|
on Business Economics |
| By: | Ethan Rouen (Harvard Business School, Accounting and Management Unit) |
| Abstract: | I develop measures of firm-level pay disparity and examine their relation to firm accounting performance. Using comprehensive compensation data for a large sample of firms, I find no statistically significant relation between the ratio of CEO-to-mean employee compensation and performance. I next create empirical models that allow me to separate the components of CEO and employee compensation explained by economic factors from those that are not, and use these models to estimate explained and unexplained pay disparity. After validating my estimate of unexplained pay disparity as a proxy for pay fairness, I find robust evidence of a negative (positive) relation between unexplained (explained) pay disparity and future firm performance. Additional tests show that the negative relation between unexplained disparity and firm performance is driven by firms where both the CEO is overpaid and employees are underpaid, and is more pronounced for firms with weak corporate governance and high employee turnover. |
| Keywords: | pay disparity, pay ratio, CEO pay ratio, income inequality |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:18-007&r=bec |
| By: | Anam Tasawar (University of Gujrat) |
| Abstract: | Managerial compensation is strategically pivotal and practically interesting to manage as it has long-lasting ties with firm?s performance. It is regarded as most crucial tool to attract and retain the top-notched professionals to achieve the firm?s strategic and long term objectives. The executives tends to support their comparatively higher level of compensation sometimes, may be at the cost of priority to firm?s value and interest of principles. In corporate finance literature, this phenomenon of opportunistic behavior has been controlled by various monitoring mechanisms. The new spectacle is apposite in Pakistani financial institutions that have no more strict application of compensation regulation. The current study empirically evaluates the impact of different corporate governance attributes such as institutional shareholders? activism, independence of audit committee and board structure and block holding on the level of compensation paid to CEO of Pakistani listed firms for a period of 2007-2013. All these personas worked as monitoring mechanism for CEOs is scrutiny through stepwise regression. The results found that independent audit committee and board of director along with dual CEO structure and greater family ownership are helpful in mitigating the higher level of CEO compensation with is in align with the agency cost hypothesis. Moreover, higher financial institutional ownership found positively related to CEO compensation which is in accordance with the strategic alliance hypothesis. However, the role of institutions in deciding CEO compensation becomes negative in case of family firms as compared to non-family firms. |
| Keywords: | Managerial Compensation, Corporate Governance, monitoring mechanism |
| JEL: | G30 G39 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:4807442&r=bec |
| By: | Narendar V., Rao; K.S., Reddy |
| Abstract: | The research theme “the market for corporate control and firm performance” has been received a great attention from economics and management scholars, especially since the UNCTAD’s report on ‘transnational corporations and investment patterns across the world’. The impact of quality of formal institutions on the market for M&A (negotiation and post-merger stages) is missing in the current literature. In a modest way, recent studies have drawn attention to economic nationalism and political environment in cross-border acquisitions representing both developed and emerging markets. Scholars argue that formal institutional characteristics such as legal framework, judicial system, and political factors have serious impacts on the success of negotiations, especially in the international setting. Motivated by these factors, the special issue aimed to study the relationship between institutional role and the performance of firms participating in local and foreign deals. The special issue call for papers has received a good response from finance and strategy researchers globally. Following double blind review system, we have accepted seven papers for the Issue in 2017. |
| Keywords: | Institutional role, Market for corporate control, Firm performance |
| JEL: | G3 G34 G38 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80235&r=bec |
| By: | Asier Mariscal (U.Carlos III-Madrid); Dan Lu (the University of Rochester) |
