|
on Business Economics |
| By: | Elif Sisli Ciamarra (Brandeis University); Tanseli Savaser (Bilkent University) |
| Abstract: | We argue that the relationship between managerial pay-for-performance incentives and risk taking is procyclical. We study the relationship between incentives provided by stock-based compensation and rm risk for U.S. non- nancial corporations over the two business cycles between 1992 and 2009. We show that a given level of pay-for-performance incentives results in signi cantly lower rm risk when the economy is in a downturn. The documented procyclical relationship between incentives and risk taking is consistent with state-dependent risk aversion. Our ndings contribute to the literature on the depres- sive e¤ects of performance incentives on rm risk by documenting the importance of the interaction between performance incentives and risk aversion. |
| Keywords: | executive compensation; risk taking; equity-based compensation; macro- economy Corresponding |
| JEL: | G01 G3 M52 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:93&r=all |
| By: | Fumihiko Isada (Kansai University); Yuriko Isada (Kwansei Gakuin University) |
| Abstract: | The purpose of this research is to prove quantitatively whether the transformation of the international business model of a Japanese multinational firm has influenced the trans-nationalisation and diversity in the main office in Japan. Moreover, it is proving quantitatively the influence of the management on the move-in region by trans-nationalisation and diversity of a Japanese main office. According to the previous research, it was traditionally one of the big traits of the personnel system of a Japanese multinational firm that trans-nationalisation of employment does not progress as compared with a European or American company. However, the consciousness of the top managers of a Japanese multinational firm is changing recently. The top managers of Japanese multinational firm recently faced the big transformation of the management environment that an emerging-countries market grows up rapidly, while the Gross Domestic Product of Japan fell to the third in the world. As a research methodology, a questionnaire was given to the multinational firms which has advanced to emerging countries. In conclusion, it was verified that trans-nationalisation of a main office has progressed because the international business model in the emerging countries of a Japanese firm converted. Moreover, it was verified that trans-nationalisation of a main office has promoted the relationship with various stakeholders in an emerging country as an effect on management. |
| Keywords: | international business model, trans-nationalisation, Japanese multinational firm, emerging country, questionnaire |
| JEL: | M16 M14 M10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:2704868&r=all |
| By: | Gustavo Ventura (Arizona State University); Andrii Parkhomenko (Univesitat Autonoma de Barcelona); Nezih Guner (Universitat Autonoma de Barcelona) |
| Abstract: | We document that mean earnings of managers grow faster than for non managers over the life cycle for a group of high-income countries. Furthermore, we find that the growth of earnings for managers (relative to non managers) is positively correlated with output per worker across these countries. We interpret this evidence through the lens of an equilibrium span-of control model where managers invest in their skills. Central to our analysis is a complementarity between skills and investments in the production of new managerial skills that amplifies initial differences in skills over the life cycle. We discipline model parameters with observations on managerial earnings over the life cycle and the size-distribution of plants in the United States, and then use our framework to quantify the importance of (i) lower exogenous productivity differences, and (ii) the size-dependent distortions emphasized in recent literature. Our findings show that both of these factors reduce managerial investments and lead to a lower earnings growth of managers relative to non managers. We also specialize the framework to evaluate the relative contribution of exogenous productivity versus size-dependent distortions for output and plant-size differences between the U.S. and Japan. Our results show that exogenous productivity differences account for about 80% of the output gap between these two countries. Size-dependent distortions are responsible for nearly all differences in plant size. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:784&r=all |
| By: | Silja Baller |
| Abstract: | This paper presents the most direct test to date of the key welfare mechanism put forward by Melitz and Ottaviano (2008): the best firms increase sales disproportionately when competing in larger markets. I test this prediction in a quality context where the best firms produce the highest quality. The empirical analysis is guided by a quality-augmentation of Melitz and Ottaviano (2008). I capture product quality empirically using a unique dataset containing firm-level quality ratings. The results are in line with the key prediction of the model. I also find a strong positive relationship between a proxy for consumer quality preference and demand for quality which is consistent with the theory. |
| Keywords: | Heterogenous firms;Flexible mark-ups;Market size;Quality;Complementarities |
| JEL: | F12 F14 F15 L11 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2015-14&r=all |
| By: | Leung, Ming D; Rao, Hayagreeva |
