|
on Business Economics |
| By: | Pan, Yihui (University of UT); Wang, Tracy Yue (University of MN, Twin Cities); Weisbach, Michael S. (OH State University) |
| Abstract: | Risk generated by uncertainty about future management policies appears to affect firms' cost of borrowing. In a sample of S&P 1500 firms between 1987 and 2012, CDS spreads, loan spreads and bond yield spreads all decline over the first three years of CEO tenure, holding other macroeconomic, firm, and security level factors constant. This decline occurs regardless of the reason for the prior CEO's departure. Similar but smaller declines occur following turnovers of CFOs. The spreads are more sensitive to CEO turnover and tenure when the prior uncertainty about the incoming CEO's ability is likely to be higher: when he is not an heir apparent, is an outsider, is younger, or when he does not have a prior relationship with the lender. The spread-tenure sensitivity is also higher when the firm has a higher default risk and when the debt claim is riskier. These patterns are consistent with the view that the decline in spreads in a manager's first three years of tenure reflects the resolution of uncertainty about management. Firms adjust their propensities to issue external debt, precautionary cash holding, and reliance on internal funds in response to these short-term increases in borrowing costs early in their CEOs' tenure. |
| JEL: | G32 G34 M12 M51 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2015-13&r=all |
| By: | Pan, Yihui (University of UT); Wang, Tracy Yue (University of MN, Twin Cities); Weisbach, Michael S. (OH State University) |
| Abstract: | Uncertainty about management appears to affect firms' cost of borrowing and financial policies. In a sample of S&P 1500 firms between 1987 and 2010, CDS spreads, loan spreads and bond yield spreads all decline over the first three years of CEO tenure, holding other macroeconomic, firm, and security level factors constant. This decline occurs regardless of the reason for the prior CEO's departure. Similar but smaller declines occur following turnovers of CFOs. The spreads are more sensitive to CEO tenure when the prior uncertainty about the CEO's ability is likely to be higher: when he is not an heir apparent, is an outsider, is younger, and when he does not have a prior relationship with the lender. The spread-tenure sensitivity is also higher when the firm has a higher default risk and when the debt claim is riskier. These patterns are consistent with the view that the decline in spreads in a manager's first three years of tenure reflects the resolution of uncertainty about management. Firms adjust their propensities to issue external debt, precautionary cash holding, and reliance on internal funds in response to these short-term increases in borrowing costs early in their CEOs' tenure. |
| JEL: | G32 G34 M12 M51 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2014-14&r=all |
| By: | Wolfgang Frimmel; Thomas Horvath; Mario Schnalzenberger; Rudolf Winter-Ebmer |
| Abstract: | In general, retirement is seen as a pure labor supply phenomenon, but firms can have strong incentives to send expensive older workers into retirement. Based on the seniority wage model developed by Lazear (1979), we discuss steep seniority wage profiles as incentives for firms to dismiss older workers before retirement. Conditional on individual retirement incentives, e.g., social security wealth or health status, the steepness of the wage profile will have different incentives for workers as compared to firms when it comes to the retirement date. Using an instrumental variable approach to account for selection of workers in our firms and for reverse causality, we find that firms with higher labor costs for older workers are associated with lower job exit age. |
| Keywords: | retirement, seniority wages, firm incentives |
| JEL: | J14 J26 J31 H55 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:jku:cdlwps:wp1506&r=all |
| By: | Alexander Eickelpasch; Georg Hirte; Andreas Stephan |
| Abstract: | Our study provides evidence for firms' evaluation of location quality. We use a 2004 survey of 6,000 East German firms that contained questions on the importance and assessment of 15 different location factors ranging from closeness to customers and suppliers, transport infrastructure, and proximity to research institutions and universities, as well as questions about the local financial institutions and region's “image”. The results show (1) a great deal of heterogeneity in terms of which firm- or regional-level characteristics are important in the evaluation of a specific location factor, (2) that the model's explanatory power is, overall, low and thus neither location characteristics nor internal factors are fully reflected in the perceptions, (3) that a firm's business situation and whether a location factor is considered important have explanatory power for perception. One policy-relevant conclusion that we derive from these findings is that location policy should consider firms' perception of a specific location in addition to improving the actual attributes of that location. |
