nep-bec New Economics Papers
on Business Economics
Issue of 2014‒01‒10
ten papers chosen by
Vasileios Bougioukos
Bangor University

  1. A Price Theory of Vertical and Lateral Integration under Productivity Heterogeneity By Serfes , Konstantinos
  2. The level of CEO compensation for the short and long-term - a view on high-tech firms By Paula Faria; Franscisco Vitorino Martins; Elísio Brandão
  3. Executive Compensation: Pay-for-Performance in High-Technology Firms By Paula Faria; Franscisco Vitorino Martins; Elísio Brandão
  4. Wage comparisons in and out of the firm. Evidence from a matched employer-employee French database By Olivier Godechot; Claudia Senik
  5. Bargaining with Existing Workers, Over-hiring of Firms, and Labor Market Fluctuations By Jiwoon Kim
  6. How do free trade agreements change import prices? : firm-level evidence from China's imports from ASEAN By Hayakawa, Kazunobu; Yang, Chih-Hai
  7. From …fixed to state-dependent duration in public-private contracts By Daniel Danau; Annalisa Vinella
  8. Market-based Lobbying: Evidence from Advertising Spending in Italy By Stefano DellaVigna; Ruben Durante; Brian Knight; Eliana La Ferrara
  9. The political roots of intermediated lobbying: evidence from Russian firms and business associations By Andrei Govorun; Israel Marques; William Pyle
  10. Do Small Businesses Still Prefer Community Banks? By Berger, Allen N.; Goulding, William; Rice, Tara

  1. By: Serfes , Konstantinos (School of Economics LeBow College of Business Drexel University)
    Abstract: We develop a model of organizational choice in a perfectly competitive product market with heterogeneous firms and incomplete contracts. Successful production requires two inputs that are supplied by two different firms. The input suppliers can either remain as separate units or integrate to form an enterprise. The market consists of a continuum of suppliers with heterogeneous productivities. An important feature of our model is the endogenously determined, through matching, distribution of surplus in the bargaining problem between two input suppliers, which as we show has a profound effect on organizational design in a market. We study the interplay between market price, firm productivity and firm boundaries. We show that integration decisions can be non-monotonic with respect to firm productivity. Moreover, depending on the market distribution of firm productivities, a higher market price can induce more or fewer firms to integrate. In the latter case, the industry supply curve can be backward-bending. These results generate new empirical implications.
    Keywords: Integration; incomplete contracting; market competition; endogenous matching
    JEL: D21 D23 D41 L11 L14 L22
    Date: 2013–11–26
  2. By: Paula Faria (School of Economics and Management, University of Porto); Franscisco Vitorino Martins (School of Economics and Management, University of Porto); Elísio Brandão (School of Economics and Management, University of Porto)
    Abstract: This study examines the relationship between corporate performance and the Chief Executive Officer compensation in high-technology firms in the S&P 1500. The total CEO compensation and short and long-term compensations were tested regarding corporate performance. A panel data SUR model is estimated and describes the total compensation and cash compensation as a proportion of total pay for the period between 2000 and 2010 in high-technologies firms. The findings indicate that there is a strong and positive relation between CEO compensation and firm performance. This econometric study provides a better understanding on the relationship between CEO compensation and performance in high-technologies firms.
    Keywords: Corporate finance, Executive compensation, Accounting
    JEL: G30 M52 M41
    Date: 2013–12
  3. By: Paula Faria (School of Economics and Management, University of Porto); Franscisco Vitorino Martins (School of Economics and Management, University of Porto); Elísio Brandão (School of Economics and Management, University of Porto)
    Abstract: This study examines the relationship between corporate performance and the Chief Executive Officer (CEO) compensation in high-technology firms in the S&P 500. The total short- and long-term CEO compensation in high-technology was compared with other industrial sectors from standard classification codes and tested in terms of corporate performance. The ExecuComp database was used to find the variables and to create a sample of firms between 2004 and 2010. Important corporate performance variables are used in this work, such as assets, employees, sales, net income, and earnings per share (EPS), as reported by the firms for each year. A panel data GLS with a fixed effect model for time is estimated that describes total compensation for the period between 2004 and 2010. The result was aligned with the theory of executive compensations to address agency problems and to examine CEO pay-for-performance. The main objective of this paper is to consistently demonstrate that the performance is determined for the total CEO compensation for short- and long-term periods and to examine whether the total remuneration paid to CEOs in high-technology firms in the S&P 500 is related to corporate finance. This work provides a better understanding of the relationship between compensation and performance in high-technology firms. Results suggest that high-tech firms tend to use more sophisticated performance measurements to determine CEO compensation.
