nep-bec New Economics Papers
on Business Economics
Issue of 2014‒02‒02
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. CEO Monitoring and board effectiveness - Resolving CEO compensation issue By Chiraz Ben Ali; Frederic Teulon
  2. Endogenous firm entry in an estimated model of the US business cycle By Offick, Sven; Winkler, Roland C.
  3. Trade, Technologies and the Talent Organization By Schymik, Jan
  4. Rivalry information acquisition and disclosure By Li X.; Peeters R.J.A.P.
  5. Imitation by price and quantity setting firms in a differentiated market By Khan A.; Peeters R.J.A.P.
  6. Delegation, worker compensation, and strategic competition By Güth, Werner; Pull, Kerstin; Stadler, Manfred
  7. The role of managerial work in market performance: A monopoly model with team production By Hildenbrand, Andreas; Duran, Mihael
  8. Lobbying for Subsidies with Heterogeneous Firms By Kammerer, Hannes
  9. Should I stay or should I go? - The Effect of Performance Pay on the Retention of Apprenticeship Graduates By Rinawi, Miriam; Backes-Gellner, Uschi
  10. Lobbying and the Power of Multinational Firms By Polk, Andreas; Schmutzler, Armin; Müller, Adrian
  11. Optimal Liquidity management and Hedging in the presence of a non-predictable investment opportunity By Villeneuve, Stéphane; Warin, Xavier
  12. Matching Skills of Individuals and Firms Along the Career Path By Bublitz, Elisabeth
  13. How much do the characteristics of independent directors and supervisory board members affect firm performance in China? By Xu, Hongmei
  14. Bad Mergers Revisited: An Incentive Perspective By Kräkel, Matthias; Müller, Daniel
  15. Spillover effects in oligopolistic markets By Gugler, Klaus; Szücs, Florian

  1. 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
  2. By: Offick, Sven; Winkler, Roland C.
    Abstract: A recent theoretical literature highlights the role of endogenous firm entry as an internal amplification mechanism of business cycle fluctuations. The amplification mechanism works through the competition and the variety effect. This paper tests the significance of this amplification mechanism, quantifies its importance, and disentangles the competition and the variety effect. To this end, we estimate a medium-scale real business cycle model with firm entry for the U.S. economy. The parameter governing the competition and variety effect is estimated to be statistically significant. We find that firm entry substantially amplifies output by 8.5 percent. The competition effect accounts for most amplification, whereas the variety effect only plays a minor role. --
    Keywords: Bayesian estimation,Business Cycles,Competition Effect,Entry,Mark-ups,Variety Effect
    JEL: E20 E32
    Date: 2014
  3. By: Schymik, Jan
    Abstract: This paper introduces the theory of firm organization under moral hazard into an equilibrium model of international trade with heterogeneous talents and technologies. The model is able to explain how the allocation of power and the provision of financial incentives inside firms varies within and across industries. Variation in the value of outside options triggers owners to choose different levels of firm organization and financial incentives. While incentive compensation and centralized decision-making are substitutes for human capital scarce firms, human capital intensive firms use incentive compensation and the delegation of power as complements to keep their managers participating. Trade liberalizations and skill-biased technological changes affect the distribution of outside options and thus let firms reorganize and provide different financial incentives. Trade integrations may lead firms to endogenously choose organizations with powerful managers and consequently managerial entrenchment arises in the most productive firms. --
    JEL: F12 L22 D23
    Date: 2013
  4. By: Li X.; Peeters R.J.A.P. (GSBE)
    Abstract: In the recent past there have been numerous scandals around bad practices in the food industry. Although it can be easily rationalized why these bad practices have not been reported by the inflictors themselves, it is more difficult to understand why the non-inflicting competitors did not report their rivals conspicuous acts. In this paper we study these competitors incentives to acquire and to disclose information on the quality of their rivals products and how regulatory intervention may enhance information disclosure. Our model involves two firms that compete in prices within a differentiated product market, where the quality of one of the firms is publicly known while that of the other firm is unknown. Before the firms set their prices, the former firm has the possibility to acquire information on the quality of the latter firms product, and, if decided to do so, subsequently, the possibility to credibly reveal this information to the public. We find that low quality levels can be disclosed in a substitute market, but should not be expected to be disclosed in a complement market. Policies that mandate acquisition or disclosure may enhance disclosure of low quality levels, but fail to be welfare enhancing.
