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on Business Economics |
| By: | Fahlenbrach, Rudiger (Ohio State U) |
| Abstract: | I analyze the role of executive compensation in corporate governance. As proxies for corporate governance, I use board size, board independence, CEO-chair duality, institutional ownership concentration, CEO tenure, and an index of shareholder rights. The results from a broad cross-section of large U.S. public firms are inconsistent with recent claims that entrenched managers design their own compensation contracts. The interactions of the corporate governance mechanisms with total pay-for-performance and excess compensation can be explained by governance substitution. If a firm has generally weaker governance, the compensation contract helps better align the interests of shareholders and the CEO. |
| JEL: | G32 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-5&r=bec |
| By: | Fahlenbrach, Rudiger (Ohio State U); Low, Angie (Nanyang Technological U); Stulz, Rene (Ohio State U) |
| Abstract: | We examine the determinants of appointments of outside CEOs to boards and how these appointments impact the appointing companies. We find that CEOs are most likely to join boards of large established firms that are geographically close, pursue similar financial and investment policies, and have comparable governance mechanisms to their own firms. It is also more likely that CEOs join firms with low insider ownership and firms with boards that already have other CEO directors. Except for the case of board interlocks, there is no evidence supporting the view that CEO directors have any impact on the appointing firm during their tenure, either positively or negatively. Appointments of CEO directors do not have a significant impact on the appointing firm’s operating performance, its decision-making, the compensation of its CEO, or on the monitoring of management by the board. However, operating performance drops significantly for CEO director appointments when the CEO of the appointing firm already sits on the board of the appointee’s firm. |
| JEL: | G30 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-10&r=bec |
| By: | Cronqvist, Henrik (Ohio State U); Heyman, Fredrik (Research Institute of Industrial Economics); Nilsson, Mattias (U of Colorado, Boulder); Svaleryd, Helena (Research Institute of Industrial Economics); Vlachos, Jonas (Stockholm U) |
| Abstract: | Analyzing a large panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers’ pay. CEOs with more control pay their workers more, but financial incentives through ownership of cash flow rights mitigate such behavior. These findings do not seem to be driven by productivity differences, and are not affected by a series of robustness tests. Moreover, we find that entrenched CEOs pay more to (i) workers associated with aggressive unions; (ii) workers closer to the CEO in the corporate hierarchy, such as CFOs, division vice-presidents and other top-executives; and (iii) workers geographically closer to the corporate headquarters. This evidence is consistent with entrenched CEOs paying higher wages to enjoy non-pecuniary private benefits such as lower effort wage bargaining and improved social relations with certain workers. More generally, our results show that managerial ownership and corporate governance can play an important role for labor market outcomes. |
| JEL: | G32 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-7&r=bec |
| By: | Fahlenbrach, Rudiger (Ohio State U); Stulz, Rene |
| Abstract: | From 1988 to 2003, the average change in managerial ownership is significantly negative every year for American firms. We find that managers are more likely to significantly decrease their ownership when their firms are performing well, but not more likely to increase their ownership when their firms have poor performance. Because investors learn about the total change in managerial ownership with a lag, changes in Tobin’s q in a period can be affected by changes in managerial ownership in the previous period. In an efficient market, it is unlikely that changes in managerial ownership in one period are caused by future changes in q. When controlling for past stock returns, we find that large increases in managerial ownership increase q. This result is driven by increases in shares held by officers, while increases in shares held by directors appear unrelated to changes in firm value. There is no evidence that large decreases in ownership have an adverse impact on firm value. We argue that our evidence cannot be wholly explained by existing theories and propose a managerial discretion theory of ownership consistent with our evidence. |
| JEL: | G30 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-12&r=bec |
| By: | Cronqvist, Henrik (Ohio State U); Fahlenbrach, Rudiger |
