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on Business Economics |
| By: | Duchin, Ran (University of WA); Goldberg, Amir (Stanford University); Sosyura, Denis (University of MI) |
| Abstract: | Using hand-collected data on divisional managers at conglomerates, we find that a change in industry surplus in one division generates large spillovers on managerial payoffs in other divisions of the same firm. These spillovers arise only within the boundaries of a conglomerate but not between standalone firms that match conglomerates' divisions. The intra-firm spillovers increase when conglomerates have excess cash and when managers have more influence over its distribution, but decline in the presence of strong shareholder governance. These spillovers are associated with weaker performance and lower firm value. Our evidence is consistent with simultaneous cross-subsidization via managerial payoffs and capital budgets and suggests that these practices arise in similar firms. |
| Date: | 2015–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3286&r=bec |
| By: | Alessandro Borin (Bank of Italy); Michele Mancini (Bank of Italy) |
| Abstract: | Both empirical and theoretical literature show that multinational firms exhibit a competitive advantage before investing abroad. However, there are no clear empirical results regarding the ex-post effects of foreign direct investment (FDI) on firm performance, partially due to the inadequacy of available firm-level data. We build a brand new firm-level dataset able both to represent the extent of Italian firms' foreign activity and to provide reliable measures of key performance indicators, especially total factor productivity (TFP) and employment. We then use a propensity score matching procedure to analyze the causal relationship between FDI and firm performance. Firms investing abroad for the very first time, especially in advanced economies, show higher productivity and employment dynamics in the years following the investment: the average positive effect on TFP is driven by new multinationals operating in specialized and high-tech sectors, while the positive employment gains are explained by an increase of the white collar component. On average there are no negative effects on the parent firm's blue collar component. |
| Keywords: | multinational firms, FDI, productivity, propensity score matching |
| JEL: | F23 C25 D24 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1011_15&r=bec |
| By: | Powell, Daniel; Rapp, Marc Steffen |
| Abstract: | Since August 2009, German legislation allows for voluntary Say on Pay Votes (SoPV) during Annual General Meetings (AGMs). We examine 1,169 AGMs of all German listed firms with more than 10,000 agenda items over the period 2010-2013 to identify (1) determinants and approval rates of voluntary SoPVs, (2) the effect of voluntary SoPVs on AGM participation, and (3) the effect of SoP on executive compensation. Our data reveals that in the first four years of the voluntary say on pay regime every second firm in our sample has opted for having a SoPV. The propensity for a SoPV increases with firm size, abnormal executive compensation and free float of shares. Indeed, smaller firms with concentrated ownership do not only have a lower propensity for a SoPV, but also show a higher propensity to opt for only limited disclosure of executive compensation. Approval rates of SoPVs are lower than the approval rate for the average AGM agenda item and this effect is stronger in (i) widely held firms as well as in (ii) firms with abnormal executive compensation. Additionally, SoPVs actually can increase AGM participation; however, this result is particularly evident for widely held firms. Finally, we find stronger pay for performance elements within total executive compensation, particularly when the effect of executive compensation is lagged over the years following the vote. Overall, our results are consistent with the view that firms use voluntary SoPV to gain legitimation for executive remuneration policies in firms with low ownership concentration. This is enforced, where (small) shareholders consider executive compensation a part of the agency problem of listed firms, and where (small) shareholders consider SoPVs as a possibility to actively influence corporate decisions, with these decisions leading to a higher degree of alignment between executive management boards and shareholders. |
| Keywords: | Corporate Governance,Executive Remuneration,Say on Pay,Annual General Meeting,Germany |
| JEL: | G30 G38 J30 J33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:107&r=bec |
| By: | Schymik, Jan Simon |
| Abstract: | Do international trade and technological change influence how firms create incentives for human capital? I present a model that incorporates agency problems into a framework with firm heterogeneity and human capital. My model indicates that trade liberalizations and skill-biased technological change alter the way how the largest firms in an economy incentivize their managers. Increases in managerial reservation wages lead to a reduction in corporate governance investments and a rise in performance compensation since monitoring managers becomes less efficient. Using data on CEO compensation and entrenchment opportunities in public industrial firms in the U.S., I document strong empirical regularities in support of the model predictions. Firms allow for more managerial entrenchment and offer larger CEO compensation when their industries become more open to trade or when production becomes more I.T. intensive. |
| Keywords: | international trade and firm organization; agency problems in international trade; endogenous managerial entrenchment; corporate governance and CEO compensation |
| JEL: | F1 F16 G34 J33 L22 O33 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:24871&r=bec |
| By: | Ralf BEBENROTH (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kai Oliver THIELE (Hamburg University of Technology(TUHH), Germany and Human Resource Management and Organizations (HRMO), Germany) |
