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on Business Economics |
| By: | Kuang,Flora Yu; Qin,Bo (Tilburg University, Center for Economic Research) |
| Abstract: | The paper investigates the incentive effects of performance-vested stock options (PVSOs) in aligning management interests with shareholder wealth. Performance targets attached to option vesting would prevent executives from receiving rewards from outcomes that are unaffected by their effort. Such targets align executive pay more closely with shareholder wealth. The degree of interest alignment is measured by pay-performance sensitivity (PPS). Using data on 4,238 executive-level observations for 1,383 executive directors in the largest 244 UK non-financial firms from 1999 to 2004, we find that the presence of PVSO schemes in executive-compensation contracts is associated with higher PPS, consistent with the idea that stronger incentives are provided by PVSOs. The empirical evidence also shows that PVSOs outperform unconditional stock options (TSOs) in providing incentives, since higher PPS is associated with the presence of PVSOs. Moreover, the results testify the role of vesting-target difficulty of PVSOs in the pay-performance relation. Specifically, difficult targets are associated with lower PPS levels, implying that too difficult targets negatively affect managers' choice of effort, that relatively lower effort is to be expected, and that the interests of managers will diverge from the interests of shareholders. |
| Keywords: | stock options;pay-performance sensitivity;equity incentive |
| JEL: | G31 G34 G39 M41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2006123&r=bec |
| By: | Reena Aggarwal; Isil Erel; Rene M. Stulz; Rohan Williamson |
| Abstract: | We compare the governance of foreign firms to the governance of similar U.S. firms. Using an index of firm governance attributes, we find that, on average, foreign firms have worse governance than matching U.S. firms. Roughly 8% of foreign firms have better governance than comparable U.S. firms. The majority of these firms are either in the U.K. or in Canada. When we define a firm's governance gap as the difference between the quality of its governance and the governance of a comparable U.S. firm, we find that the value of foreign firms increases with the governance gap. This result suggests that firms are rewarded by the markets for having better governance than their U.S. peers. It is therefore not the case that foreign firms are better off simply mimicking the governance of comparable U.S. firms. Among the individual governance attributes considered, we find that firms with board and audit committee independence are valued more. In contrast, other attributes, such as the separation of the chairman of the board and of the CEO functions, do not appear to be associated with higher shareholder wealth. |
| JEL: | G30 G32 G34 G38 K22 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12819&r=bec |
| By: | Emmanuelle Auriol (ARQADE and IDEI, Université des Sciences Sociales de Toulouse, and Institut Universitaire de France); Régis Renault (Université de Cergy-Pontoise, Théma and Institut Universitaire de France) |
| Abstract: | The paper introduces status as reflecting an agent's claim to recognition in her work. It is a scarce resource: increasing an agent's status requires that another agent's status is decreased. Higher status agents are more willing to exert effort in exchange for money; better-paid agents would exert a higher effort in exchange for an improved status. Results are coherent with actual management practices: (i) egalitarianism is desirable in a static context; (ii) in a long-term work relationship, juniors' compensations are delayed; past performances are recompensed by pay increases along with an improved status within the organization's hierarchy. |
| Keywords: | repeated moral hazard, internal labor markets, social status |
| JEL: | D82 L23 M12 J33 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2007-01&r=bec |
| By: | William R. Johnson |
| Abstract: | The observation that many workers report wanting to work more or fewer hours at their current rate of pay appears to contradict standard neoclassical theory. Although most jobs limit the ability of workers to choose hours, economists typically assume that workers can choose hours by choosing jobs. The puzzle is why workers have not chosen jobs which allow them to work the number of hours they prefer. This paper outlines two classes of reasons that hours constraints might be observed in a neoclassical market equilibrium – mismatch (caused by search costs or market thinness) or wedges between imagined and feasible hours-compensation combinations (caused by market power, implicit contracts, overtime premia and fixed costs of employment like fringe benefits.) Using proxies for each of these putative explanations and cross-section data on self-reported hours constraints I find support for explanations that rely on fixed cost fringe benefits, overtime premia, search costs and unions but no support for the monopsony power or market thinness explanations. Moreover, the data are consistent with two strong empirical implications of hours constraints being illusory in the sense that the jobs constrained workers would prefer are not economically feasible. |