| Abstract: | We develop an empirical framework that allows us to analyze the effects of heterogeneity across large shareholders, and we construct a new blockholder-firm panel data set in which we can track all unique blockholders among large U.S. public firms. We find statistically significant and economically important blockholder fixed effects in investment, financial, and executive compensation policies. This evidence suggests that blockholders vary in their beliefs, skills, or preferences. Different large shareholders have distinct investment and governance styles: they differ in their approaches to corporate investment and growth, their appetites for financial leverage, and their attitudes towards CEO pay. We also find blockholder fixed effects in firm performance measures, and differences in style are systematically related to firm performance differences. Our results are consistent with influence for activist, pension fund, corporate, individual, and private equity blockholders, but consistent with systematic selection for mutual funds. Finally, we analyze sources of the heterogeneity, and find that blockholders with a larger block size, board membership, direct management involvement as officers, or with a single decision maker are associated with larger effects on corporate policies and firm performance. |
| JEL: | G31 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2006-14&r=bec |
| By: | Jang Ping Thia |
| Abstract: | This paper presents a model with monopolistic competition, productively heterogeneousfirms, and business cycle aggregate shocks. With firm-specific productive heterogeneity,weaker firms quit when faced with a negative aggregate shock. Consequently, trade does notalways increase firm-level aggregate productivity as negative shocks on the home market canbe compensated for by positive shocks elsewhere. Weaker firms, which would otherwise quitin autarky, can continue to operate by exporting. Despite this, trade can still improve welfarefor risk-averse consumers by reducing aggregate price fluctuations. |
| Keywords: | Firm Heterogeneity, Globalisation, Business Cycles |
| JEL: | F4 F12 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0883&r=bec |
| By: | Richard Freeman |
| Abstract: | This paper summarizes new evidence from the "Shared Capitalism" Project on the extent towhich workers' earnings depend on the performance of their firm or work group in the USand advanced European countries and on the impact of sharing arrangements on economicbehavior. The evidence shows that: 1) a large and growing proportion of workers are coveredby shared capitalism through worker profit-sharing, bonuses, or worker ownership of shares;2) outcomes for workers and firms are higher under shared capitalism than under other workand pay arrangements; and 3) that worker co-monitoring helps overcome the free riderproblem that arises when part of workers pay depends on the productivity and effort of allworkers. |
| Keywords: | Profit sharing, efficiency wages |
| JEL: | J41 J24 J33 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0882&r=bec |
| By: | Alex Bryson; Michael White |
| Abstract: | Using nationally-representative linked employer-employee data for Britain this paper considerswhether employers are able to influence the organizational commitment (OC) of their employeesthrough the practices they deploy. We examine the association between OC and two broad groups ofHRM practices emphasised in two different strands of the literature, namely "High-PerformanceWorkplace Practices" (HPWPs) and practices associated with "Perceived Organizational Support"(POS). We consider their associations with mean workplace-level OC and individual employees' OC.Although employers may be able to engender greater OC on the part of their employees, the practicesthat do so are not those emphasized in the HPWP literature, with the exception of consultation and theinvolvement of employees in decision-taking. POS practices fare a little better but, again, the findingsare far from unequivocal. Furthermore, those practices that are 'effective' in engendering higher OCsuch as tolerance of absence, recruiting on 'values' and allowing employees to make decisions, tendto have a fairly low incidence in British workplaces. There is, however, one finding which chimeswith the ideas underpinning the HPWP literature, namely that there are returns to the use of practicesin combination. Analyses of both mean workplace-level OC and individual employee OC find anindependent positive association between OC and the deployment of multiple practices incombination. This evidence is consistent with practices having synergies, as emphasised in some ofthe HPWP literature. |
| Keywords: | high performance, organizational commitment, perceived organizational support |
| JEL: | J28 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0881&r=bec |
| By: | Leonard J. Mirman; Benoit Dostie (IEA, HEC Montréal); Rajshri Jayaraman |