| Abstract: | We investigate when organizational justice matters to employees' commitment in the post-acquisition process after a company is overtaken in a cross-border acquisition. There is overwhelming evidence that employees who are treated fairly during acquisitions are more committed to their new firms. We extend this finding by dividing organizational justice into three sub-dimensions: informational justice, interpersonal justice, and procedural justice. We find evidence that procedural justice is an important antecedent of affective merger commitment at an early stage of the integration period, while informational justice becomes important at a later stage. Further analysis on heterogeneity between the target firm's employees and the bidder firm's employees reveals that, immediately after the acquisition, target-firm's employees value knowing where they will be at the new firm (procedural justice), while bidder-firm employees are more concerned about communication and transparency (informational justice). Our results point to the importance of organizational justice in a cross-border M&A setting and the need for a separate study of issues related to bidder firms and target firms. |
| Keywords: | Lobby, Theorisation, Competition policy, Publishing, Japan, Resale price maintenance, Neoliberalism |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2015-22&r=bec |
| By: | Delis, Manthos; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios |
| Abstract: | We link genetic diversity in the country of origin of firms’ board members with corporate performance via board members’ nationality. We hypothesize that our approach captures deep-rooted differences in cultural, institutional, social, psychological, physiological, and other traits that cannot be captured by other recently measured indices of diversity. Using a panel of firms listed in the North American and U.K. stock markets, we find that adding board directors from countries with different levels of genetic diversity (either higher or lower) increases firm performance. This effect prevails when we control for a number of cultural, institutional, firm-level, and board member characteristics, as well as for the nationality of the board of directors. To identify the relationship, we use as instrumental variables for our diversity indices the migratory distance from East Africa and the level of ultraviolet exposure in the directors’ country of nationality. |
| Keywords: | Genetic diversity; corporate performance; nationality of board members |
| JEL: | G0 G00 G30 M21 |
| Date: | 2015–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64905&r=bec |
| By: | Ross Levine; Chen Lin; Beibei Shen |
| Abstract: | Do labor regulations influence the reaction of stock markets and firm profitability to cross-border acquisitions? We discover that acquiring firms enjoy smaller abnormal stock returns and profits when targets are in countries with stronger labor protection regulations, i.e., in countries where laws, regulations, and policies increase the costs to firms of adjusting their workforces. These effects are especially pronounced when the target is in a labor-intensive or high labor-volatility industry. Consistent with labor regulations shaping the success of cross-border deals, we find that firms make fewer and smaller cross-border acquisitions into countries with strong labor regulations. |
| JEL: | F2 G34 G38 J6 J8 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21245&r=bec |
| By: | Hattori, Masahiko; Tanaka, Yasuito |
| Abstract: | We present an analysis about subsidy (or tax) policy for adoption of new technology in a duopoly with a homogeneous good. Technology itself is free. However, firms must expend fixed set-up costs for adoption of new technology, for example, education costs of their staffs. We assume linear demand function, and consider two types of cost functions of firms. Quadratic cost functions and linear cost functions. There are various cases of optimal policies depending on the level of the set-up cost and the forms of cost functions. In particular, under linear cost functions there is the following case. The social welfare is maximized when one firm adopts new technology, however, both firms adopt new technology without subsidy nor tax. Then, the government should impose taxes on one firm or both firms. Under quadratic cost functions there exists no taxation case. There are subsidization cases both under quadratic and linear cost functions. |
| Keywords: | subsidy or tax for new technology adoption, duopoly, quadratic cost, linear cost |
| JEL: | D43 L13 |
| Date: | 2015–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:64922&r=bec |
| By: | Ovtchinnikov , Alexei; Cooper , Michael |
| Abstract: | Recent work has shown that where a firm is located matters for such things as dividend and investment policy, governance, liquidity, equity and debt issuance, and risk exposure. These effects seem to exist, in part, because of managements' desire to minimize agency problems related to monitoring and relationship building that vary as a function of firm distance from agents. The authors expand the current location literature by showing that firm location characteristics, not just distance per se, are important. They develop a geographical-based vibrancy index using important location characteristics from the Urban Economics literature that measure local economic health. We show that the vibrancy index not only predicts firm policy variables such as investment and leverage, but also predicts firm performance and firm value. The local effects are strong, adding up to a 50% increase in explanatory power above industry effects. Our results indicate that the local vibrancy of a firm headquarters is an important determinant of firm policies and profitability. |
| Keywords: | geography; firm location; vibrancy; firm characteristics; firm performance |
| JEL: | G10 G11 G23 |
| Date: | 2015–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1090&r=bec |
| By: | Shoaib Ali (Pakistan Institute of Development Economics, Islamabad); Attiya Yasmin Javid (Pakistan Institute of Development Economics, Islamabad) |