    Keywords: corporate finance, CEO compensation, accounting
    JEL: G30 M52 M41
    Date: 2013–12
  4. By: Olivier Godechot (Sciences Po, MaxPo and OSC-CNRS); Claudia Senik (University Paris-Sorbonne and PSE)
    Abstract: This paper looks at the association between wage satisfaction and different notions of reference wage, based on a matched employer-employee dataset. It shows that workers’ satisfaction depends on other-people’s income in different ways. Relative income concerns are important, but we also find robust evidence of signal effects. For instance, workers are happier the higher the median wage in their firm, holding their own wage constant. This is true of all employees, whatever their relative position in the firm. This signal effect is stronger for young people and for women. These findings are based on objective measures of earnings as well as subjective declarations about wage satisfaction, awareness of other people’s wage and reported income comparisons.
    Keywords: Income comparisons, income distribution, job satisfaction, wage satisfaction, signal effect, matched employer-employee survey data.
    JEL: D31 D63 I30 J28 J31
    Date: 2013–11
  5. By: Jiwoon Kim (University of Minnesota)
    Abstract: This paper investigates the effects of intra-firm bargaining on the standard real business cycle (RBC) search and matching model by explicitly considering the outside option of a firm in the bargaining with a new worker. In this paper, the outside option of a firm in the bargaining with a new worker is bargaining with existing workers (i.e., intra-firm bargaining). According to Stole and Zwiebel (1996), under the assumption that the firm facing diminishing marginal productivity of labor and its workers cannot commit to future wages, intra-firm bargaining gives the firm an incentive to hire an excessive amount of workers in order to drive wages of workers down. (i.e., the firm “over-hires†workers.) We show the outside option of a firm is crucial for the bargaining with a new worker in the sense that how much the firm pays existing workers, when the match breaks down, determines how many workers it over-hires. In this paper, wages in the outside option of a firm depend on the stochastic bargaining weight of existing workers (i.e., a bargaining shock), which can be identified through labor share data from U.S. Bargaining shocks affect the degree of over-hiring behavior of a firm, and in turn, provide another source to explain the behavior of labor markets in business cycles. The inclusion of intra-firm bargaining and bargaining shocks improves the capacity of the standard RBC search and matching model, especially in labor markets. Our calibrated model generates more volatile total hours, employment, hours per worker while labor share overshoots in response to productivity shocks. In particular, the volatility of employment in the model is similar to the actual U.S. data. Furthermore, the model provides a theory about the overshooting property of labor share, which can be explained by the general equilibrium effects of time-varying bargaining weights of existing workers and over-hiring behavior of the firm.
    Date: 2013
  6. By: Hayakawa, Kazunobu; Yang, Chih-Hai
    Abstract: The literature has revealed the positive impacts of free trade agreements (FTAs) on export prices by employing product-level trade data. This paper empirically examines the impacts of FTAs on import prices at the firm level. We focus on firm-level imports in China from ASEAN countries by employing China’s firm-product-level trade data. As a result, controlling for firm characteristics and product characteristics, we could not find significantly positive impacts of an FTA’s entry into force on import prices of FTA eligible products. Instead, we found a significant increase in import quantities of FTA eligible products. Thus, at the firm level, the gains from FTAs for exporters may be the increase in export quantities rather than the rise in export prices.
    Keywords: China, Southeast Asia, International trade, Free Trade Agreement (FTA), Imports, Prices, FTA utilization
    JEL: F10 F13 F15
    Date: 2013–12
  7. By: Daniel Danau (University of Caen Basse-Normandie, CREM CNRS UMR 6211, France); Annalisa Vinella (Università degli Studi di Bari "Aldo Moro", Italy)
    Abstract: A government delegates a build-operate-transfer project to a private firm. At the contracting stage, the operating cost is unknown. The firm can increase the likelihood of facing a low cost (the good state) by exerting effort when building the infrastructure. Once this is in place, the firm learns the true cost and begins to operate. Under limited commitment, either the firm or the government may renege on the contract. Within this context, we explore how well a contract with a state-dependent duration performs, as compared to the more standard fixed-term contract. Under full commitment, the efficient allocation is decentralized, whether the contractual term is fixed or state-dependent. Under limited commitment, in situations where break-up of the partnership is little costly for the government, the efficient allocation can be decentralized only if it is stipulated that the duration of the contract will be longer in the good state than in the bad state. This result is at odds with the prescription of the literature on "flexible-term" contracts, which recommends a longer contractual length when the operating conditions are unfavourable.
