nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2018‒03‒12
fourteen papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. A ‘threat’ is a ‘Threat’: Incentive Effects of Firing Threats with Varying Degrees of Performance Information By Jordi Brandts; Brice Corgnet; Roberto Hernán-González; José M. Ortiz; Carles Solà
  2. The Impact of Management Practices on SME Performance By Alex Bryson; John Forth
  3. Agency Conflicts over the Short and Long Run: Short-termism, Long-termism, and Pay-for-Luck By Gryglewicz, Sebastian; Mayer, Simon; Morellec, Erwan
  4. Do Mincerian wage equations inform how schooling influences productivity? By Christian Groth; Jakub Growiec
  5. Firms Left Behind: Emigration and Firm Productivity By Yvonne Giesing; Nadzeya Laurentsyeva
  6. How to Sell Jobs By Radoslawa Nikolowa; Daniel Ferreira
  7. "Since you're so rich, you must be really smart": Talent and the Finance Wage Premium By Böhm, Michael; Metzger, Daniel; Strömberg, Per Johan
  8. CEO general managerial skills and corporate social responsibility By Jie Chen; Xicheng Liu; Wei Song
  9. The Hidden Information Content: Evidence from the Tone of Independent Director Reports By Jiao Ji; Oleksandr Talavera; Shuxing Yin
  10. Can subsidising job-related training reduce inequality? By Konstantinos Angelopoulos; Andrea Benecchi; James Malley
  11. The Effect of Minority Veto Rights on Controller Tunneling By Fried, Jesse; Kamar, Ehud; Yafeh, Yishay
  12. Why female board representation matters: The role of female directors in reducing male CEO overconfidence in corporate decisions By Jie Chen; Woon Sau Leung; Wei Song; Marc Goergen
  13. The Optimal Duration of Contracts By Panu Poutvaara; Tuomas Takalo; Andreas Wagener
  14. Pay-What-You-Want to support independent information - A field experiment on motivation By Alessandra Casarico; Mirco Tonin

  1. By: Jordi Brandts; Brice Corgnet; Roberto Hernán-González; José M. Ortiz; Carles Solà
    Abstract: We study the incentive effect of firing threats when bosses have limited information about workers. We show that a minimal amount of individual information about workers’ effort such as the time spent at their work station is sufficient to ensure strong incentive effects. This supports the use of firing threats based on rudimentary yet uncontroversial measures of work performance such as absenteeism, in organizational settings in which only limited information about workers is available. Our results help understand the limited link between pay and performance observed in compensation contracts calling for an extension of the principal-agent model to take into account how workers (mis-)perceive the intensity of incentives.
    Keywords: firing threats, Incentives, informativeness principle, laboratory experiments
    JEL: C92 D23 D82
    Date: 2018–02
  2. By: Alex Bryson; John Forth
    Abstract: We examine the impact of management practices on firm performance among SMEs in Britain over the period 2011-2014, using a unique dataset which links survey data on management practices with firm performance data from the UK’s official business register. We find that SMEs are less likely to use formal management practices than larger firms, but that such practices have demonstrable benefits for those who use them, helping firms to grow and increasing their productivity. The returns are most apparent for those SMEs that invest in human resource management practices, such as training and performance-related pay, and those that set formal performance targets.
    Keywords: SMEs, small and medium-sized enterprises, employment growth, high-growth firms, productivity, workplace closure, management practices, HRM, recession
    JEL: L25 L26 M12 M52 M53
    Date: 2018–03
  3. By: Gryglewicz, Sebastian; Mayer, Simon; Morellec, Erwan
    Abstract: We develop a dynamic agency model in which the agent controls current earnings via short-term effort and firm growth via long-term effort and the firm is subject to both short- and long-run shocks. Under the optimal contract, agency conflicts can induce both over- and underinvestment in short- and long-term efforts compared to first best, leading to short- or long-termism in corporate policies. Exposure to long-run shocks introduces pay-for-luck in incentive compensation but only after sufficiently good performance due to incentive compatibility, thereby rationalizing the asymmetric benchmarking observed in the data. Correlated short- and long-run shocks to earnings and firm size lead to externalities in incentive provision over different time horizons.
    Date: 2018–02
  4. By: Christian Groth (University of Copenhagen); Jakub Growiec (Narodowy Bank Polski and SGH Warsaw School of Economics)
    Abstract: We study the links between the Mincerian wage equation (the cross-sectional relationship between wages and years of schooling) and the human capital production function (the causal effect of schooling on labor productivity). Based on a stylized Mincerian general equilibrium model with imperfect substitutability across skill types and ex ante identical workers, we demonstrate that the mechanism of compensating wage differentials renders the Mincerian wage equation uninformative for the human capital production function. Proper identification of the human capital production function should take into account the equilibrium allocation of individuals across skill types.