    Keywords: Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Information and Product Quality; Standardization and Compatibility; Enterprise Policy;
    JEL: L15 L53 D43
    Date: 2013
  5. By: Khan A.; Peeters R.J.A.P. (GSBE)
    Abstract: We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a Salop circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a mutually non-aggressive outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously.
    Keywords: Noncooperative Games; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games; Firm Behavior: Theory; Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Production, Pricing, and Market Structure; Size Distribution of Firms; Oligopoly and Other Imperfect Markets;
    JEL: C72 C73 D21 D43 L11 L13
    Date: 2013
  6. By: Güth, Werner; Pull, Kerstin; Stadler, Manfred
    Abstract: We study interfirm competition on a product market where effort decisions are delegated to the firms' workers. Intrafirm organization is captured by a principal-multiagent framework where firm owners implement alternative compensation schemes for the workers. We show that the value of delegation as well as the optimal design of the compensation scheme crucially depend on the intensity of competition. In particular, our model explains why piece rates and performance-based revenue sharing may be observed in different markets at the same time. --
    Keywords: delegation,agency theory,compensation schemes
    JEL: C72 L22 M52
    Date: 2014
  7. By: Hildenbrand, Andreas; Duran, Mihael
    Abstract: A monopolist is treated as a nexus of contracts with team production. It has one ownermanager. The owner-manager is the employer of two employees. A team production problem is present if the employer is a managerial lemon. If the team production problem is solved, the employer is a managerial hotshot. Both a managerial hotshot and a managerial lemon are found to make profit. Managerial slack can therefore exist in our monopoly market. In the case of a managerial lemon, the profit level is lower. However, the employees' utility level is higher. Whereas the employer has an incentive to improve management capability in principle, the employees have an incentive to keep management capability low. Moreover, the cost of improving management capability may be prohibitively high. Managerial slack can therefore persist. The predicted behavior of the monopolist is grounded in individual behavior under the assumption of utility maximization. --
    Keywords: firm organization,market structure,property rights
    JEL: C7 D2 D4 L1 L2
    Date: 2013
  8. By: Kammerer, Hannes
    Abstract: Recent empirical evidence shows that the few firms that receive subsidies are large, and that large firms take a prominent role in shaping public policy by lobbying. In this paper, I present a theoretical framework that accounts for these empirical facts in a unified way. I study the role of firm heterogeneity in productivity for within-industry lobby formation when receiving subsidies and lobbying is costly. Due to firm heterogeneity, a within-industry conflict between receiving and non-receiving firms arises. This conflict creates lobbying incentives for large firms and delivers novel results. Surprisingly, increasing the barriers to lobby or lower firm heterogeneity amplifies this within-industry conflict such that a smaller lobby can attain a higher subsidy rate. Even if barriers to participate are modest, introducing a subsidy program harms particularly the smallest firms in a market. --
    JEL: D72 H25 L11
    Date: 2013
  9. By: Rinawi, Miriam; Backes-Gellner, Uschi
    Abstract: This paper investigates how training firms retain their apprenticeship graduates if they are embedded in labor markets without the frictions that the new training literature considers to be essential for investments in general human capital. We hypothesize that performance pay schemes are an additional firm-level tool to increase the retention of graduates. We argue that firms with performance pay schemes are more likely to engage in apprenticeship training than firms not offering performance pay. This paper uses representative data from a large employer-employee panel data set and accounts for unobserved heterogeneity by employing fixed-effects estimations. We find that the performance pay rate has a significantly positive effect on a firm's share of internal apprenticeship graduates. Our results can be interpreted as an indication that performance pay firms are more likely to invest in training, as they can successfully retain their graduates. --
    JEL: J24 J33 C23
    Date: 2013
  10. By: Polk, Andreas; Schmutzler, Armin; Müller, Adrian
    Abstract: Can multinational firms exert more power than national firms by influencing politics through lobbying? To answer this question, we analyze the extent of national environmental regulation when policy is determined in a lobbying game between a government and firm. We compare the resulting equilibrium regulation levels, outputs and welfare for national and multinational firms, depending on such parameters as the potential environmental damages, transportation costs and the influence of the firm. For low transportation costs, output and pollution of a national firm is always as least as high as for a multinational; this changes for high transportation costs and intermediate damage parameters. When there is no lobbying, welfare levels are always higher with multinationals than with national firms. However, the existence of lobbying may reverse this ordering. --
    JEL: D72 F23 L51
    Date: 2013
  11. By: Villeneuve, Stéphane; Warin, Xavier
    Abstract: In this paper, we develop a dynamic model that captures the interaction between a firm’s cash reserves, the risk management policy and the profitability of a non-predictable irreversible investment opportunity. We consider a firm that has assets in place generating a stochastic cash-flow stream. The firm has a non-predictable growth opportunity to expand its operation size by paying a sunk cost. When the opportunity is available, the firm can finance it either by cash or by costly equity issuance. We provide an explicit characterization of the firm strategy in terms of investment, hedging, equity issuance and dividend distribution.
