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on Business Economics |
| By: | M. Hamadi; A. Heinen |
| Abstract: | We consider the effect on performance of very large controlling shareholders, who are mostly organized in voting blocks and business groups, in a sample of Belgian listed firms from 1991 to 2006. Since the shape of the relation between ownership and firm value is a controversial issue in corporate finance, we use semiparametric local-linear kernel-based panel models. These models allow us not to impose a priori functional restrictions on the relation between ownership and performance. Our semiparametric analysis shows that the effect on performance varies depending on the size of ownership stakes and that there are departures from linearity. |
| Keywords: | Family firms, Firm performance, Large shareholders, Ownership concentration, Semiparametric panel |
| JEL: | G32 C23 C14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:201502&r=bec |
| By: | Kuhnen, Camelia M. (University of NC); Oyer, Paul (Stanford University) |
| Abstract: | We empirically investigate the effect of uncertainty on corporate hiring. Using novel data from the labor market for MBA graduates, we show that uncertainty regarding how well job candidates fit with a firm's industry hinders hiring, and that firms value probationary work arrangements that provide the option to learn more about potential full-time employees. The detrimental effect of uncertainty on hiring is more pronounced when firms face greater firing and replacement costs, and when they face less direct competition from other similar firms. These results suggest that firms faced with uncertainty use similar considerations when making hiring decisions as when making decisions regarding investment in physical capital. |
| JEL: | G31 J44 M51 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3042&r=bec |
| By: | Anderson, Simon P; Baik, Alicia; Larson, Nathan |
| Abstract: | We study personalized price competition with costly advertising among n quality-cost differentiated firms. Strategies involve mixing over both prices and whether to advertise. In equilibrium, only the top two firms advertise, earning “Bertrand-like" profits. Welfare losses initially rise then fall with the ad cost, with losses due to excessive advertising and sales by the “wrong " firm. When firms are symmetric, the symmetric equilibrium yields perverse comparative statics and is unstable. Our key results apply when demand is elastic, when ad costs are heterogeneous, and with noise in consumer tastes. |
| Keywords: | Bertrand equilibrium; consumer targeting; mixed strategy equilibrium; price advertising; price dispersion |
| JEL: | D43 L13 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10464&r=bec |
| By: | Bruno Merlevede; Matthijs De Zwaan; Karolien Lenaerts; Victoria Purice (-) |
| Abstract: | This paper introduces two datasets, AUGAMA, a panel of European firms for the period 1996-2011, and EUMULNET, a European Multinational Network data set. These datasets are constructed on the basis of the Amadeus database issued by Bureau Van Dijk Electronic Publishing. We document the process of building these data sets from the raw Amadeus data for 26 European countries. We show that the data sets adequately approximate the structure of the European economy across countries, regions, and industries as portrayed by data from Eurostat (Structural Business Statistics) and Cambridge Econometrics. As an illustration of possible application, we use the datasets to test a number of results from the theoretical literature regarding the productivity of multinational firms vis-a-vis domestic firms. |
| Keywords: | multinationals, firm performance, total factor productivity, firm-level data |
| JEL: | F23 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:15/900&r=bec |
| By: | Tian, Mary (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | I examine the effect of a firm's tradability, the proportion of output that is exported abroad, on its stock returns. There are three novel empirical findings: (1) firms with higher tradability have more cyclical asset returns; (2) firms with higher tradability have more cyclical earnings growth; (3) returns of a portfolio long on firms with the highest tradability and short on firms with the lowest tradability can predict the real exchange rate. The empirical patterns are consistent with the relative price adjustment of tradable and non-tradable goods to business cycles driven by endowment shocks. |
| Keywords: | Asset returns; cyclicality; tradability |
| Date: | 2015–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-03&r=bec |
| By: | Daljord, Oystein (Stanford University); Misra, Sanjog (UCLA); Nair, Harikesh S. (Stanford University) |