| Abstract: | Although collective turnover is widespread, its consequences have seldom been studied. We focus on an extreme case - collective turnover after a merger between privately held firms, and argue that a cascade of exits triggers a loss of confidence in the firm, leading to subsequent exits. We show that it is not the loss of proficient talent that is a key signal of the loss of confidence, instead, it is the polarization of exits between the employees of the acquiring and acquired firm that signals uncertainty and jumpstarts other exits. We suggest that the momentum of ‘news’ after a merger affects confidence in the firm, and distinguish between the momentum of ‘bad news’ and the momentum of ‘good news. We fin d that the momentum of bad news intensifies the effect of polarization in prior exits. |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:indrel:qt1469z8qc&r=all |
| By: | Chen, Yongmin; Hua, Xinyu |
| Abstract: | A firm's incentive to invest in product safety is affected by both the market environment and the liability when its product causes consumer harm. A long-standing question in law and economics is whether competition can (partially) substitute for product liability in motivating firms to improve product safety. We investigate this issue in a spatial model of oligopoly with product differentiation, where reputation provides a market incentive for product safety and higher product liability may distort consumers' incentive for proper product care. We find that partial liability, together with reputation concerns, can motivate firms to make socially desirable safety investment. Increased competition due to less product differentiation lowers equilibrium market price, which diminishes a firm's gain from maintaining reputation and raises the socially desirable product liability. On the other hand, an increase in the number of competitors reduces both the benefit from maintaining reputation and the potential cost savings from cutting back safety investment; consequently, the optimal liability may vary non-monotonically with the number of competitors in the market. In general, therefore, the relationship between competition and product liability is subtle, depending on how competition is measured. |
| Keywords: | product safety, product liabilty, competition |
| JEL: | K13 L13 L15 |
| Date: | 2015–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66450&r=all |
| By: | Alfaro, Laura; Antràs, Pol; Chor, Davin; Conconi, Paola |
| Abstract: | In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antras and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model’s predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm’s propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggests that contractual frictions play an important role in shaping the integration choices of firms around the world. |
| Keywords: | global value chains; incomplete contracts; sequential production |
| JEL: | D23 F14 F23 L20 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10837&r=all |
| By: | Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell |
| Abstract: | Our estimates, based on large firm-level and industry-level data sets from eighteen countries, suggest that FDI and trade have strong positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. Moreover, our results indicate that the spillover effects can be detected with micro data at the firm-level, but that using linkage variables computed from input-output tables at the industry level yields much weaker, and usually insignificant, estimated effects. These patterns are consistent with spillover effects being rather proximate and localized. |
| JEL: | F2 M16 O16 P23 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21514&r=all |
| By: | Fabio Montobbio (Università di Torino (Italy), CRIOS – Università L. Bocconi, Milano (Italy)); Ilaria Solito (Laboratoire RITM, Université Paris Sud, Faculté Jean Monnet (France)) |
| Abstract: | This paper aims at analyzing whether environmental management systems can spur innovation at firm level, by providing new empirical evidence on the relationship between EMAS (Eco Management and Audit Scheme) and patented innovation. In applying a Negative Binomial model with Fixed Effect, we estimate the number of granted patents using EMAS as key explanatory variable. The relationship between EMAS and innovation is studied by using an original panel database composed by 30439 European firms belonging to all sectors and size. Moreover, we use an original instrumental variable to control for potential endogeneity. The analysis reveals that EMAS is positively correlated with innovation at firm level, although the results vary across countries and sectors. |
| Keywords: | Innovation; Environmental management systems; Patents; Eco-Management and Audit Scheme |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:srt:wpaper:1615&r=all |
| By: | Crespo, Aranzazu; Segura-Cayuela, Ruben |
| Abstract: | Using firm level data, we analyse the factors that drive the evolution of the aggregate Unit Labor Costs – the main European competitiveness indicator – in France, Germany, Italy and Spain. The evolution of the aggregate Unit Labor Cost is not driven by the evolution of the firm level Unit Labor Costs, but rather by an important factor for the competitiveness of a country: the reallocation of resources among the firms of the economy. Using the methodology of Hsieh and Klenow (2009), we show the importance of an efficient allocation of resources for productivity gains. |
| Keywords: | Unit labour costs, Competitiveness, Misallocation, European Union |
| JEL: | F02 F15 J30 O47 O57 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:mwp2014/20&r=all |
| By: | J. Bradford Jensen (Peterson Institute for International Economics); Dennis P. Quinn (McDonough School of Business, Georgetown University); Stephen Weymouth (McDonough School of Business, Georgetown University) |