| Abstract: | Credit ratings have become a widely accepted measure of firms’ creditworthiness in financial markets. The present study aims to examine the impact of external credit ratings on the financial structure decision - making of Pakistani non - financial firms for the period 2007-2012 This study examines whether there are any systematic differences in firms’ levels of leverage across the rating levels which would suggest that the cost and benefits of credit ratings are material for such firms. The study finds that credit ratings are an important determinant of the capital structures of firms and that there is a non-linear inverted U-shaped relationship between credit ratings and capital structures. It is noted that rated firms have higher leverage than non-rated firms, but within the rated firms, leverage varies across the rating levels. High and low rated firms are found to have low leverage in their capital structures, and mid rated firms have higher leverage. Low gearing ratios may suggest that such firms have higher incentive to maintain their current ratings or to achieve upgrades, given the cost and benefits offered by credit ratings, than firms with high gearing ratios. While credit rating play a significant role in explaining why firm involve in managing their earning and it is found that rated firm manage their earning in a significantly different way as compared to the non-rated firms and it is also found that firm at the end of the rating spectrum manage their earning to the greater extent as compared to the mid rated firm. The implication of the study is that firms having higher and lower ratings have low level of leverage and mid rated firms have higher level of leverage. Previous year ratings provokes firms to indulge in earning smoothening activates and rating agencies needs to consider this factor while making their final valuation of the firm |
| Keywords: | Credit Rating, Capital Structure, Earning Managemen |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2015:121&r=bec |
| By: | Iimi,Atsushi; Humphrey,Richard Martin; Melibaeva,Sevara |
| Abstract: | Firms normally keep certain inventories, including raw materials, work-in-progress, and finished goods, to operate seamlessly and not to miss possible business opportunities. But inventory is costly, and the optimal firm inventory differs depending on various economic conditions, including trade and transport costs. The paper examines firm inventory behavior in East Africa, in which transport connectivity, especially to the ports, is considered as one of the major business constraints. Using firm-level data from Burundi, Kenya, Rwanda, Tanzania, and Uganda, it is shown that transport connectivity significantly affects firm inventory behavior. In particular, road density and transport costs to the port are important to determine the optimal inventory level. With more roads in a city and/or cheaper access to the port, firms would hold smaller inventories. |
| Keywords: | Transport Economics Policy&Planning,E-Business,Economic Theory&Research,Debt Markets,Rural Roads&Transport |
| Date: | 2015–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:7280&r=bec |
| By: | John Haltiwanger; Henry Hyatt; Erika McEntarfer |
| Abstract: | Do the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions. |
| JEL: | E24 E32 J63 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21235&r=bec |
| By: | John Haltiwanger; Henry Hyatt; Erika McEntarfer |
| Abstract: | Do the job-to-job moves of workers contribute to the cyclicality of employment growth at different types of firms? In this paper, we use linked employer-employee data to provide direct evidence on the role of job-to-job flows in job reallocation in the U.S. economy. To guide our analysis, we look to the theoretical literature on on-the-job search, which predicts that job-to-job flows should reallocate workers from small to large firms. While this prediction is not supported by the data, we do find that job-to-job moves generally reallocate workers from lower paying to higher paying firms, and this reallocation of workers is highly procyclical. During the Great Recession, this firm wage job ladder collapsed, with net worker reallocation to higher wage firms falling to zero. We also find that differential responses of net hires from non-employment play an important role in the patterns of the cyclicality of employment dynamics across firms classified by size and wage. For example, we find that small and low wage firms experience greater reductions in net hires from non-employment during periods of economic contractions. |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:15-13&r=bec |
| By: | M. Moretto; G. Rossini |
| Abstract: | We investigate the relationship between the extent of vertical flexibility and the underlying financial choices of a firm. By vertical flexibility we mean the opportunity to outsource a necessary input and to reverse the choice as input market conditions dictate. A firm simultaneously selects the portion of equity and debt and its vertical setting. Debt is provided by a lender that requires the payment of a fixed coupon over time and, as a collateral, an option to buy out the firm in certain circumstances. Debt leads to the same level of flexibility acquired by an unlevered firm. However, investment to set up a flexible technology occurs earlier. An alternative to debt is the involvement of venture capital for the production of the input. We explore this second avenue finding that the extent of outsourcing adopted is lower than for the unlevered firm, but the firm invests earlier. |
| JEL: | C61 G31 G32 L24 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1009&r=bec |
| By: | Juan de Lucio (Banco de España); Raúl Mínguez (Cámara de España); Asier Minondo (Deusto Business School); Francisco Requena (University of Sheffield) |
| Abstract: | We use network-analysis tools to identify communities in the web of exporters' destinations. Our network-based community measure is purely outcome-based; it captures multilateral rather than bilateral dependence across countries; and it can be calculated at the industry level. We next use our network-based community measure as a predictor of additional countries chosen by firms expanding their export destinations portfolios. Using data on new Mexican exporters, the probability of choosing a new export destination doubles if it belongs to the same community of any of the firm’s previous destinations. The introduction of the network-based community variable improves the accuracy of the model by up to 19% relative to a model that only includes gravity variables. Industry-specific communities and general communities play similar roles in determining the dynamics of Mexican exporters' country portfolios. |
| Keywords: | export market, network analysis, modularity, extended gravity, Mexico. |
| JEL: | F1 |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1513&r=bec |