| Abstract: | Observed contracts in the real-world are often very simple, partly reflecting the constraints faced by contracting firms in making the contracts more complex. We focus on one such rigidity, the constraints faced by firms in fine-tuning contracts to the full distribution of heterogeneity of its employees. We explore the implication of these restrictions for the provision of incentives within the firm. Our application is to salesforce compensation, in which a firm maintains a salesforce to market its products. Consistent with ubiquitous real-world business practice, we assume the firm is restricted to fully or partially set uniform commissions across its agent pool. We show this implies an interaction between the composition of agent types in the contract and the compensation policy used to motivate them, leading to a "contractual externality" in the firm and generating gains to sorting. This paper explains how this contractual externality arises, discusses a practical approach to endogenize agents and incentives at a firm in its presence, and presents an empirical application to salesforce compensation contracts at a US Fortune 500 company that explores these considerations and assesses the gains from a salesforce architecture that sorts agents into divisions to balance firm-wide incentives. Empirically, we find the restriction to homogenous plans significantly reduces the payoffs of the firm relative to a fully heterogeneous plan when it is unable to optimize the composition of its agents. However, the firm's payoffs come very close to that of the fully heterogeneous plan when it can optimize both composition and compensation. Thus, in our empirical setting, the ability to choose agents mitigates partially the loss in incentives from the restriction to uniform contracts. We conjecture this may hold more broadly. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3085&r=bec |
| By: | Jenter, Dirk (Stanford University); Lewellen, Katharina (?) |
| Abstract: | This paper re-examines the relationship between firm performance and CEO turnover. We do away with the distinction between forced and voluntary turnovers and introduce the concept of performance-induced turnover, defined as turnover that would not have occurred had performance been better. We show that more than 40% of all CEO turnovers are performance induced, and more than 50% of turnovers in the first eight tenure years. This far exceeds the frequency of forced turnovers identified in prior studies. We also find that the effects of performance on turnover are as high in the first five tenure years as in the next five, and that the effects decline only after tenure year 10. Further, CEO departures in all tenure years respond strongly to recent performance but are almost insensitive to performance in the more distant past. These results reject the standard model of CEO turnover in which boards learn from firm performance about constant CEO ability. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3054&r=bec |
| By: | Korteweg, Arthur G. (Stanford University); Sorensen, Morten (Columbia University and Swedish Institute for Financial Research) |
| Abstract: | We evaluate the performance of private equity ("PE") funds, using a variance decomposition model to separate skill from luck. We find a large amount of long-term persistence, and skilled PE firms outperform by 7% to 8% annually. But this performance is noisy, with a large amount of luck, so top-quartile performance does not necessarily imply top-quartile skills, making it difficult for investors ("LPs") to identify skilled PE firms. Buyout ("BO") firms show the largest skill differences, implying the greatest long-term persistence. Venture capital ("VC") performance is the most noisy, making good VC firms hardest to identify, and implying the smallest amount of investable persistence. |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3096&r=bec |
| By: | Kashcheeva, Mila; Tsui, Kevin K. |
| Abstract: | International politics affects oil trade. But do financial and commercial traders who participate in spot oil trading also respond to changes in international politics? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine how these firms respond to increases in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. However, the political pattern of oil imports is not entirely driven by the concerns of hold-up risks, which exist when oil transactions via term contracts are associated with backward vertical FDI that is subject to expropriation. In particular, our results indicate that even financial and commercial traders significantly reduce their oil imports from U.S. political enemies. Interestingly, while these traders diversify their oil imports politically immediately after changes in international politics, other oil companies reduce their oil imports with a significant time lag. Our findings suggest that in designing regulations to avoid harmful repercussions on commodity and financial assets, policymakers need to understand the nature of political risk. |
| Keywords: | United States, Petroleum, International trade, Foreign investments, Energy policy, International politics, FDI-based imports, Hold-up risk, Energy security |
| JEL: | F13 F51 F59 Q34 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper491&r=bec |
| By: | ARA Tomohiro |
| Abstract: | Why does the fraction of firms that export vary with countries' comparative advantage? To address this question, I develop a general-equilibrium Ricardian model of North-South trade in which both institutional quality and firm heterogeneity play a key role in determining international trade flows. Because of contractual frictions that vary across countries and sectors, North with better institutions produces and exports relatively more in sectors where production is more institutionally dependent. In addition, institution-induced comparative advantage makes it relatively easier for Northern heterogeneous firms to incur export costs in more contract-dependent sectors, thereby leading to a higher exporters' percentage. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15023&r=bec |