    Keywords: Liquidity management; Singular control problem; One-dimensional free boundary problem; Maximum principle;
    JEL: G32 G31 G33 G35
    Date: 2013
  12. By: Bublitz, Elisabeth
    Abstract: This paper presents an analytical setup that makes predictions for the relationships between firm and occupation specific human capital and job switches. The predictions are then tested using the task based approach. The results, based on data for Germany, show that the degree to which firm knowledge is portable depends on skill similarities between the firms. In case of job switches, less experienced workers travel longer skill distances between firms than more experienced workers. Firm and occupational skill distances, that is firm and occupation specific knowledge, both are negatively related to wages in a new job, although the relative importance differs by qualification level. The share of workers in the same occupational group within the firm, occupational intensity, can reflect switching motivations of workers. Occupational intensity decreases with experience and is negatively associated with wages. --
    JEL: J24 J62 J31
    Date: 2013
  13. By: Xu, Hongmei
    Abstract: This paper investigates and compares the characteristics of independent directors and supervisory board members in Chinese listed firms. The occupational backgrounds of independent directors and supervisory board members in listed firms are very different. Besides, different firms have different preferences in employing independent directors and supervisory board members according to their demands. Moreover, the empirical results show that characteristics of independent directors and supervisory board members have no clear relationship with firm performance. No matter their professional backgrounds or age, the independent directors and supervisory board members do not have the authority to affect the decision making process of management. Thus they cannot really contribute to firm performance. -- Die vorliegende Studie untersucht und vergleicht die Merkmale von unabhängigen Direktoren und Aufsichtsratsmitgliedern in börsennotierten chinesischen Unternehmen. Der berufliche Hintergrund der unabhängigen Vorstands- und Aufsichtsratsmitglieder in börsennotierten Unternehmen ist sehr verschieden. Verschiedene Unternehmen haben auch unterschiedliche Präferenzen bei der Beschäftigung von unabhängigen Direktoren und Aufsichtsratsmitgliedern je nach ihren Anforderungen. Außerdem zeigen die empirischen Ergebnisse, dass die Merkmale von unabhängigen Vorstands- und den Aufsichtsratsmitgliedern in keinem klarem Zusammenhang zum Unternehmenserfolg stehen. Unabhängig von ihrem professionellem Hintergrund und Alter haben weder die unabhängige Direktoren noch die Aufsichtsratsmitglieder ausreichenden Einfluss auf die Entscheidungsprozesse des Managements. Folglich können sie nicht wirklich zum Unternehmenserfolg beitragen.
    JEL: G30 G34 M51 O16 P31
    Date: 2013
  14. By: Kräkel, Matthias; Müller, Daniel
    Abstract: We consider a two-stage principal-agent model with limited liability in which a CEO is employed as agent to gather information about suitable merger targets and to manage the merged corporation in case of an acquisition. Our results show that the CEO systematically recommends targets with low synergies even when targets with high synergies are available to obtain high-powered incentives and, hence, a high personal income at the merger-management stage. We derive conditions under which shareholders prefer a self-commitment policy or a rent-reduction policy to deter the CEO from opportunistic recommendations. --
    JEL: D82 D86 G34
    Date: 2013
  15. By: Gugler, Klaus; Szücs, Florian
    Abstract: We estimate the spillovers on firm profitability and market shares in oligopolistic markets through the transition from an n to an n-1 player oligopoly after a merger in the industry. Competitors are identified via the European Commission s market investigations and our methodology allows us to disentangle the spillover due to the change in market structure from the merger effect. We obtain results consistent with the predictions of standard oligopoly models: non-merging rivals expand their output and increase their profits, while merging firms barely break even. The size of the effect is larger in industries with fewer oligopolists and higher initial profits. --
    JEL: L13 L40 G34
    Date: 2013

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