| Abstract: | We uncover new dynamic patterns related to importers' age and the macroeconomic environment that static models cannot explain. Our patterns are related to imported input switching, i.e., the simultaneous adding and dropping of intermediates at the firm level. Three fact stand out. First, switching is pervasive and not a small fraction of firms’ imports. Second, conditional on age, larger firms are more likely to switch, whereas, conditional on size, younger firms switch more. Third, when import prices are high, fewer firms switch and switching shares fall. We propose a dynamic model where firms search for import suppliers and face a choice with heterogeneously productive intermediates. Through searching for suppliers, firms improve their productivity and grow over time. Empirically, we show that several key predictions of the model hold using within-firm regressions. Quantitatively, the unit cost bias from disregarding input heterogeneity is large and in a 15% tariff reduction policy experiment, we show the short-run gain from importing is 20% lower than the long-run gain for an average firm. Like capital accumulation and worker reallocation, supplier accumulation is important for firm dynamics and aggregate productivity. %In the context of the literature, we view our paper as complementary to those that emphasize capital accumulation and worker reallocation to be important for firm dynamics and aggregate productivity. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:263&r=bec |
| By: | Zingales, Luigi |
| Abstract: | Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a “Medici vicious circle, where money is used to get political power and political power is used to make money. |
| Keywords: | Concentration; Lobbying; Theory of the firm |
| JEL: | D21 G30 L20 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12158&r=bec |
| By: | Bo Sun (Federal Reserve Board) |
| Abstract: | We study the effect of financial market conditions on managerial compensation structure. First, we analyze the optimal pay-for-performance in a model in which corporate decisions and firm value are both endogenous to trading due to feedback from information contained in stock prices. In a less frictional financial market, the improved information content of stock prices helps guide managerial decisions, and this information substitutes out part of direct incentive provision in compensation contracts. Thus, the optimal pay-for-performance is lowered in response to reductions in market frictions. Second, we test our theory using two quasi-natural experiments and find evidence that is consistent with the theory. Our results indicate that the financial market environment plays an important role in shaping CEO compensation structure. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:286&r=bec |
| By: | Kevin Lim (Dartmouth College) |
| Abstract: | This paper develops a structural model of trade between heterogeneous firms in which the network of firm-level input-output linkages is determined both dynamically and endogenously. Firms vary in the size of their customer and supplier bases, occupy heterogeneous positions in different supply chains, and adjust their sets of trade partners over time. Despite the rich heterogeneity and dynamics, the model remains computationally tractable. Using both cross-sectional and panel data on trading relationships between US firms, I estimate the model's key parameters via a simulated method of moments technique and assess its fit to the data. Simulations of the model are then used to study how the structure and dynamics of the production network matter for the propagation of firm-level supply and demand shocks and their translation into aggregate effects. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:280&r=bec |
| By: | Paravisini, Daniel; Philipp, Schnabl; Rappoport, Veronica |
| Abstract: | We develop an empirical approach for identifying specialization in bank lending using granular data on borrower activities. We illustrate the approach by characterizing bank specialization by export market, combining bank, loan, and export data for all firms in Peru. We find that all banks specialize in at least one export market, that specialization affects a firm's choice of new lenders and how to finance exports, and that credit supply shocks disproportionately affect a firm's exports to markets where the lender specializes in. Thus, bank market-specific specialization makes credit difficult to substitute, with consequences for competition in credit markets and the transmission of credit shocks to the economy. |
| Keywords: | Banking; Export Finance; specialization |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12156&r=bec |
| By: | Seker, Murat; Ulu, Mehmet Fatih |
| Abstract: | The regulatory environment in a country is an important factor affecting firm performance. This study investigates the impact of a particular regulation, namely license requirements for certain firm activities, on the innovation performance of Indian firms. Using a firm level panel data set, it shows that removal of license requirements led to roughly eight percentage points faster innovation rates within two years following the reform where innovation is measured as introduction of new product varieties that had not existed in the market. When the residual increase in sales revenues even after controlling for product innovation is called as process innovation, substantial improvements in process innovation are also observed. The results are robust to inclusion of controls for the other policy reforms that occurred during the period of licensing reform, and persist in different subcategories of firms. |
