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on Business Economics |
| By: | Alexander Coad |
| Abstract: | This paper is an empirical test of the hypothesis that the appropriateness of different business strategies is conditional on the firm's distance to the industry frontier. We use data on four 2-digit high-tech manufacturing industries in the US over the period 1972-1999, and apply semi-parametric quantile regressions to investigate the contribution of firm behavior to market value at various points of the conditional distribution of Tobin's q. Among our results, we observe that innovative activity, measured in terms of R&D expenditure or patents, has a strong positive association with market value at the upper quantiles (corresponding to the leader firms) whereas the innovative efforts of laggard firms are valued significantly less. Laggard firms, we suggest, should instead achieve productivity growth through efficient exploitation of existing technologies and imitation of industry leaders. Employment growth in leader firms is encouraged whereas growth of backward firms is not as well received on the stock market. |
| Keywords: | Distance to frontier, Strategy, Market value, Innovation, Firm Growth Length 37 pages |
| JEL: | D21 L21 L25 O31 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:esi:evopap:2008-07&r=bec |
| By: | David Amdur (Department of Economics, Georgetown University) |
| Abstract: | Why are aggregate equity payouts and debt issued positively correlated over the business cycle in U.S. data? Standard real business cycle (RBC) models have few predictions about capital structure, because they assume that nancial markets are frictionless. On the other hand, the tradeo theory of capital structure argues that nancial frictions determine rms' optimal mix of debt and equity nancing. We develop an RBC model with nancial frictions and use it to explain some stylized facts about aggregate U.S. debt and equity ows. We document that debt issued and equity payouts are (i) positively correlated with output, (ii) positively correlated with investment, and (iii) positively correlated with each other. Our model can account for these stylized facts. We also calibrate the model to the periods 1952 { 1983 and 1984 { 2007 in order to explain the nding that real variables have become less volatile in the later subperiod, while nancial variables have become more volatile. By varying both the scale of technology shocks and the degree of nancial frictions, we are able to account for both results. Classification-JEL Codes: E32, G32, G35 |
| Keywords: | Debt-equity nance, RBC models, business cycle moderation, corporate nance, capital structure, tradeo theory, payout policy |
| Date: | 2008–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~08-08-03&r=bec |
| By: | Fernando Munoz-Bullon; Maria Jose Sanchez-Bueno |
| Abstract: | In the present study we explore the relationship between downsizing decisions and corporate financial performance after top management has decided to downsize. Our focus is on the financial consequences arising from the amount of downsizing and the use of disengagement incentives. For this purpose, we use a sample of downsizing announcements in the Spanish press from 1995 up to 2001. Although the results show that the amount of downsizing is not significantly related to post-downsizing profitability, the evidence provided supports the finding that the use of disengagement incentives (which motivate workers to leave the organization) is negatively related to firm performance. Our analysis helps to understand the role that strategic downsizing decisions play in explaining observed variance in the performance of downsized firms. Thus, it advances scholarly organizational research by reinforcing the concept that corporate performance is not only contingent on strategies, but also influenced by the means through which these strategies are implemented. |
| Keywords: | Downsizing, Disengagement incentives, Corporate performance, Spanish labour market |
| JEL: | J21 J65 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wbrepe:wb082906&r=bec |
| By: | Glazer, Amihai (University of California, Irvine); Kanniainen, Vesa (University of Helsinki); Poutvaara, Panu (University of Helsinki) |
| Abstract: | This paper develops a theory of consumer boycotts. Some consumers care not only about the products they buy but also about whether the firm behaves ethically. Other consumers do not care about the behavior of the firm but yet may like to give the impression of being ethical consumers. Consequently, to affect a firm’s ethical behavior, moral consumers refuse to buy from an unethical firm. Consumers who do not care about ethical behavior may join the boycott to (falsely) signal that they do care. In the firm’s choice between ethical and unethical behavior, the optimality of mixed and pure strategies depends on the cost of behaving ethically. In particular, when the cost is (relatively) low, ethical behavior arises from a prisoners’ dilemma as the firm’s optimal strategy. |