| Abstract: | Using a large longitudinal, nationally representative workplace-level dataset, we explore the productivity gains associated with computer use and organizational redesign. The empirical strategy involves the estimation of a production function, augmented to account for technology use and organizational design, correcting for unobserved heterogeneity. We find large returns associated with computer use. We also find that computer use and organizational redesign may be complements or substitutes in production, and that the productivity gains associated with organizational redesign are industry-specific. |
| JEL: | D20 L20 M54 O33 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:0806&r=bec |
| By: | Dionne, Georges (HEC Montreal); Dostie, Benoit (HEC Montreal) |
| Abstract: | Using linked employer-employee data from the Canadian Workplace and Employee Survey 1999-2004, we provide new evidence on how the cost of absence affects labor supply decisions. We use a particular feature of the data by which total absences are divided into three separate categories: sick paid days, other paid days and unpaid days. This division introduces variations in the way workers are compensated for absence (the cost of absence) and allows us to estimate more precisely how variations in such costs affect absenteeism decisions. We find an absence elasticity of -0.37. We also find unobserved heterogeneity to play different roles for workers and workplaces: some workers are more frequently absent whatever the reason, but paid and unpaid leaves are negatively correlated at the workplace level. |
| Keywords: | absenteeism, linked employer-employee data, unobserved heterogeneity, count data model, correlated random effects |
| JEL: | J22 M52 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3642&r=bec |
| By: | Janice Eberly; Sergio Rebelo; Nicolas Vincent (IEA, HEC Montréal) |
| Abstract: | Which investment model best fits firm-level data? To answer this question we estimate alternative models using Compustat data. Surprisingly, the two best-performing specifications are based on Hayashi’s (1982) model. This model’s foremost implication, that Q is a sufficient statistic for determining a firm’s investment decision, has been often rejected because cash-flow and lagged-investment effects are present in investment regressions. However, we find that these regression are ineffectual for evaluating model performance. So, forget what investment regressions tell you. Models based on Hayashi (1982) provide a very good description of investment behavior at the firm level. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:0803&r=bec |
| By: | Strobl, Eric (Ecole Polytechnique, Paris); Walsh, Frank (University College Dublin) |
| Abstract: | We model a competitive labour market where firms choose combinations of workers and hours per worker to produce output. If one assumes that the scale of production has no impact on hours per worker, then the change in the number of workers and hours per worker resulting from a minimum wage are inversely related. We demonstrate that total hours worked at the firm may rise for plausible parameter values if there are small fixed costs to hiring workers. Thus, in contrast to the conventional view, we show that the effect of minimum wages on employment is ambiguous. |
| Keywords: | minimum wages, hours, employment |
| JEL: | J22 J38 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3643&r=bec |
| By: | Kim, Sung Min (Loyola U Chicago); Mahoney, Joseph T. (U of Illinois at Urbana-Champaign) |
| Abstract: | This paper examines the effects of co-specialized information technology (IT) on the growth and performance of IT-investing firms as a driver of competitive advantages. By adopting resource-based and dynamic-capability perspectives on firm-specific IT systems, we first identify the mechanisms of resource co-specialization strategy in the process of IT implementation as organizational restructuring and adaptive customization of IT applications into the context of adopting firms. Then, we examine impacts of the resulting co-specialized IT system on organizational performance. Testable hypotheses are developed to investigate how the co-specialization mechanisms of organizational restructuring and IT customization influence firm growth--in terms of the number of employees, value-added, and revenue. We also examine how co-specialization mechanisms of organizational restructuring and IT customization influence project outcomes -- in terms of project referenceability and license extension measures. These empirical tests control for other contextual factors and the endogeneity of decision variables. Using a unique panel data on 334 firms adopting Advanced Planning and Scheduling (APS)applications, we find strong empirical support for the co-specialization hypothesis that strategic choices of using IT co-specialization mechanisms are positively associated with firm growth and with superior project outcomes in the sample firms. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:illbus:08-0107&r=bec |
| By: | Niels Bosma; Erik Stam; Veronique Schutjens |