    Keywords: Mincerian wage equation, human capital production function, skill distribution, compensating wage differentials, golden rule of skill formation
    JEL: E24 J24
    Date: 2018
  5. By: Yvonne Giesing; Nadzeya Laurentsyeva
    Abstract: This paper establishes a causal link between the emigration of skilled workers and firm performance in source countries. Using firm-level panel data from ten Eastern European countries, we show that the emigration of skilled workers lowers firm total factor productivity. We exploit time, country, and industry differences in the opening of EU labor markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from new EU member states. We argue that a potential channel behind this effect relates to the reduction in firm-specific human capital due to a higher worker turnover.
    Keywords: migration, firm productivity, human capital, EU enlargement
    JEL: O15 D24 F22 J24
    Date: 2017
  6. By: Radoslawa Nikolowa (Queen Mary University of London); Daniel Ferreira (London School of Economics and CEPR)
    Abstract: Profit-maximizing firms should fill job positions at the lowest possible cost. Because employees may have preferences over the attributes of their jobs, we can view this problem as one of finding the optimal way to sell job attributes to potential employees. In this paper, we characterize the optimal mechanism by which a firm can sell jobs with desirable attributes. This mechanism is implemented by offering employees a long-term employment contract in which firms create a number of low-quality job positions and offer them to young employees, while only a subset of these employees are promoted to a desirable job. In contrast to the traditional compensating differentials framework, job desirability and wages are positively related in the optimal contract. Our analysis provides a novel framework for thinking about a number of phenomena, such as the span of control, inequality within and between generations, and the effect of competition on employment and wages.
    Keywords: Employment Contracts, Compensating Differentials, Promotions, Job Design, Span of Control
    JEL: M51 J31 L22
    Date: 2018–01–02
  7. By: Böhm, Michael; Metzger, Daniel; Strömberg, Per Johan
    Abstract: Wages in the financial sector have experienced an extraordinary increase over the last few decades. A proposed explanation for this trend has been that the demand for skill has risen more in finance compared to other sectors. We use Swedish administrative data, which include detailed cognitive and non-cognitive test scores as well as educational performance, to examine the implications of this hypothesis for talent allocation and relative wages in the financial sector. We find no evidence that the selection of talent into finance has improved, neither on average nor at the top of the talent and wage distributions. A changing composition of talent or their returns cannot account for the surge in the finance wage premium. While these findings alleviate concerns about a "brain drain" into finance at the expense of other sectors, they also suggest that finance workers are capturing substantial rents that have increased over time.
    Keywords: Sectoral Wage Premia; Talent Allocation; Earnings Inequality; Compensation in Financial Industry
    JEL: G20 J24 J31
    Date: 2018–02
  8. By: Jie Chen (Cardiff Business School, Cardiff University); Xicheng Liu (School of Management, Swansea University); Wei Song (School of Management, Swansea University)
    Abstract: This study examines the impact of managerial skill sets on corporate social responsibility (CSR). We show that firms with chief executive officers (CEOs) who gain general managerial skill sets through their lifetime work experience (i.e., generalist CEOs) tend to engage in less CSR. This finding remains consistent after considering potential endogenous matching between CEO types and firms, as well as alternative measures of CSR. We further show that the negative relationship between generalist CEOs and CSR becomes more prominent when CEOs are close to the timing of job-hopping, especially for firms with a higher level of institutional ownership and institutional investors who frequently alter their holding positions. These findings are consistent with the argument that CEOs who frequently face the short-term performance pressure from the labor market are reluctant to invest in projects which are likely to generate profits over the long run.
    Keywords: Corporate social responsibility; General human capital; Labor market evaluation; Long-term investment.
    JEL: G32 G34 J24 M14
    Date: 2018–02–24
  9. By: Jiao Ji (Management School, University of Sheffield); Oleksandr Talavera (School of Management, Swansea University); Shuxing Yin (Management School, University of Sheffield)
    Abstract: The paper investigates the link between the information content of independent directors’ re-ports (IDRs) and future firm performance. By conducting sentiment analysis of 23,984 IDRs of the Chinese listed companies from 2004-2012, we find that the tone of IDRs is positively related with future firm performance. We also posit that the tone of IDRs and its association with firm performance depends on director’s incentives to monitor. Our results suggest that independent directors with greater career concerns (i.e., young directors, an expert in ac-counting or finance) are more critical in evaluating firm fundamentals and express more neg-ative tone in their reports. The relationship between the negative tone of IDRs and future firm performance is stronger for firms with greater monitoring needs. Overall, our evidence is consistent with the conjecture that career concerns motivate independent directors to dissem-inate information to external stakeholders.
    Keywords: Brexit, Text Analysis, Tone, Independent Director Report, Corporate Governance
    JEL: G30
    Date: 2018–03–05
  10. By: Konstantinos Angelopoulos; Andrea Benecchi; James Malley
    Abstract: A well-established stylised fact is that employer provided job-related training raises productivity and wages. Using UK data, we further find that job-related training is positively related to subsidies aimed at reducing training costs for employers. We also find that there is a positive, albeit quantitatively small, relationship between wage inequality and training in- equality in the UK. Motivated by the above, we explore whether policies to subsidise firms monetary cost of training can improve earnings for the lower skilled and reduce inequality. We achieve this by developing a dynamic gen- eral equilibrium model, featuring skilled and unskilled labour, capital-skill complementarity in production and an endogenous training allocation. Our results suggest that training subsidies for the unskilled have a significant impact on the labour income of unskilled workers. These subsides also in- crease earnings for skilled workers and raise aggregate income with implied lifetime multipliers exceeding unity. Finally, the positive spill over effects to skilled workers imply that training subsidies are not very effective in re- ducing inequality, measured as the distance between skilled and unskilled wages and incomes.
    Keywords: Job-related training, wage and earning inequality, training subsidies
    JEL: E24 J24 J31
    Date: 2017–08
  11. By: Fried, Jesse; Kamar, Ehud; Yafeh, Yishay
    Abstract: A central challenge in the regulation of controlled firms is curbing controller tunneling. As independent directors and fiduciary duties are widely seen as not up to the task, a number of jurisdictions have given minority shareholders veto rights over these transactions. To assess these rights' efficacy, we exploit a 2011 regulatory reform in Israel that gave the minority the ability to veto pay packages of controllers and their relatives ("controller executives"). We find that the reform curbed the pay of controller executives and led some controller executives to quit their jobs, or work for free, in circumstances suggesting their pay would not have received approval. These findings suggest that minority veto rights can help curb controller tunneling.
    Keywords: controlling shareholders; corporate governance; corporate law; Executive compensation; minority shareholders; related party transactions; securities regulation; shareholder voting; tunneling; veto rights
    JEL: G18 G34 G38 J33 J38 K22 L20 M12 M52
    Date: 2018–02
  12. By: Jie Chen (Cardiff Business School, Cardiff University); Woon Sau Leung (Cardiff Business School, Cardiff University); Wei Song (School of Management, Swansea University); Marc Goergen (Cardiff Business School, Cardiff University)
    Abstract: We provide novel manifestations why female board representation matters. We find that male CEOs at firms with female directors are less likely to be overconfident as they hold fewer deep-in-the-money options. Female directors are associated with less aggressive investment policies, better acquisition decisions, and improved firm performance. This is the case for industries with high overconfidence prevalence, but not for those with low overconfidence prevalence. Finally, firms with female directors experience less of a drop in performance during the 2007-2009 financial crisis. These results are consistent with the view that female directors improve firm outcomes through reducing male CEO overconfidence in corporate decisions.
    Keywords: Female board representation, CEO overconfidence, Investment, Firm performance.
    JEL: G30 G32 G34
    Date: 2018–02–24
  13. By: Panu Poutvaara; Tuomas Takalo; Andreas Wagener
    Abstract: We study the optimal duration of contracts in a principal-agent framework with both moral hazard and adverse selection. Agents decide on a contract-specific and non-verifiable investment. Incentive compatibility requires that initial contracts, which serve to screen the ability of newly hired agents, cannot be longer than continuation contracts, offered to successful agents. Initial contracts remain unpaid unless service quality is unobservable to other agents and the share of high-ability agents is high. Optimal durations depend, in non-monotonic ways, on the principal’s ow valuation of the agent’s service and the share of high-ability agents.
    Keywords: contract length, term length, screening
    JEL: J30 L14 J41 D72
    Date: 2017
  14. By: Alessandra Casarico (Bocconi University, Department of Policy Analysis and Public Management); Mirco Tonin (Free University of Bolzano‐Bozen, Faculty of Economics and Management)
    Abstract: Pay-what-you-want schemes can be a useful tool to finance high quality and independent news media without restricting readership, therefore guaranteeing maximum diffusion. We conduct a field experiment with the Italian information site to explore how to structure a campaign in a way that maximises readers' willingness to contribute. We compare messages stressing two possible motivations to contribute, namely the public good component of the news or the importance of the individual contributions. We also test the effect of including information about the tax allowance associated with donations. While the particular motivation stressed does not have a significant impact, information about tax allowances surprisingly reduces overall donations, due to a reduction in the number of (small) donors. Stable unsubscriptions from the newsletter suggest that the campaign does not have an adverse effect on readers.
    Keywords: Field experiment; Pay-what-you-want; Tax allowances; Media
    JEL: C93 D64 H41
    Date: 2018–03

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