| Keywords: | firm’s ethical code, consumer morality, boycotts |
| JEL: | M14 D43 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3498&r=bec |
| By: | Goodall, Amanda H. (University of Warwick); Kahn, Lawrence M. (Cornell University); Oswald, Andrew J. (University of Warwick) |
| Abstract: | Why do some leaders succeed while others fail? This question is important, but its complexity makes it hard to study systematically. We examine an industry in which there are well-defined objectives, small teams, and exact measures of leaders’ characteristics. We show that a strong predictor of a leader’s success in year T is that person’s own level of attainment, in the underlying activity, in approximately year T-20. Our data come from 15,000 professional basketball games. The effect on team performance of the coach’s ‘expert knowledge’ is large and is discernible in the data within 12 months of his being hired. |
| Keywords: | organizational performance, firms, leadership, fixed-effects, productivity |
| JEL: | J24 M51 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3583&r=bec |
| By: | Sandrine Levasseur (Observatoire Français des Conjonctures Économiques) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0811&r=bec |
| By: | Martynova, M.; Renneboog, L.D.R. (Tilburg University, Tilburg Law and Economics Center) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2008008&r=bec |
| By: | Jordi Gali; Luca Gambetti |
| Abstract: | The remarkable decline in macroeconomic volatility experienced by the U.S. economy since the mid-80s (the so-called Great Moderation) has been accompanied by large changes in the patterns of comovements among output, hours and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, our findings point to (i) an increase in the volatility of hours relative to output, (ii) a shrinking contribution of non-technology shocks to output volatility, and (iii) a change in the cyclical response of labor productivity to those shocks. That evidence suggests a more complex picture than that associated with "good luck" explanations of the Great Moderation. |
| JEL: | E32 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14171&r=bec |
| By: | Becchetti , Leonardo (Faculty of Economics, University of Rome "Tor Vergata"); Castelli , Annalisa (Faculty of Economics, University of Rome "Tor Vergata"); Hasan, Iftekhar (Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, NY 12180-3590 and Bank of Finland Research) |
| Abstract: | The controversy over whether investment-cash flow sensitivity is a good indicator of financing constraints is still unresolved. We tackle it from several different angles and cross-validate our analysis with both balance sheet and qualitative data on self-declared credit rationing and financing constraints. Our qualitative information shows that (self-declared) credit rationing is (weakly) related to both traditional a priori factors – such as firm size, age and location – and lenders’ rational decisions based on their credit risk models. We use our qualitative information on firms that were denied credit to provide evidence relevant to the investment-cash flow sensitivity debate. Our results show that self-declared credit rationing significantly discriminates between firms that do and do not have such sensitivity, whereas a priori criteria do not. The same result does not apply when we consider the wider group of financially constrained firms (which do not seem to have a higher investment-cash flow sensitivity), which supports the more recent empirical evidence in this direction. |
| Keywords: | financing constraints; credit rationing; investment/cash flow sensitivity |
| JEL: | D92 G21 |
| Date: | 2008–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_015&r=bec |
| By: | Goergen, M.; Renneboog, L.D.R. (Tilburg University, Tilburg Law and Economics Center) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2008015&r=bec |
| By: | Allen Berger; Robert DeYoung; Mark Flannery; David Lee; Ozde Oztekin |
| Abstract: | Large banking organizations in the U.S. hold significantly more equity capital than the minimum required by bank regulators. This capital cushion has built up during a period of unusual profitability for the banking system, leading some observers to argue that the capital merely reflects recent profits. Others contend that the banks deliberately choose target capital levels based on their risk exposures and their counterparties’ sensitivities to default risk. In either case, the existence of “excess” capital makes it difficult to observe how banks manage their capital levels, particularly in response to regulatory changes (such as Basel II). We propose several hypotheses to explain this “excess” capital, and test these hypotheses using annual panel