| Keywords: | Location Factors, Multi-Equation System, Perception Bias, Survey Data |
| JEL: | R3 R12 L2 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1497&r=all |
| By: | Nyström, Kristina (Centre of Excellence in Science & Innovation Studies (CESIS), Department of Industrial Economics and Management, Royal Institute of Technology (KTH), and The Ratio Institute.) |
| Abstract: | This chapter provides a literature review of existing research and identifies research gaps related to the labor mobility of both entrepreneurs and employees in entrepreneurial firms. Regarding entrepreneurs, there is a lot of research on their individual characteristics, including prior experience, and how the individual characteristics and experiences influence the performance of the firm. However, less is known on the post-entrepreneurship employment activity of entrepreneurs and how their prior experiences influence their future labor market careers. Regarding the labor mobility of employees in entrepreneurial firms, there is an emerging stream of literature on the individual characteristics of these employees. However, many issues related to their prior experience remain unexplored. Furthermore, labor mobility after working with an entrepreneurial firm is relatively less explored at this point. Accordingly, this chapter intends to summarize current research and outline avenues for future research regarding a) pre-entrepreneurship labor mobility of entrepreneurs and b) post-entrepreneurship labor mobility of entrepreneurs, as well as c) pre-entrepreneurship labor mobility of employees in entrepreneurial firms and d) post-entrepreneurship labor mobility of employees in entrepreneurial firms. In addition, the role of institutions and, in particular, employment protection laws (EPLs) for labor mobility of entrepreneurs and employees in entrepreneurial firms are discussed. |
| Keywords: | entrepreneurship; labor mobility; employees in entrepreneurial firms |
| JEL: | J21 J62 L26 |
| Date: | 2015–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0420&r=all |
| By: | Chen, Jia (Peking University); Hou, Kewei (OH State University); Stulz, Rene M. (OH State University and ECGI, Brussels) |
| Abstract: | Using theories from the behavioral finance literature to predict that investors are attracted to industries with more salient outcomes and that therefore firms in such industries have higher valuations, we find that firms in industries that have high industry-level dispersion of profitability have on average higher market-to-book ratios than firms in low dispersion industries. This positive relation between market-to-book ratios and industry profitability dispersion is economically large and statistically significant and is robust to controlling for variables used to explain firm-level valuation ratios in the literature. Consistent with the mispricing explanation of this finding, we show that firms in less boring industries have a lower implied cost of equity and lower realized returns. We explore alternative explanations for our finding, but find that these alternative explanations cannot explain our results. |
| JEL: | G12 G14 G31 G32 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2015-02&r=all |
| By: | Jeremiah Dittmar |
| Abstract: | This research studies how variations in competition and in media content characterized the use and impact of Gutenberg's printing press technology during the European Renaissance. The research constructs annual firm-level panel data on the publications produced by 7,000+ printing firms operating in over 300 European cities 1454-1600. Evidence on the timing of the premature deaths of firm owner-managers is used to isolate shocks to competition. Firms where owner-managers died experienced large negative shocks to output. However, at the city-level deaths of incumbent managers were associated with significant increases in entrance and with a positive and persistent impact on competition and city output. Variations in city supply induced by heterogeneous manager deaths are used to study the relationship between the diffusion of ideas in print and city growth. A uniquely strong relationship is observed between the new business education literature and local growth. This is consistent with historical research on the transformative impact business education ideas had on commercial practices and European capitalism. |
| Keywords: | Information technology, IO, media, growth, history, business education |
| JEL: | L1 N13 N33 N93 O11 O18 O33 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1365&r=all |
| By: | Jean Imbs (Paris School of Economics); Basile Grassi (University of Oxford) |