| Keywords: | hours of work, constraint, desired hours |
| JEL: | J22 J32 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:vir:virpap:367&r=bec |
| By: | Gaëtan Nicodème (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and European Commission.) |
| Abstract: | The current debate in corporate taxation is focusing on leveling the tax playing field within the European Union for companies operating across-countries. However, tax burdens could also vary with the size of companies within the same country, raising the question whether large companies pay their share of the burden. This paper uses firm-level data for 21 European countries between 1992 and 2004. The paper finds a robust negative correlation between the number of employees and the effective tax burden of companies. This result tends to validate theories arguing that large companies may enjoy a lower tax burden. As a caveat, using total assets as size variable produces a positive relationship. This relationship is however less robust and less economically significant. |
| Keywords: | Corporate taxation, Effective tax rates, political power, political cost. |
| JEL: | E61 H21 H22 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:07-001&r=bec |
| By: | Manfredi M.A. La Manna |
| Keywords: | optimal organization, parallel multi-tasking, majorization. |
| JEL: | L23 D89 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:0611&r=bec |
| By: | Valeria Gattai (Bocconi University and ISESAO) |
| Abstract: | In this paper we investigate the choice of FDI versus joint-venture, made by Italian, Spanish and Swiss multinationals in China, as shaped by the risk of Dissipation of Intangible Assets. Probit estimates, based on an entirely new firm-level dataset, constructed by the author, show that FDI is more likely to emerge when know-how easily spills over - namely for firms endowed with more Intangible Assets or belonging to high tech sectors - in line with the theoretical expectations. |
| Keywords: | Intangible Assets, Internalisation, FDI, Joint-venture, China |
| JEL: | F23 C25 O53 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.150&r=bec |
| By: | Barkume, Anthony J. (U.S. Bureau of Labor Statistics) |
| Abstract: | This paper is a replication of research reported by Steven Trejo in the 1991 American Economic Review. Trejo used labor force data from the seventies to assess the relevance of two contrasting views of the impact of overtime pay regulation. This paper reports research using a recent representative sample of U.S. private industry jobs that includes employer-reported measures of usual annual hours of overtime work and comprehensive measures of employer costs for job compensation. Comparisons are made between a set of jobs likely to be subject to U.S. overtime pay regulation—jobs paid hourly on 40 hour a week schedules—with another set of jobs that can offer overtime but are not likely to be subject to Federal overtime requirements—jobs on reduced hour schedules. The main findings of the research are: (1) higher wage rates are associated with a lower incidence of overtime work among the set of jobs with 40 hour work schedules, but not among the set of jobs with reduced hour schedules (2) in jobs using overtime work, more usual overtime work is associated with lower wage rates among the jobs with 40 hour work schedules, but not among the jobs on reduced hour schedules (3) higher “quasi-fixed” job compensation, such as employer health insurance costs, is associated with a higher incidence of overtime use. The paper also discusses some of the difficulties of interpreting these statistical results in the context of the labor market models considered by Trejo. |
| Keywords: | overtime work hours; hedonic wage curve |
| JEL: | J31 J33 |
| URL: | http://d.repec.org/n?u=RePEc:bls:wpaper:ec070010&r=bec |
| By: | Isabel Grilo; Roy Thurik |
| Abstract: | The process of the entrepreneurial decision is decomposed in seven engagement levels ranging from “never thought about starting a business” to “gave up”, “thinking about it”, “taking steps for starting up”, “having a young business”, “having an older business” and “no longer being an entrepreneur”. By using a multinomial logit model we allow the effect of covariates to differ across the various entrepreneurial engagement levels. Data from two Entrepreneurship Flash Eurobarometer surveys (2002 and 2003) con-taining over 20,000 observations of the 15 old EU member states, Norway, Iceland, Liechtenstein and the US are used. Other than demographic variables, the set of explanatory variables used includes the percep-tion by respondents of administrative complexities, of availability of financial support and of risk tolerance, the respondents’ preference for self-employment and country specific effects. Among our results we find that the perception of lack of financial support has no discriminative effect across the various levels of en-trepreneurial engagement while perception of administrative complexities plays a negative role only for high levels of engagement. |
| Keywords: | entrepreneurship, determinants, nascent entrepreneurship, multinomial logit, barriers to entry, Europe |
| JEL: | H10 J23 L26 M13 R12 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:esi:egpdis:2007-02&r=bec |
| By: | Frances Ruane; Julie Sutherland |
| Abstract: | This paper extends existing research on firm heterogeneity by exploring whether differences in firm performance characteristics may in part be related to the gender of the proprietor of the firm. Using a data set of Irish manufacturing firms covering the period 1993 to 2002, we estimate multivariate regression models comparing the performance of female-owned and male-female joint ownership firms with firms owned by males only. When compared with all other firm types, female-owned firms exhibit inferior firm performance characteristics. However, when we control for the ownership structure of the firm and compare female sole-proprietor firms with male sole-proprietor firms, the under-performance difference is reduced. Examining separately firms that are jointly owned by males and females we find that joint ownership firms significantly under-perform those owned by males. |
| Keywords: | Firm performance, gender |
| Date: | 2007–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp200&r=bec |
| By: | Acs, Zoltan (George Mason University, School of Public Policy); Audrestch, David (Indiana University, School of Environmental and Public Affairs); Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Carlsson, Bo (Case Western Reserve University, Weatherhead School of Management, Department of Economics) |
| Abstract: | Contemporary theories of entrepreneurship generally focus on the recognition of opportunities and the decision to exploit them. While the prevailing view in the entrepreneurship literature is that opportunities are exogenous, the most prevalent theory of economic growth suggests that opportunities are endogenous. This paper bridges the gap between the entrepreneurship and economic growth literatures by developing a knowledge spillover theory of entrepreneurship. Knowledge created endogenously results in knowledge spillovers that give rise to opportunities to be identified and exploited by entrepreneurs. |
| Keywords: | Opportunity; knowledge; entrepreneurship; knowledge filter |
| JEL: | J24 M13 O31 R10 |
| Date: | 2007–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0077&r=bec |
| By: | Francis X. Diebold (University of Pennsylvania and NBER); Kamil Yilmaz (Koc University) |
| Abstract: | We provide a simple and intuitive measure of interdependence of asset returns and/or volatilities. In particular, we formulate and examine precise and separate measures of return spillovers and volatility spillovers. Our framework facilitates study of both non-crisis and crisis episodes, including trends and bursts in spillovers, and both turn out to be empirically important. In particular, in an analysis of sixteen global equity markets from the early 1990s to the present, we find striking evidence of divergent behavior in the dynamics of return spillovers vs. volatility spillovers: Return spillovers display a gently increasing trend but no bursts, whereas volatility spillovers display no trend but clear bursts. |
| Keywords: | Asset Market, Asset Return, Stock Market, Emerging Market, Market Linkage, Financial Crisis, Herd Behavior, Contagion |
| JEL: | F30 G15 F36 |
| Date: | 2007–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:07-002&r=bec |
| By: | Frank Milne (Queen's University); David Kelsey (University of Exeter) |
| Abstract: | If consumers wholly or partially control a firm with market power they will charge less than the profit maximising price. Starting at the usual monopoly price, a small price reduction will have a second order e¤ect on profits but a first order effect on consumer surplus. Despite this desirable static result, it has been argued that cooperatives are vulnerable to take-over by outsiders who will run them as for-profit businesses. This paper studies takeovers of cooperatives. We argue that cooperatives are in fact quite stable due to the Grossman-Hart problem of free riding during takeovers. |
| Keywords: | corporate governance, co-operative, take-over, free-rider |
| JEL: | D70 L20 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1113&r=bec |
| By: | James R. Markusen |
| Abstract: | Trade in business services has been attracting attention from academic researchers, policy makers, and business journalists. While there are many anecdotes, there has been little in the way of formal theory applied to this issue. In this paper, we adapt a general model of fragmentation of production activities to try to capture the specific features of business services. Following a general discussion, we calibrate a numerical general-equilibrium simulation model to a situation in which both trade and foreign investment in services are initially banned or technically infeasible. We then compute three counter-factual scenarios: one in which trade but in investment in services is feasible or allowed, one in which investment but not trade is allowed, and one in which both trade and investment in services is allowed. |
| JEL: | F0 F2 F23 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12816&r=bec |
| By: | Ying Chen; Vladimir Spokoiny |
| Abstract: | In the ideal Black-Scholes world, financial time series are assumed 1) stationary (time homogeneous) and 2) having conditionally normal distribution given the past. These two assumptions have been widely-used in many methods such as the RiskMetrics, one risk management method considered as industry standard. However these assumptions are unrealistic. The primary aim of the paper is to account for nonstationarity and heavy tails in time series by presenting a local exponential smoothing approach, by which the smoothing parameter is adaptively selected at every time point and the heavy-tailedness of the process is considered. A complete theory addresses both issues. In our study, we demonstrate the implementation of the proposed method in volatility estimation and risk management given simulated and real data. Numerical results show the proposed method delivers accurate and sensitive estimates. |
| Keywords: | Exponential Smoothing, Spatial Aggregation. |
| JEL: | C14 C53 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2007-002&r=bec |
| By: | Manolis Galenianos (Department of Economics, Penn State University); Philipp Kircher (Department of Economics) |
| Abstract: | We consider a directed search model for a finite economy with heterogeneous firms in two informational environments. In the first, the productivity of all firms is publicly observed. We prove existence of equilibria in pure posting strategies by firms and show that wage dispersion is driven by fundamentals. That is, more productive firms post higher wages and wage dispersion is absent when firms are homogeneous. When firms have heterogeneous productivities the equilibrium is not constrained efficient. In the second environment the productivity level of each firm is private information. The main results extend to this environment: Equilibria in pure strategies exist; strategies are increasing in productivity; and constrained efficiency does not obtain. When the productivity level of all firms is drawn from the same distribution, symmetric equilibria exist and the ranking of wages equals that of productivity. |
| Keywords: | Directed Search, Labor Search, Market Power, Wage Differentials, Efficiency |
| JEL: | J31 J63 L13 |
| Date: | 2007–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:07-003&r=bec |
| By: | Siem Jan Koopman (Vrije Universiteit Amsterdam); Marius Ooms (Vrije Universiteit Amsterdam); Irma Hindrayanto (Vrije Universiteit Amsterdam) |
| Abstract: | This paper discusses identification, specification, estimation and forecasting for a general class of periodic unobserved components time series models with stochastic trend, seasonal and cycle components. Convenient state space formulations are introduced for exact maximum likelihood estimation, component estimation and forecasting. Identification issues are considered and a novel periodic version of the stochastic cycle component is presented. In the empirical illustration, the model is applied to postwar monthly US unemployment series and we discover a significantly periodic cycle. Furthermore, a comparison is made between the performance of the periodic unobserved components time series model and a periodic seasonal autoregressive integrated moving average model. Moreover, we introduce a new method to estimate the latter model. |
| Keywords: | Unobserved component models; state space methods; seasonal adjustment; time–varying parameters; forecasting |
| JEL: | C22 C51 E32 E37 |
| Date: | 2006–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20060101&r=bec |
| By: | William Dickens (The Brookings Institution); Lorenz Goette (University of Zurich); Erica L. Groshen (Federal Reserve Bank of New York, and IZA); Steinar Holden (University of Oslo, Center for Economic Studies-Information and Forschung Institute (CESifo)); Julian Messina (CSEF, University of Salerno, and European Central Bank); Mark Schweitzer (Federal Reserve Bank of Cleveland); Jarkko Turunen (European Central Bank); Melanie Ward (European Central Bank, and IZA) |
| Abstract: | How do the complex institutions involved in wage setting affect wage changes? The International Wage Flexibility Project provides new microeconomic evidence on how wages change for continuing workers. We analyze individuals’ earnings in 31 different data sets from sixteen countries, from which we obtain a total of 360 wage change distributions. We find a remarkable amount of variation in wage changes across workers. Wage changes have a notably non-normal distribution; they are tightly clustered around the median and also have many extreme values. Furthermore, nearly all countries show asymmetry in their wage distributions below the median. Indeed, we find evidence of both downward nominal and real wage rigidities. We also find that the extent of both these rigidities varies substantially across countries. Our results suggest that variations in the extent of union presence in wage bargaining play a role in explaining differing degrees of rigidities among countries. |
| Keywords: | Wage setting, Wage change distributions, Downward nominal wage rigidity, Downward real wage rigidity |
| JEL: | E3 J3 J5 |
| Date: | 2007–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:171&r=bec |