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on Business Economics |
| By: | Dalida Kadyrzhanova; Matthew Rhodes-Kropf |
| Abstract: | Equity overvaluation is thought to create the potential for managerial misbehavior, while monitoring and corporate governance curb misbehavior. We combine these two insights from the literatures on misvaluation and governance to ask 'when does governance matter?' Examining firms with standard long-run measures of corporate governance as they are shocked by plausible misvaluation, we provide consistent evidence that firm performance is impacted by governance when firms become overvalued – overvaluation causes weaker performance in poorly governed firms. Our findings imply that firm oversight is important during market booms, just when stock prices suggest all is well. |
| JEL: | G30 G32 G34 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19799&r=bec |
| By: | Fritsch, Michael (University of Jena); Kritikos, Alexander S. (University of Potsdam, DIW Berlin); Pijnenburg, Katharina (DIW Berlin) |
| Abstract: | We investigate whether people are more willing to become self-employed during boom periods or during recessions and to what extent business cycles or unemployment levels influence entries into entrepreneurship. Our analysis for Germany reveals that there is a positive relationship between unemployment rates and start-up activities. Moreover, new business formation is higher during recessions than in boom periods. This implies that new business formation is counter-cyclical. When disentangling periods of low and high unemployment we find that the effect of unemployment on new business formation is only statistically significant if the level of unemployment is below the trend, indicating a "low unemployment retain effect". |
| Keywords: | self-employment, business cycle, unemployment, start-up |
| JEL: | L26 E32 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7852&r=bec |
| By: | Ryoma Kitamura (Graduate School of Economics, Kwansei Gakuin University); Tetsuya Shinkai (School of Economics, Kwansei Gakuin University) |
| Abstract: | We consider cannibalization in a duopoly model in which firms with diffrent costs supply two vertically differentiated products in the same market. We find that an increase in the difference in quality between the two goods or a decrease in the marginal cost of the high-quality goods leads to cannibalization, such that the high-quality goods keep out the low-quality goods from the market. We show that, in equilibrium, cannibalization aspects the product line of firms. As a result, an inefficient firm may earn more than the efficient firm. If the difference in the quality of the two goods is small enough, an increase in the production costs of the inefficient firm improves social welfare. |
| Keywords: | Multi-product firm, Duopoly, Cannibalization, Vertical product differentiation |
| JEL: | D21 D43 L13 L15 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:113&r=bec |
| By: | Chiraz Ben Ali; Frederic Teulon |
| Abstract: | Similar to the Security Exchange Commission (SEC), the French Stock Exchange Authority (AMF) issued new board requirements to enhance manager control after financial scandals (2008-2009). This study investigates the relation between corporate governance and CEO pay levels after taking into acc²ount unobservable firm effects, time-varying industry effects, size, and performance. Using a sample of 290 firm-years observations from SBF 120 Index companies (2009-2011), we find that CEO pay is positively associated to (1) board size, (2) the number of board meetings and (3) compensation committee independence. Consistent with Guthrie et al. (2012) findings, our results suggest serious doubt on the effectiveness of new independence board requirement in constraining CEO compensation as suggested by the managerial power hypothesis. |
| Keywords: | Board of directors,Board meeting frequency, CEO compensation, Corporate governance. |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:201404&r=bec |
| By: | Chiraz Ben Ali; Cédric Lesage |
| Abstract: | Family businesses are an important part of the world economy (Anderson and Reeb, 2003) and show significant differences in their corporate governance compared to non-family firms. Although displaying evident unique features, family firms have received relatively little attention as distinct from their equivalents in publicly held firms. Our study contributes to this growing research and investigates empirically the relationship between family shareholding and audit pricing. Using a sample of 3291 firm-year observations of major U.S. listed companies, for the period 2006- 2008, our results demonstrate that audit fees is negatively associated to family shareholding after taking into account unobservable firm effects, time-varying, industry effects and traditional control variables. The empirical results are robust to alternative family shareholding measures and estimation model specifications. Our results are consistent with the convergence-of-interests hypothesis suggesting that family firms face lower manager/shareholders agency costs. Auditors charge lower fees for family firms because of lower information asymmetry and risk as the controlling family is well informed about the firm and is better able to monitor managerial decisions. |
| Keywords: | Family firms, Audit Fees, Agency Conflicts, Corporate Governance |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:201412&r=bec |
| By: | Chiraz Ben Ali; Cédric Lesage |
| Abstract: | Family businesses are an important part of the world economy (Anderson and Reeb, 2003) and show significant differences in their corporate governance compared to non-family firms. Although displaying evident unique features, family firms have received relatively little attention as distinct from their equivalents in publicly held firms. Our study contributes to this growing research and investigates empirically the relationship between family shareholding and audit pricing. Using a sample of 3291 firm-year observations of major U.S. listed companies, for the period 2006- 2008, our results demonstrate that audit fees is negatively associated to family shareholding after taking into account unobservable firm effects, time-varying, industry effects and traditional control variables. The empirical results are robust to alternative family shareholding measures and estimation model specifications. Our results are consistent with the convergence-of-interests hypothesis suggesting that family firms face lower manager/shareholders agency costs. Auditors charge lower fees for family firms because of lower information asymmetry and risk as the controlling family is well informed about the firm and is better able to monitor managerial decisions. |