| Abstract: | Do processes of firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, measured by Total Factor Productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988-2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities. |
| Keywords: | entrepreneurship, entry & exit, turbulence, creative destruction, regional competitiveness, total factor productivity |
| JEL: | L10 M13 O18 R11 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:egu:wpaper:0813&r=bec |
| By: | Jenter, Dirk (Stanford U); Kanaan, Fadi (Massachusetts Institute of Technology) |
| Abstract: | This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performance before deciding on CEO retention. Using a new hand-collected sample of 1,627 CEO turnovers from 1993 to 2001, we document that CEOs are significantly more likely to be dismissed from their jobs after bad industry or bad market performance. A decline in the industry component of firm performance from its 75th to its 25th percentile increases the probability of a forced CEO turnover by approximately 50 percent. This result is at odds with the prior empirical literature, which showed that corporate boards filter exogenous shocks from CEO dismissal decisions in samples from the 1970s and 1980s. Our findings suggest that the standard CEO turnover model is too simple to capture the empirical relation between performance and forced CEO turnovers, and we evaluate several extensions to the standard model. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:1992&r=bec |
| By: | Buch, Claudia M.; Döpke, Jörg; Stahn, Kerstin |
| Abstract: | Aggregated output in industrialized countries has become less volatile over the past decades. Whether this “Great Moderation” can be found in firm level data as well remains disputed. We study the evolution of firm level output volatility using a balanced panel dataset on German firms that covers 35 years (1971-2005) and about 1,500 firms per year. In contrast to earlier work using firm level data, we use the multifactor residual model proposed by Pesaran (2006) to isolate the idiosyncratic component of firms’ real sales growth from macroeconomic developments. Our paper has three main findings. First, time trends in unconditional firm level and aggregated output volatility in Germany are similar. There has been a long-run downward trend, which was interrupted by the unification period. Second, the conditional, idiosyncratic firm level volatility does not exhibit a downward trend. If anything idiosyncratic volatility has been on a slow trend rise. Third, we find evidence of a positive link between growth and volatility at the firm level. |
| Keywords: | firm level volatility, Great Moderation, multifactor residual model |
| JEL: | D21 E32 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:7363&r=bec |
| By: | Alex Bryson; Rafael Gomez; P Willman |
| Abstract: | Using nationally representative workplace data for Britain we show that over the last quartercentury union voice - especially union-only voice - has been associated with poorer climate,more industrial action, poorer financial performance and poorer labour productivity than nonunionvoice and, in particular, direct voice. On the other hand, union-based voice regimeshave experienced lower quit rates than non-union and "no voice" regimes, as theory predicts.Over that time, while the workplace incidence of voice has remained constant, with roughly 8workplaces out of 10 providing some form of voice, there has been a big shift from union tonon-union voice, particularly direct employer-made voice. Thus employers are preparedgenerally to bear the costs of voice provision and manifest a reluctance to engage with theirworkforce without voice mechanisms in place. The associations between non-union voicemechanisms and desirable workplace outcomes suggest that these costs may be lower thanthe benefits voice generates. |
| Keywords: | worker voice, trade unions, quits, employment relations, labour productivity,financial performance, industrial action |
| JEL: | J5 J51 J52 J53 L25 M54 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0884&r=bec |
| By: | Joseph R. Blasi; Douglas L. Kruse; Harry M. Markowitz |
| Abstract: | Some analysts view risk as the Achilles Heel of employee ownership and to some extent variable pay plans such as profit sharing and gainsharing. Workers in such "shared capitalist" firms may invest too much of their wealth in the firm, contrary to the principle of diversification. This paper addresses whether the risk in shared capitalism makes it unwise for most workers or whether the risk can be managed to limit much of the loss of utility from holding the extra risk. We create an index of financial security based on worker pay and wealth, and find that workers who feel financially insecure exhibit fewer of the positive outcomes associated with shared capitalism, and are less interested than other workers in receiving more employee ownership or even more profit