| Abstract: | The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy. |
| Keywords: | heterogeneous firms, undervaluation, foreign direct investment |
| JEL: | F1 F23 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp15-15&r=all |
| By: | Anett Erdmann |
| Abstract: | This paper investigates empirically the effect of anticipated price competition and distribution costs in firms' location choices within an oligopolistic market. I set up a static location-price game of incomplete information in which retailers choose their locations based on (firm-)location-specific characteristics, the expected market power and the expected degree of price competition. In particular, I tie the firms' strategic location incentives to the population distribution using the concept of captive consumers. This approach is in line with theoretical spatial price competition models and does not require price or quantity data. I address the computational difficulties of the estimation using mathematical programming with equilibrium constraints. Applied to the supermarket industry, the model confirms the existence of benefits of spatial differentiation for firms' profits and provides evidence that firms anticipate price competition and distribution costs in their site selections. |
| Keywords: | spatial competition , location choice , price competition , retail competition , discrete games , constrained optimization |
| JEL: | L13 L20 D43 R12 |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1507&r=all |
| By: | Mitsuru Igami (Yale University) |
| Abstract: | This paper uncovers a novel pattern of offshoring and market structure in a high-tech industry, and proposes a simple oligopoly model to explain it. Specifically, the hard disk drive industry (1976-98) witnessed massive waves of entry, exit, and the relocation of manufacturing plants to low-cost countries, in which shakeouts occurred predominantly among home firms and almost all survivors were offshore firms. I build and estimate a dynamic offshoring game with entry/exit to explain these facts, and then investigate the relationship between offshoring and market structure as well as the impacts of hypothetical government interventions. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:713&r=all |
| By: | Venky Venkateswaran (New York University); Laura Veldkamp (NYU Stern); Julian Kozlowski (New York University) |
| Abstract: | In the wake of the great recession,many economists explored new sources of business cycle fluctuations, such as news, sentiment or uncertainty shocks. But these theories have difficulty explaining why post-recession output would remain below trend long after many commonly used measures of uncertainty recovered to their pre-crisis levels. We propose a business cycle model where new information has persistent effects on real output. In our model, firms do not know the true distribution of economic shocks. Each period, they observe a new shock realization and re-estimate its distribution, just as an econometrician would. Tails of the distribution are difficult to estimate. So estimated tails risk can fluctuate greatly as new data is observed. Shocks have persistent effects because they permanently change beliefs about future realizations. Since debt payouts are affected disproportionately by tail risk, changes to beliefs lead to large changes in the cost of issuing debt and therefore, incentives to invest. Thus, the combination of belief revisions and debt financing can amplify shocks and generate large, persistent fluctuations in investment and output. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:800&r=all |
| By: | J. David Brown; John S. Earle; Yana Morgulis |
| Abstract: | Analyzing a list of all Small Business Administration (SBA) loans in 1991 to 2009 linked with annual information on all U.S. employers from 1976 to 2012, we apply detailed matching and regression methods to estimate the variation in SBA loan effects on job creation and firm survival across firm age and size groups. The estimated number of jobs created per million dollars of loans within the small business sector generally increases with size and decreases in age. The results suggest that the growth of small, mature firms is least financially constrained, and that faster growing firms experience the greatest financial constraints to growth. The estimated association between survival and loan amount is larger for younger and smaller firms facing the “valley of death.” |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:15-24&r=all |
| By: | Chatterji, Aaron; Durand, Rodolphe; Levine, David; Touboul, Samuel |
| Abstract: | Raters of corporations play an important role in assessing domains ranging from sustainability to corporate governance to best workplaces. Scholars increasingly rely on these ratings to test theories about corporate social responsibility (CSR), corporate governance and the influence of stakeholders. Though these raters frequently develop sophisticated methodologies, we find they often diverge in their ratings of the same firm, creating uncertainty for managers and stakeholders, and also posing challenges for researchers. We document the surprising lack of convergence of social ratings for the first time using six well-established socially responsible investing (SRI) raters, with comparisons of overlap, correlations, and regression analysis. Our results suggest that scholars should interpret empirical results with caution and at least use multiple ratings schemes in studies of CSR and governance. |
| Keywords: | Physical Sciences and Mathematics |
| Date: | 2014–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:indrel:qt21t0n6wg&r=all |