| By: | Lee, Charles M. C. (Stanford University); So, Eric C. (MIT); Wang, Charles C. Y. (Harvard University) |
| Abstract: | We develop and implement a rigorous analytical framework for empirically evaluating the relative performance of firm-level expected-return proxies (ERPs). We show that superior proxies should closely track true expected returns both cross-sectionally and over time (that is, the proxies should exhibit lower measurement-error variances). We then compare five classes of ERPs nominated in recent studies to demonstrate how researchers can easily implement our two-dimensional evaluative framework. Our empirical analyses document a tradeoff between time-series and cross-sectional ERP performance, indicating the optimal choice of proxy may vary across research settings. Our results illustrate how researchers can use our framework to critically evaluate and compare a growing body of ERPs. |
| JEL: | G10 G11 G12 G14 M41 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3188&r=bec |
| By: | Robert Novy-Marx |
| Abstract: | Momentum in firm fundamentals, i.e., earnings momentum, explains the performance of strategies based on price momentum. Earnings surprise measures subsume past performance in cross sectional regressions of returns on firm characteristics, and the time-series performance of price momentum strategies is fully explained by their covariances with earnings momentum strategies. Controlling for earnings surprises when constructing price momentum strategies significantly reduces their performance, without reducing their high volatilities. Controlling for past performance when constructing earnings momentum strategies reduces their volatilities, and eliminates the crashes strongly associated with momentum of all types, without reducing the strategies' high average returns. While past performance does not have independent power predicting the cross section of expected returns, it does predicts stock comovements, and is thus important for explain cross sectional variation in realized returns. |
| JEL: | G12 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20984&r=bec |
| By: | Marina Druz; Alexander F. Wagner; Richard J. Zeckhauser |
| Abstract: | Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. “Tone surprise” – the residual when negativity in managerial tone is regressed on the firm’s recent economic performance and CEO fixed effects – predicts future earnings and analyst uncertainty. Prices move more, as hypothesized, in firms where tone surprise predicts more strongly. Experienced analysts respond appropriately in revising their forecasts; inexperienced analysts overreact (underreact) to tone surprises in presentations (answers). Post-call price drift, like post-earnings announcement drift, suggests less-than-full-use of information embedded in managerial tone. |
| JEL: | D82 G14 G24 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20991&r=bec |
| By: | James A. Brander; Barbara J. Spencer |
| Abstract: | This paper provides a new and simple model of endogenous horizontal product differentiation based on a standard demand structure derived from quadratic utility. One objective of the paper is to explain the “empirical Bertrand paradox” – the failure to observe homogeneous product Bertrand oligopoly, while homogeneous product Cournot oligopoly has significant empirical relevance. In our model firms invest in product differentiation if differentiation investments are sufficiently effective (i.e. if differentiation is not too costly). The threshold level of differentiation effectiveness needed to induce such investments is an order of magnitude less for Bertrand firms than for Cournot firms. Thus there is a wide range over which Bertrand firms differentiate their products but Cournot firms do not. If Cournot firms do choose to differentiate their products, corresponding Bertrand firms always differentiate more. We also establish the important insight that if product differentiation is endogenous Bertrand firms may charge higher prices and earn higher profits than corresponding Cournot firms, in contrast to the general presumption that Bertrand behavior is more competitive than Cournot behavior. Interestingly, consumer surplus increases with differentiation in the Cournot model but, due to sharply increasing prices, decreases with differentiation in the Bertrand model. |
| JEL: | D4 L1 L13 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20966&r=bec |
| By: | Mohan Pyari Maharjan (Graduate School of Economics, Osaka University); Tomoki Sekiguchi (Graduate School of Economics, Osaka University) |
| Abstract: | This paper investigates the human resource (HR) practices of Japanese companies operating in India. We studied 10 Japanese companies based on 17 interviews. The paper elaborates five major HR practices and explains why Japanese companies have established a specific set of HR practices in India. It then provides the details on how these HR practices have been originated, adjusted and integrated. The findings suggest less-focused training and developmental programs, and identical performance appraisal systems across all companies. Similar socio-cultural characteristics such as seniority-concerned and teamwork-orientation have facilitated the adoption of Japanese way of management in India. |
| Keywords: | Japanese subsidiaries; human resource management; India; transfer of management practices; local adaptation |
| JEL: | M10 M12 M16 |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1502&r=bec |