sharing in their workplaces. This response is substantially lessened, however, when accounting for worker empowerment, good employee relations, and high-performance work bundles that appear to buffer worker response toward risk and increase interest in shared capitalism plans. We also discuss portfolio theory which suggests that any risky investment -- including stock in one's company -- can be part of an efficient portfolio as long as the overall portfolio is properly diversified. We show that given estimates of risk aversion parameters, workers could prudently hold reasonable proportions of their assets in employee stock ownership of their firm with only a modest loss in utility due to risk. A good strategy for firms is to personalize individual portfolios on the basis of worker characteristics and preferences, developing investment strategies that would diversify each worker's entire portfolio in ways consistent with individual risk preferences. |
| JEL: | D81 J33 J54 L23 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14229&r=bec |
| By: | Montgomery, David B. (Stanford U); Isobe, Takehiko (Keio U); Makino, Shige (Chinese U of Hong Kong); Lee, Kong Chian |
| Abstract: | The purpose of this study is to investigate the relationship between technological capabilities and firm performance. We divide technological capabilities into two types – refinement capability, which involves the improvement of the existing asset portfolio, and reconfiguration capability, which involves the restructuring of the asset portfolio through the integration of new assets. The results of an analysis of a sample of 302 small and medium-sized manufacturing firms in Japan suggest that refinement capability relates more positively to operational efficiency than does reconfiguration capability, and that reconfiguration capability relates more positively to strategic performance than does refinement capability. The results also suggest that firms with superior refinement capability tend to possess superior reconfiguration capability. Our findings show that both external and internal factors, such as technological volatility, inter-firm collaboration, and firm age and size, are significantly associated with the level of refinement and reconfiguration capabilities possessed by a firm. |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:1980&r=bec |
| By: | Kredler, Matthias |
| Abstract: | I combine an infinite-horizon version of Ben-Porath’s (1967) model of human-capital accumulation with a vintage structure as in Chari & Hopenhayn (1991). Different skill levelsinside a vintage are complementary in production. Vintage-specific human capital is accumulated based on workers’ optimal strategies and is lost when the technology is phased out by an endogenous firm decision. I establish equivalence between competitive equilibrium and a planner’s problem. It is shown that returns to skill are highest in young vintages. Accelerated technological change shortens the life cycle of a technology and speeds up obsolescence; the premium on tenure rises because more workers are concentrated in young technologies with high skill premia. A calibration exercise comparing two steady states shows that the model quantitatively accounts for the changes in the experience premium, earnings dispersion and earnings turbulence in German data. |
| Keywords: | Vintage human capital; age-earnings profiles; partial differential equations |
| JEL: | E24 C63 J01 |
| Date: | 2008–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10200&r=bec |
| By: | Anni Nevalainen |
| Abstract: | ABSTRACT : This paper investigates the connection between firm entry and exit and labour productivity growth. The study has its theoretical foundations in modern Schumpeterian growth theory, distance to frontier model and vintage capital models. The importance of productivity enhancing restructuring has been increasingly acknowledged and all these theories depict the productivity enhancing effects that external restructuring - in particular firm entry and exit – may have. Despite the vast theoretical discussion there is only a little empirical research on the subject. Thus, this study aims at contributing to the existing empirical literature by utilizing panel data that contain information on all manufacturing subsectors from eight EU member states between 1997 and 2004. Empirical analysis is conducted with fixed effects panel regression. It is noted that firm turnover, especially firm entry enhances productivity growth, but the effects appear with a lag. Productivity enhancing effects of firm entry are the strongest three years after the initial entry. The effects of firm exit on labour productivity growth are also positive but more modest than the effects of firm entry. Results of the analysis suggest that the population of firm entrants is extremely heterogeneous. |
| Keywords: | labour productivity, manufacturing, firm entry, firm exit, modern Schumpeterian growth theory |