| Keywords: | Family firms, Audit Fees, Agency Conflicts, Corporate Governance |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:201405&r=bec |
| By: | Leung, Danny Rispoli, Luke |
| Abstract: | This paper compares the relative importance of small and large firms in the business sectors of Canada and the United States from 2002 to 2008 using estimates of the contribution of small and large firms to the gross domestic product (GDP) of each country. It then makes use of estimates of labour input for comparison purposes. In this paper, small firms are defined as those with fewer than 500 employees and large firms as those with 500 or more employees. |
| Keywords: | Business performance and ownership, Economic accounts, Gross domestic product, Productivity accounts |
| Date: | 2014–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2014088e&r=bec |
| By: | Taneli Mäkinen (Bank of Italy); Björn Ohl (Narodowy Bank Polski) |
| Abstract: | We study firms’ incentives to acquire costly information in booms and recessions to understand the role of endogenous information in explaining business cycles. We find that when the economy has been in a recession in the previous period, and firms enter the current period with a pessimistic belief, the incentive to acquire information is stronger than when the economy has been in a boom and firms share an optimistic belief. The cyclicality of the aggregate learning outcome is moderated by the price system, which transmits information from informed to uninformed firms, thus dampening information demand. Though learning from equilibrium prices acts to stabilize fluctuations by discouraging information acquisition, it can be welfare-enhancing to make information prohibitively costly to obtain. |
| Keywords: | information acquisition, rational expectations equilibrium, asymmetric information, strategic substitutability |
| JEL: | D51 D83 E32 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_946_14&r=bec |
| By: | Baldwin, John R. Leung, Danny Rispoli, Luke |
| Abstract: | This paper examines and compares labour productivity in Canada and the United States for small and large firms over the period from 2002 to 2008. It quantifies the relative importance of small and large firms in Canada and the United States and measures the relative productivity levels of small versus large firms. Small firms are relatively more important in the Canadian economy. Small firms are less productive than large firms in both countries. But the productivity disadvantage of small relative to large firms was higher in Canada. The paper provides an estimate of the impact that these differences have on the gap in productivity levels between Canada and the United States. It first estimates the changes that would occur in Canadian aggregate labour productivity if the share of hours worked of large firms in Canada was increased to the U.S. level. It then quantifies the impact of increasing the relative productivity of small to large firms in Canada up to the relative productivity ratio of small firms to large firms that existed in the United States. Together, decreasing the relative importance of small firms in the economy and increasing their relative productivity compared to large firms accounts for most of the gap in productivity levels between Canada and the United States in 2002. However, changes in the economy that occurred between 2002 and 2008 reduced the contribution of the small-firm sector to the gap in productivity levels. |
| Keywords: | Business performance and ownership, Economic accounts, Productivity accounts, Small and medium-sized businesses |
| Date: | 2014–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp6e:2014033e&r=bec |
| By: | Geiler, P.H.M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: Are female top managers paid less than their male counterparts? Is the gender gap higher in male-dominated industries? What effect on pay do female non-executive directors and remuneration consultants exert? While we find no pay gap for the figure-head (CEO), there is strong pay discrimination at the level of the other top managers. These female executive directors earn over a five-year tenure period £1.3 million less than male directors, and this pay gap is visible for all components of pay. The pay gap is lower for executives in firms with one or more female non-executives. Female executives in ‘male’ industries receive less remuneration than male executives but the gender pay gap is smaller. The advice of top remuneration consultants does not reduce the pay gap. |
| Keywords: | executive compensation;gender pay gap;gender discrimination;pay-for-performance;glass ceiling;glass cliff |
| JEL: | J31 J33 M52 G30 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2014004&r=bec |
| By: | Ding, Yucheng |
| Abstract: | A durable good monopolist sells its branded product over two periods. In period 2, when there is entry of a counterfeiter, the branded firm may charge a high price to signal its quality. Counterfeit competition thus enables the branded firm to commit to high future price in period 2, alleviating the classic time-inconsistency problem under durable good monopoly. This can increase the branded firm's profit by encouraging consumer purchase without delay, despite the revenue loss to the counterfeiter. Total welfare can also increase, because early purchase eliminates delay cost and consumers enjoy the good for both periods. |
| Keywords: | Counterfeits, Coase Conjecture, Quality Signaling |
| JEL: | D82 L11 L13 |
| Date: | 2014–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52933&r=bec |
| By: | Bakó, Barna; Tasnádi, Attila |
| Abstract: | In this paper we generalize the results of Kreps and Scheinkman (1983) to mixed-duopolies. We show that quantity precommitment and Bertrand competition yield Cournot outcomes not only in the case of private firms but also when a public firm is involved. |