data for large, publicly traded U.S. bank holding companies (BHCs) from 1992 through 2006, and an innovative partial adjustment approach that allows both the target capital ratios and the speed of adjustment toward those targets to vary with firm-specific characteristics. We find evidence to suggest that large BHCs actively managed their capital ratios during our sample period. Our tests suggest that large BHCs choose target capital levels substantially above well-capitalized regulatory minima; that these targets increase with BHC risk but decrease with BHC size; that BHCs adjust toward these targets relatively quickly; and that adjustment speeds are faster for poorly capitalized BHCs, but slower (ceteris paribus) for BHCs under severe regulatory pressure. |
| Keywords: | Banks and banking ; Capital |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp08-01&r=bec |
| By: | Caliendo, Marco (IZA); Fossen, Frank M. (DIW Berlin); Kritikos, Alexander S. (Hanseatic University Rostock) |
| Abstract: | Risk attitudes have an impact on not only the decision to become an entrepreneur but also the survival and failure rates of entrepreneurs. Whereas recent research underpins the theoretical proposition of a positive correlation between risk attitudes and the decision to become an entrepreneur, the effects on survival are not as straightforward. Psychological research posits an inverse U-shaped relationship between risk attitudes and entrepreneurial survival. On the basis of recent waves of the German Socio-Economic Panel (SOEP), we examine the extent to which risk attitudes influence survival rates of entrepreneurs. The empirical results confirm that persons whose risk attitudes are in the medium range survive significantly longer as entrepreneurs than do persons with particularly low or high risks. |
| Keywords: | entrepreneurship, risk attitudes, survival and failure |
| JEL: | D81 J23 M13 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3525&r=bec |
| By: | Jonathan Witmer |
| Abstract: | This paper calculates an implied cost of equity for 19 developed countries from 1991 to 2006. During this period, there has been a decline in the cost of equity of about 10-15 bps per year, which can be partially attributed to declining government yields and declining inflation. Analyst forecast inaccuracy, a proxy for firm-level earnings opacity, is positively related to the cost of equity. If this variable captures differences in disclosure across firms, then improvements in disclosure regulation may benefit firms by lowering their cost of equity. I also include countrylevel variables that measure disclosure requirements, director liability, and the ability for shareholders to sue directors. Higher levels of these measures are associated with a lower cost of equity. Previous studies [e.g., Hail and Leuz (2006a)] have found a similar relation, but my study is unique in that it uses a different measure of investor protection, which may better reflect regulatory differences across countries, and it shows this relation holds for developed countries. After controlling for the characteristics of firms that analysts choose to cover in each country, differences in the properties of analyst forecasts across countries, and differences in accounting standards across countries, Canada’s cost of equity is statistically different from a handful of countries and is about 20 to 40 bps higher than that of the United States. Lowering Canadian firms' cost of equity by this amount would have large economic benefits given the size of Canada's capital markets. |
| Keywords: | Financial markets; International topics |
| JEL: | G30 G38 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-21&r=bec |
| By: | Koskela, Erkki (University of Helsinki); Schöb, Ronnie (Free University of Berlin) |
| Abstract: | This paper shows that outsourcing of parts of workforce in unionized firms leads to wage moderation both in the case of strategic and flexible outsourcing and as long as the share of the outsourced workforce is not too large, this wage-moderation effect on domestic employment outweighs the direct substitution effect so that domestic employment increases in unionized firms as outsourcing costs fall. With respect the impact of labor tax reforms that are well-established in the literature: changes in the wage tax rate, the tax exemption and the unemployment benefit payments affect domestic wage setting in the same way as in the absence of outsourcing. Furthermore, increasing the degree of tax progression by keeping the relative tax burden per worker constant continues to be good for employment. However, except for low outsourcing activities, the impact of these policy measures will become smaller as outsourcing costs fall. |
| Keywords: | outsourcing, union wage-setting, employment, labor tax reform |
| JEL: | J41 J51 H22 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3566&r=bec |