| JEL: | L6 O4 |
| Date: | 2008–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:1152&r=bec |
| By: | Ross Levine; Alexey Levkov; Yona Rubinstein |
| Abstract: | This paper assesses the impact of competition on racial discrimination. The dismantling of inter- and intrastate bank restrictions by U.S. states from the mid-1970s to the mid-1990s reduced financial market imperfections and lowered entry barriers facing nonfinancial firms. We use bank deregulation to identify an exogenous intensification of competition in the nonfinancial sector, and evaluate its impact on the racial wage gap, which is that component of the black-white wage differential unexplained by Mincerian characteristics. We find that bank deregulation reduced the racial wage gap by spurring the entry of nonfinancial firms. Consistent with theory, the impact of competition on the wage gap is particularly large in states with a comparatively high degree of racial bias, where competition-enhancing bank deregulation eliminated between 20 and 30 percent of the racial wage gap. |
| JEL: | D3 D43 G21 G28 J31 J7 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14273&r=bec |
| By: | Goto, Mika (Central Research Institute of Electric Power Industry); Low, Angie (Nanyang Technological U); Makhija, Anil K. (Ohio State U) |
| Abstract: | We examine the real effects of parent firm diversification on their electric utility operating companies over the period, 1990-2003. Since electric utility operating companies produce a single homogenous product, we can better measure their Total Factor Productivity and make valid comparisons of productivity across firms. We find that, consistent with a diversification discount, greater parent diversification is associated with lower productivity across electric utility operating companies. However, the productivity of the electric utility operating companies improves with greater parent diversification over time. Diversification appears to provide an alternative channel to divert investment dollars away from overinvestment in the core electric business. Finally, we find that the improvement in the productivity of the electric utility operating companies from greater parent firm diversification over time is limited to financially constrained firms. This suggests that when managers have no resources to waste, it is more likely that any diversification activities are carefully planned and undertaken for strategic purposes that can help to increase productivity of the core business. |
| JEL: | L25 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-3&r=bec |
| By: | TOMIURA Eiichi; ITO Banri; WAKASUGI Ryuhei |
| Abstract: | In offshoring, a firm chooses outsourcing to independent suppliers or in-sourcing from their FDI subsidiaries. This paper empirically examines how the factor intensity is related with the firmfs offshore make-or-buy decision based on the Japanese direct firm-level data of offshoring across all manufacturing industries. This paper confirms that in-sourcing firms tend to be substantially more capital-intensive than outsourcing firms, even if firm size or industry is controlled for. Among the firms offshoring to China compared with North, firms with wider range of capital-labor ratio choose to integrate but relatively capital-intensive firms are active in outsourcing. |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:08029&r=bec |
| By: | Julio, Brandon (Londong Business School); Kim, Woojin (Korea U); Weisbach, Michael S. (Ohio State U) |
| Abstract: | Publicly-traded debt securities differ on a number of dimensions, including quality, maturity, seniority, security, and convertibility. Finance research has provided a number of theories as to why firms should issue debt with different features; yet, there is very little empirical work testing these theories. We consider a sample of 14,867 debt issues in the U.S. between 1971 and 2004. Our goal is to test the implications of these theories, and, more generally, to establish a set of stylized facts regarding the circumstances under which firms issue different types of debt. Our results suggest that there are three main types of factors that affect the structure of debt issues: First, firm-specific factors such as leverage, growth opportunities and cash holdings are related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide factors, in particular the state of the macroeconomy, affect the quality distribution of securities offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide factors, project specific factors appear to influence the types of securities that are issued. Consistent with commonly stated 'maturity-matching' arguments, long-term, nonconvertible bonds are more likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more likely to finance investment in R&D. |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-11&r=bec |
| By: | Wruck, Karen H. (Ohio State U); Wu, YiLin (National Tsing Hua University) |
| Abstract: | