nep-bec New Economics Papers
on Business Economics
Issue of 2014‒02‒08
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Explaining the Association between Monitoring and Controversial CEO Pay Practices: an Optimal Contracting Perspective By Pierre Chaigneau; Nicolas Sahuguet
  2. Information acquisition and learning from prices over the business cycle By Mäkinen, Taneli; Ohl , Björn
  3. Organizational Structure and Firms' Demand for HRM Practices By Eriksson, Tor; Ortega, Jaime
  4. Market Size, Entrepreneurship, and Income Inequality By Pokrovsky Dmitry; Behrens Kristian; Zhelobodko Evgeny
  5. Multiproduct Firms, Export Product Scope, and Trade Liberalization: The Role of Managerial Efficiency By Larry Qiu; Miaojie Yu
  6. Short or long-term contract? Firm's optimal choice By PAOLINI, Dimitri; TENA, Juan de Dios
  8. China and the World economy: Wavelet spectrum analysis of business cycles By Pomenková, Jitka; Fidrmuc, Jarko; Korhonen, Iikka
  9. The importance of design for firms' competitiveness: a review of the literature By Beatrice D'Ippolito
  10. Compulsory Disclosure of Private Information Theoretical and Experimental Results for the "Acquiring-a-Company" Game By Werner Güth; Kerstin Pull; Manfred Stadler; Alexandra Zaby
  11. Verti-zontal differentiation in export markets By DI COMITE, Francesco; THISSE , Jacques; ,
  12. Ethnic Diversity and Firms' Export Behavior By Parrotta, Pierpaolo; Pozzoli, Dario; Sala, Davide

  1. By: Pierre Chaigneau; Nicolas Sahuguet
    Abstract: Puzzling associations between low levels of ownership concentration and CEO pay practices such as pay-for-luck, a low pay-performance sensitivity, a more asymmetric pay-performance relation, and high salaries, have been documented. They have been interpreted as evidence that CEO pay is not set optimally. We explain these associations in a model in which firms design contracts optimally to attract and retain CEOs. The results are driven by the matching process: firms with greater ownership concentration have a higher monitoring capacity, and can better handle the downside risk of hiring CEOs with more uncertain ability. The outside option of these CEOs is more sensitive to their performance net of luck, which generates a higher pay-performance sensitivity and less pay-for-luck. If managerial skills are sufficiently transferable across firms and the cost of CEO dismissal is sufficiently high, these CEOs are less valuable and therefore receive relatively lower salaries.
    Keywords: CEO pay, corporate governance, monitoring, pay-for-luck
    JEL: D86 G34 M12
    Date: 2014
  2. By: Mäkinen, Taneli (Banca d’Italia); Ohl , Björn (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: 2014–02–04
  3. By: Eriksson, Tor; Ortega, Jaime
    Abstract: A question largely left unanswered in previous studies of firms’ use of HRM practices, and the consequences thereof, is why some firms adopt these practices while others do not. We examine empirically the determinants of firms’ demand for HRM pay, work and training practices with a special focus on the role of differences in the organizational structure of firms. For this purpose we merge data from a detailed questionnaire study of Danish private sector firms’ use of HRM practices with workforce information from linked employer-employee data. We find that firms with a Multi-divisional or a Hybrid structure have a greater demand for (incentive) pay practices and new work practices than companies with a Unitary (functional) form. Moreover, M- and H-firms train more of their employees than the U-firms do, suggesting that employer provided training is linked to the adoption of pay and work practices.
    Keywords: Organizational structure, Firm choice, Pay and work practices
    JEL: D22 L22 M51 M52
    Date: 2014–01
  4. By: Pokrovsky Dmitry; Behrens Kristian; Zhelobodko Evgeny
    Abstract: We develop a monopolistic competition model with two sectors and heterogeneousagents who self-select into entrepreneurship, depending on entrepreneurial ability. Theeffect of market size on the equilibrium share of entrepreneurs crucially hinges on propertiesof the lower-tier utility function for differentiated varieties – its elasticity of substitutionand its Arrow-Pratt index of relative risk aversion. We show that the share of entrepreneurs,and the cutoff for self-selection into entrepreneurship, can increase or decrease with marketsize. The properties of the underlying ability distribution largely determine how incomeinequality changes with market size.
    JEL: D43 L11 L13 L26
    Date: 2014–01–30
  5. By: Larry Qiu (University of Hong Kong and Hong Kong Institute for Monetary Research); Miaojie Yu (Peking University)
    Abstract: This paper provides a theoretical and empirical analysis of the effects of one-sided tariff cuts on firms' export product scope. The theoretical model explicitly incorporates cost of management in addition to the commonly used production cost. Firms are heterogeneous in terms of managerial efficiency but homogenous in terms of production productivity. The analysis predicts that the home country's tariff cut reduces all home firms' export product scope, whereas in response to the foreign country's tariff cut, a home firm's export product scope expands (shrinks) if the firm's management cost is low (high). These predictions are supported by our empirical analysis based on data on Chinese firms from 2000 to 2006.
    Keywords: Multiproduct Firm, Management Cost, Managerial Efficiency, Export Product Scope, Trade Liberalization, China
    JEL: F12 F13 F15
    Date: 2014–02
  6. By: PAOLINI, Dimitri; TENA, Juan de Dios
  7. By: Joana Reis (Faculdade de Economia do Porto); Rosa Forte (Faculdade de Economia do Porto)
    Abstract: The process of globalization of economies and markets has led firms to consider entry into foreign markets. Exporting is the simplest foreign market entry mode, but also the most common, not requiring high financial and human resources. Hence it is important to study the factors that can affect the firm’s export intensity, measure commonly used to assess the export performance. Several authors have studied the factors that influence the firm’s export performance, but few have addressed the relationship between industry characteristics and export intensity. Thus, the objective of the present study is to analyze the impact of industry characteristics (capital intensity, R&D intensity, labor productivity, export orientation, and concentration level) on the firm’s export intensity, seeking to add empirical evidence to this relatively neglected research area. Based on a sample of 1,425 Portuguese firms during the period 2008-2010, and using panel data estimation, the empirical results show that some industry characteristics (labor productivity, export orientation, concentration), as well as firm characteristics (labor productivity, size) are important determinants of a firm’s export intensity. In particular, we conclude that firm export intensity is positively affected by labor productivity (at industry and firm level), corroborating the idea that firms and governments need to direct their policies towards increased productivity in order to improve competitiveness in foreign markets.
    Keywords: Export performance, export intensity, Portuguese firms, industry characteristics
    JEL: L25 L69
    Date: 2014–02
  8. By: Pomenková, Jitka (BOFIT); Fidrmuc, Jarko (BOFIT); Korhonen, Iikka (BOFIT)
    Abstract: We employ a wavelet spectrum analysis to study globalization and business cycles in China and G7 countries. The co-movement synchronization between G7 countries and China is shown to have undergone frequent and large changes during our sample period. The co-movements for business cycle frequencies are generally different from those for other frequencies, and synchronization with China’s business cycle differs as between G7 countries. In recent years Japan, Germany and Italy seem to have the closest synchronization at business-cycle frequency. We find a significant relationship between the time-varying wavelet measure of synchronization and trade only for business-cycle frequencies. The co-movements at longer frequencies are negatively related to trade, so that the overall co-movements and trade tend not to be significantly related.
    Keywords: globalization; business cycles; synchronization; trade; wavelet analysis
    JEL: E32 F15 F41
    Date: 2014–01–27
  9. By: Beatrice D'Ippolito (MTS - Management Technologique et Strategique - Grenoble École de Management (GEM))
    Abstract: Scholars dedicated increasing attention towards appreciating how design has changed individuals' perception of new products, firms' understanding and formulation of strategy, or other relevant actors' approach to innovation and technology management. By emphasising the importance of design for the definition of consumers' needs, the restructuring of firms' organisational structures and strategies, and the evolution of firms' value creation processes, this review paper identifies relevant research gaps and questions that would benefit from future scholarly attention. In particular, it is suggested that such effort should address the analysis of: how design consumption can help better comprehend consumers' needs; what are the implications of design thinking on the skill sets of design professionals; the organisational structure of firms, including the reconfiguration of other business functions, and their strategy; and whether and how design thinking can shape firms' value creation processes and contribute to the formalisation of design tasks.
    Keywords: Design; strategy making; consumers' needs; value creation; literature review; firm competitiveness; research gaps
    Date: 2014–01–28
  10. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Kerstin Pull (University of Tübingen, School of Business and Economics); Manfred Stadler (University of Tübingen, School of Business and Economics); Alexandra Zaby (University of Tübingen, School of Business and Economics)
    Abstract: Based on the "acquiring-a-company" game of Samuelson and Bazerman (1985), we theoretically and experimentally analyze the acquisition of a firm. Thereby we compare cases of symmetrically and asymmetrically informed buyers and sell- ers. This setting allows us to predict and test the effects of information disclosure as prescribed by two recently implemented directives of the European Union, the Transparency and the Takeover-Bid Directive. Our theoretical and experimental results suggest a welfare-enhancing effect of compulsory information disclosure. Hence, the EU Transparency and the EU Takeover-Bid Directive should both be welfare enhancing.
    Keywords: Acquisition of firms, disclosure of private information, experimental economics
    JEL: C91 D61 D82
    Date: 2014–02–04
  11. By: DI COMITE, Francesco (Université catholique de Louvain, IRES, Belgium; European Commission, Sevilla); THISSE , Jacques (Université catholique de Louvain, CORE, Belgium; NRU Higher School of Economics, St Petersburg, Russia); ,
    Abstract: Many trade models of monopolistic competition identify cost efficiency as the main determinant of firm performance in export markets. To date, the analysis of demand factors has received much less attention. We propose a new model where consumer preferences are asymmetric across varieties and heterogeneous across countries. The model generates new predictions and allows for an identification of horizontal differentiation (taste) clearly distinguished from vertical differentiation (quality). Data patterns observed in Belgian firm-product level exports by destination are congruent with the predictions and seem to warrant a richer modelling of consumer demand.
    Keywords: heterogeneous firms, heterogeneous consumers, horizontal differentiation, vertical differentiation, asymmetric preferences, monopolistic competition
    JEL: D43 F12 F14 L16
    Date: 2013–12–11
  12. By: Parrotta, Pierpaolo (Department of Economics); Pozzoli, Dario (KORA, Det Nationale Institut for Kommuners og Regioners Analyse og Forskning); Sala, Davide (Department of Business and Economics)
    Abstract: Selling internationally requires products that resonate with an international customer base and therefore an approach to markets that is in keeping with diverse cultures (i.e., relational capital). As emphasized by international business studies, this relational capital is in turn related to the successful teaming of a diverse workforce, as this process teaches employees to operate in multicultural environments. This knowledge becomes like an intangible asset to which firms can resort, also when engaging in international transactions. We explore this channel empirically, investigating the impact of workforce diversity on firms' exporting performances and find that ethnic diversity further justifies firms' different presence in international markets. Since hiring is not a random practice, and firms ultimately select into ethnically different labor forces, we exploit the EU enlargement of 2004 to instrument for the diversity of the pool of workers locally recruitable. Because migrants tend to settle where the attitude toward them is most favorable, we use the median voter's political ideology at firm's location to measure the hostility at time of settlement. This gives our instrument spatial variation besides time variation.
    Keywords: Ethnic diversity; export; EU enlargement; median-voter ideology
    JEL: D22 F14 F15 F16 J15
    Date: 2014–01–30

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