| By: | Fernandes, Ana; Ferreira, Priscila; Winters, L. Alan |
| Abstract: | This paper investigates the effects of firm entry deregulation. We exploit a recent reform that simplified business entry in Portugal as a quasi-natural experiment. We use cross-municipality-year variation in the implementation of the reform for identification. Using matched employer-employee data for the universe of workers and firms, we find that the reform is associated with increased firm entry and competition within industries and regions. The returns to a university degree increased by 5% while the returns to skills increased by 3%. |
| Keywords: | Entry Deregulation; Product Market Competition; Returns to Education; Wage Structure |
| JEL: | J3 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9550&r=bec |
| By: | Garicano, Luis; Lelarge, Claire; Van Reenen, John |
| Abstract: | We show how size-contingent laws can be used to identify the equilibrium and welfare effects of labor regulation. Our framework incorporates such regulations into the Lucas (1978) model and applies this to France where many labor laws start to bind on firms with exactly 50 or more employees. Using data on the population of firms between 2002 and 2007 period, we structurally estimate the key parameters of our model to construct counterfactual size, productivity and welfare distributions. With flexible wages, the deadweight loss of the regulation is below 1% of GDP, but when wages are downwardly rigid welfare losses exceed 5%. We also show, regardless of wage flexibility, that the main losers from the regulation are workers (and to a lesser extent large firms) and the main winners are small firms. |
| Keywords: | firm size; labor regulation; power law; productivity |
| JEL: | J8 L11 L25 L51 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9495&r=bec |
| By: | Spyros Arvanitis (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Tobias Stucki (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Florian Seliger (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | Human resource management (HRM) practices are generally expected to stimulate a firm’s innovation performance. However, which of these practices do really pay off? Based on a unique dataset that includes detailed information for both a firm’s innovation activities and different types of HRM practices we find that primarily new workplace organization practices seem to enhance a firm’s innovation activities. Flexible practices of working time management and incentive payment schemes show only small effects on both innovation propensity and innovation success. Further training does only affect innovation success, but not innovation propensity. Overall, we find a stronger linkage between innovative HRM practices and innovation propensity than with innovation success. |
| Keywords: | human resource management, workplace organization, innovation performance |
| JEL: | O31 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-341&r=bec |
| By: | William Mullins; Antoinette Schoar |
| Abstract: | Using a survey of 800 CEOs in 22 emerging economies we show that CEOs' management styles and philosophy vary with the control rights and involvement of the owning family and founder: CEOs of firms with greater family involvement have more hierarchical management, and feel more accountable to stakeholders such as employees and banks than they do to shareholders. They also see their role as maintaining the status quo rather than bringing about change. In contrast, professional CEOs of non-family firms display a more textbook approach of shareholder-value-maximization. Finally, we find a continuum of leadership arrangements in how intensively family members are involved in management. |
| JEL: | G3 G32 J62 M5 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19395&r=bec |
| By: | Ina Charlotte Jäkel (Department of Economics and Business, Aarhus University) |
| Abstract: | Does the selection effect of trade work solely through competition from imports, or does the export market further contribute to firm selection? This paper provides a re-interpretation of the different mechanisms in terms of selection on profitability - rather than productivity - and derives novel predictions regarding the export market and the role of product differentiation. Empirical results for a sample of Danish manufacturing industries confirm the import-"push" hypothesis as well as the export-"pull" hypothesis, but also reveal differences across industries. The selection effect of trade is mainly driven by the "import-push" if product differentiation is high, whereas it is driven by the "export-pull" if goods are homogeneous. |
| Keywords: | Firm exit, Exports, Import competition, Heterogeneous firms |
| JEL: | F12 F15 D21 |
| Date: | 2013–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2013-20&r=bec |
| By: | Lauren Cohen; Dong Lou; Christopher Malloy |
| Abstract: | We explore a subtle but important mechanism through which firms manipulate their information environments. We show that firms control information flow to the market through their specific organization and choreographing of earnings conference calls. Firms that “cast” their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. A long-short portfolio that exploits this differential firm behavior earns abnormal returns of up to 101 basis points per month. Further, firms that cast their calls have higher accruals leading up to call, barely exceed/meet earnings forecasts on the call that they cast, and in the quarter directly following their casting tend to issue equity and have significantly more insider selling. |
| JEL: | G0 G12 G14 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19429&r=bec |