| Abstract: | Why do risky sectors grow fast? Because they have good ideas. In an idea flow growth model that nests the granular hypothesis (Gabaix 2011), we show that the fatness of the firm size distribution is positively related to both growth and volatility. A fat tailed distribution enhances the diffusion of ideas and increases growth in the long run. At the same time, a fat tail reduces the extent to which firm-level disturbances average out, and thus increases volatility. We show these correlations find support in US firm-level data: on average, sectors with fat tails grow fast and display high volatility. Interestingly, the relation between sector-level tail and volatility also holds in the short run, within sector. In the US, the dispersion in estimated tails can explain about 40% of the link between growth and volatility. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:449&r=all |
| By: | Dyballa, Katharina; Kraft, Kornelius |
| Abstract: | Contrary to previous literature we hypothesize that interests of labor may well - like that of shareholders - aim at securing the long-run survival of the firm. Consequently, employee representatives on the supervisory board could well have an interest in increasing incentive-based compensation to avoid excessive risk taking and short-run orientated decisions. We compile unique panel data on executive compensation over the periods 2006 to 2011 for 405 listed companies and use a Hausman-Taylor approach to estimate the effect of codetermination on the compensation design. Finally, codetermination has a significantly positive effect on performance-based components of compensation, which supports our hypothesis. |
| Keywords: | Executive Compensation,Codetermination,Principal-Agent Theory,Corporate Governance,Hausman-Taylor |
| JEL: | J52 L20 G32 M12 C33 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:15053&r=all |
| By: | Verani, Stephane (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Which financial frictions matter in the aggregate? This paper presents a general equilibrium model in which entrepreneurs finance a firm with a long-term contract. The contract is constrained efficient because firm revenue is costly to monitor and entrepreneurs may default. The cost of monitoring firms and the entrepreneurs' outside options determine the significance of moral hazard relative to limited enforcement for financial contracting. Calibrating the model to the U.S. economy, I find that the relative welfare loss from financial frictions is about 5 percent in terms of aggregate consumption with moral hazard, while it is 1 percent with limited enforcement. Reforms designed to strengthen contract enforcement increase aggregate consumption in the short-run, but their long-run effects are modest when monitoring costs are high. Weak contract enforcement contributes to aggregate fluctuations by amplifying the effect of aggregate technological shocks, but moral hazard does not. |
| Keywords: | Business cycles; financial contracting; financial development; firm dynamics; limited enforcement; private information |
| JEL: | D82 E32 G32 L14 |
| Date: | 2015–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2015-63&r=all |
| By: | Leonardi, Marco (University of California, Berkeley); Pellizzari, Michele (University of Geneva); Tabasso, Domenico (University of Geneva) |
| Abstract: | We study the distributional effect of a wage indexation mechanism - the Scala Mobile (SM) - that heavily compressed the distribution of Italian wages during the 1970s and 1980s. The SM imposed large real wage increases at the bottom of the distribution and was essentially irrelevant for high-wage workers. We document that this mechanism triggered a strong redistribution within the firm. Skilled workers received lower wage adjustments when employed at firms with many unskilled workers and they tended to move towards more skill-intensive firms. We rationalize these findings with a simplified model of intra-firm bargaining with on-the- job search. |
| Keywords: | labor market institutions, wage indexation, inequality, intra-firm bargaining |
| JEL: | J01 J31 J50 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9254&r=all |
| By: | Joseph P. Byrne; Marina-Eliza Spaliara; Serafeim Tsoukas |
| Abstract: | Using a large panel of unquoted UK firms over the period 2000-09, we examine the impact of firm-specific uncertainty on corporate failures. In this context we also distinguish between firms which are likely to be more or less dependent on bank finance as well as public and non-public companies. Our results document a significant effect of uncertainty on firm survival. This link is found to be more potent during the recent financial crisis compared with tranquil periods. We also uncover significant firm-level heterogeneity since the survival chances of bank-dependent and non-public firms are most affected by changes in uncertainty, especially during the recent global financial crisis. |
| JEL: | E44 F32 F34 G32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hwe:hwuedp:1506&r=all |