| Keywords: | Mixed duopoly, Cournot, Bertrand-Edgeworth. |
| JEL: | D43 L13 |
| Date: | 2014–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52986&r=bec |
| By: | Hong, Suting (Federal Reserve Bank of Philadelphia) |
| Abstract: | There are two ways for a venture capital (VC) firm to enter a new market: initiate a new deal or form a syndicate with an incumbent. Both types of entry are extensively observed in the data. In this paper, I examine (i) the causes of syndication between entrant and incumbent VC firms, (ii) the impact of entry on VC contract terms and survival rates of VC-backed start-up companies, and (iii) the effect of syndication between entrant and incumbent VC firms on the competition in the VC market and the outcomes of incumbent-backed ventures. By developing a theoretical model featuring endogenous matching and coalition formation in the VC market, I show that an incumbent VC firm may strategically form syndicates with entrants to maintain its bargaining power. Furthermore, an incumbent VC firm is less likely to syndicate with entrants as the incumbent’s expertise increases. I find that entry increases the likelihood of survival for incumbent-backed start-up companies while syndication between entrants and incumbents dampens the competitive effect of entry. Using a data set of VC-backed investments in the U.S. between year 1990 and 2006, I find empirical evidence that is consistent with the theoretical predictions. The estimation results remain robust after I control for the endogeneity of entry and syndication. |
| Keywords: | Entrepreneurship; Externalities (Economics); Venture capital; Entry; Contracts; Exernality; Efficiency; Coalition |
| JEL: | C78 D86 G24 L26 M13 |
| Date: | 2013–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:13-49&r=bec |
| By: | Fang, Tony (Monash University); Ge, Ying (School of International Trade and Economics, Beijing) |
| Abstract: | This paper uses the national firm level survey data to investigate the effects of Chinese unions on firm performance. We show that Chinese unions have a strong "State-Party voice" face and a "collective voice" face but lack of "monopoly" face. The government influence plays an important role in unionization. The empirical findings on the effectiveness of unions are remarkable: unions in the workplace significantly improve productivity but reduce enterprise profitability. Moreover, the presence of unions in same region and industry generates negative spillovers on enterprise performance. |
| Keywords: | unions, laws, productivity, profitability, China |
| JEL: | J51 J52 J53 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7870&r=bec |
| By: | Kerstin Lopatta (University of Oldenburg - Accounting and Corporate Governance & ZenTra); Frerich Buchholz (University of Oldenburg - Accounting and Corporate Governance); Thomas Kaspereit (University of Oldenburg - Accounting and Corporate Governance) |
| Abstract: | We investigate the relation between asymmetric information of insider trades and international corporate social responsibility for U.S. firms listed in the MSCI world index during the period 2004 to 2010. In comparison to current studies, which focus on measuring the interrelation between the cost of capital or firm value and corporate sustainability, our analysis entails the direct relationship between international corporate sustainability and information asymmetry. We measure information asymmetry by the abnormal returns that occur when insiders trade in the stock of their firms. Hence, our investigation is based on a micro level and helps to explain the results at the more aggregated level of cost of capital, and at the fully aggregated level of firm value. In our cross-sectional analysis we found evidence that firms with a higher degree of corporate sustainability spend more efforts in reducing information asymmetry. |
| Keywords: | Asymmetric Information, Corporate Governance, International Corporate Social Responsibility, Cross-Sectional Analysis, Event Study, Insider Trading |
| JEL: | D53 D82 G14 D21 G34 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:29&r=bec |
| By: | Degiannakis, Stavros; Duffy, David; Filis, George |
| Abstract: | The paper investigates the time-varying correlation between the EU12-wide business cycle and the initial EU12 member-countries based on scalar-BEKK and multivariate Riskmetrics model frameworks for the period 1980-2009. The paper provides evidence that changes in the business cycle synchronisation correspond to institutional changes that have taken place at a European level. Business cycle synchronisation has moved in a direction positive for the operation of a single currency suggesting that the common monetary policy is less costly in terms of lost flexibility at the national level. Thus, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to the lack of cyclical synchronisation. |
| Keywords: | Scalar-BEKK, Multivariate Riskmetrics, time varying correlation, EU business cycle, business cycle synchronisation. |
| JEL: | C32 E32 F44 O52 |
| Date: | 2013–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52925&r=bec |
| By: | Nilsen, Øivind Anti (Dept. of Economics, Norwegian School of Economics and Business Administration); Sørgard, Lars (Dept. of Economics, Norwegian School of Economics and Business Administration); Ulsaker, Simen A. (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | This study develops and uses a successive oligopoly model, with an unobservable non-linear tariff between upstream and downstream firms, to analyze the possible anti-competitive effects of an upstream merger. We nd that an upstream merger may lead to higher average prices paid by downstream firms, but that there is no change in the prices paid by consumers. The model is tested empirically on data for an upstream merger in the Norwegian food sector (specifically, the market for eggs). Consistent with the theoretical predictions of the model, we find that the merger had no effect on consumer prices, but led to higher average prices from the downstream to the upstream firm. |
| Keywords: | Upstream merger; non-linear prices; Vertical con- tracts. |
| JEL: | K21 L41 |
| Date: | 2013–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2013_017&r=bec |