| Keywords: | Innovation, research and development, regulatory environment, regulations, industrial policy, India. |
| JEL: | L11 L52 O14 O31 O38 |
| Date: | 2017–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80382&r=bec |
| By: | Pamela Bombarda; Stefania Marcassa (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We propose a model where firms have access to competing market strategies: export and multinational production. Due to technological appropriability issues, foreign affiliates import an intermediate input from the home headquarters. The presence of export and multinational production alters the standard results obtained for welfare in heterogeneous firm models, through a double truncation of the productivity distribution. The model is then calibrated to analyze counterfactual scenarios. We find that welfare gains from intra-firm trade range from 6 to 12 percent depending on country characteristics. |
| Keywords: | MNFs, multinational production, intra-firm trade, welfare. |
| JEL: | F12 F23 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2017-15&r=bec |
| By: | Valerie Smeets (Aarhus University); Frederic Warzynski (Aarhus University); Amil Petrin (University of Minnesota); Emmanuel Dhyne (National Bank of Belgium) |
| Abstract: | We study how increased import competition affects the evolution of firm-product technical efficiency in Belgium. We observe quarterly data on outputs (quantities sold by very detailed product categories) and inputs (labor, capital, and intermediate inputs) at the firm-level from 1995 to 2007, a period marked by stark declines in Chinese tariffs. Using Diewert (1973) and Lau (1976) we show how to estimate firm-product quarterly technical efficiency shocks allowing for interactions among the production processes for multi-product firms, without allocating firm-level inputs across the different outputs. Instrumenting import share - while not important for the signs of the coefficients - is very important for the magnitudes as the effect of competition increases tenfold when one moves from OLS to IV. We find import competition is strongly positively related to firm-product level productivity with a increase of 10% in the import share leading to a 10% gain in technical efficiency. Firms appear to be less technically efficient at producing goods the further they get from their core competence. Moreover, they respond to competition by focusing more on their core products. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:242&r=bec |
| By: | Sara, Amoroso (Joint Research Centre, European Commission); Albert, Link (University of North Carolina at Greensboro, Department of Economics) |
| Abstract: | An increasing number of theoretical and empirical analyses address the role of innovation as one of the main sources of firm growth. More recently, studies have looked at the role of gen-der diversity as a possible determinant of innovation and entrepreneurial performance. How-ever, the relationship between gender and employment growth —a dimension of entrepreneurial performance— still remains unexplored to a large degree. This paper contributes to the empiri-cal literature on gender and entrepreneurial performance in several ways. First, it examines the role played by both innovation and gender ownership as determinants of employment growth rates of young, knowledge intensive entrepreneurial (KIE) firms. Second, it investigates the indirect impact of contributing factors —such as the characteristics of the market, knowledge-based capital, and human capital— on employment growth. And third, it relies on a rich new cross-sectional data set on young, KIE firms across European Union (EU) countries. The data set contains information not only on the gender of the firm’s founders, but also on the market environment, business strategy, and innovative and economic performance of firms. |
| Keywords: | innovation; entrepreneurship; employment growth; gender |
| JEL: | J16 L26 O31 |
| Date: | 2017–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:uncgec:2017_009&r=bec |
| By: | Marinov, Eduard |
| Abstract: | The article aims at presenting the prospects for trade between Bulgaria and Sub-Saharan Africa by analyzing the direction of international trade with the region. To achieve this firstly it presents Bulgarian trade with Sub-Saharan countries summarizing the trade flow dynamics for the 2003-2015 period, the share of Sub-Saharan Africa in Bulgarian international trade as well as its commodity structure. The main section of the article thoroughly discusses firstly the major trade products for the leading trade partners, then the dynamics of trade with these countries and finally analyses the significant cases of fluctuations. The conclusion summarizes the main findings which show the increasing importance of Sub-Saharan Africa for Bulgaria’s international trade relations. |
| Keywords: | Sub-Saharan Africa, international trade, export diversification |
| JEL: | F1 F14 N77 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80366&r=bec |