    Keywords: Fixed-term contract, state-dependent duration, limited commitment, renegotiation, public-private partnerships
    JEL: D82 H57 H81
    Date: 2013–12
  8. By: Stefano DellaVigna; Ruben Durante; Brian Knight; Eliana La Ferrara
    Abstract: An extensive literature has studied lobbying by special interest groups. We analyze a novel lobbying channel: lobbying businessmen-politicians through business proxies. When a politician controls a business, firms attempting to curry favors shift their spending towards the politician’s business. The politician benefits from increased revenues, and the firms hope for favorable regulation in return. We investigate this channel in Italy where government members, including the prime minister, are not required to divest business holdings. We examine the evolution of advertising spending by firms over the period 1994 to 2009, during which Silvio Berlusconi was prime minister on and off three times, while maintaining control of Italy’s major private television network, Mediaset. We predict that firms attempting to curry favor with the government shift their advertising budget towards Berlusconi’s channels when Berlusconi is in power. Indeed, we document a significant pro-Mediaset bias in the allocation of advertising spending during Berlusconi’s political tenure. This pattern is especially pronounced for companies operating in more regulated sectors, as predicted. Using a model of supply and demand in the advertising market, we estimate one billion euros of extra revenue to Berlusconi’s group. We also estimate the expected returns in regulation to politically motivated spenders of similar magnitude, stressing the economic importance of this lobbying channel. These findings provide an additional rationale for rules on conflict of interest.
    Date: 2013
  9. By: Andrei Govorun (National Research University Higher School of Economics); Israel Marques (National Research University Higher School of Economics); William Pyle (Economics Department, Middlebury College)
    Abstract: How does political competition shape the way that firms pursue legislative change? A rich political economy literature describes various ways in which firms influence the design and enforcement of laws, rules and regulations germane to their business activities. Although helpful, this literature is disconnected from work on legislative accountability and political concentration. Making a distinction poorly developed in prior research, we contrast firms that choose to influence policy directly, through un-mediated contacts with executive and legislative branch personnel, and those that do so indirectly, through lobby groups acting as intermediaries. We propose a simple theory that relates the relative costs of lobbying and the strategies firms select to the extent of political competition and concentration. As competition increases and concentration decreases in a region, the use of indirect channels of lobbying becomes more attractive (and vice versa). We test our theory using a survey of 1013 firms across 61 Russian regions. Exploiting substantial variation in political competition and concentration across Russia’s regions, we find that firms in politically competitive environments, where there is less concentration, are more likely to use business associations to influence their institutional environment. Using a survey of 315 business associations, we show that these effects may be explained by the variation of the willingness of regional decision-making officials to support more or less encompassing policies depending on local political environment
    Keywords: lobbying, democratic institutions, business associations, Russia
    JEL: D71 D72
    Date: 2013
  10. By: Berger, Allen N. (Board of Governors of the Federal Reserve System (U.S.)); Goulding, William (Board of Governors of the Federal Reserve System (U.S.)); Rice, Tara (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: We formulate and test hypotheses about the role of bank type – small versus large, single-market versus multimarket, and local versus nonlocal banks – in banking relationships. The conventional paradigm suggests that "community banks" – small, single market, local institutions – are better able to form strong relationships with informationally opaque small businesses, while "megabanks" – large, multimarket, nonlocal institutions – tend to serve more transparent firms. Using the 2003 Survey of Small Business Finance (SSBF), we conduct two sets of tests. First, we test for the type of bank serving as the "main" relationship bank for small businesses with different firm and owner characteristics. Second, we test for the strength of these main relationships by examining the probability of multiple relationships and relationship length as functions of main bank type and financial fragility, as well as firm and owner characteristics. The results are often not consistent with the conventional paradigm, perhaps because of changes in lending technologies and deregulation of the banking industry.
    Keywords: Banks; relationships; small business; government policy
    JEL: G21 G28 G34
    Date: 2013–12–01

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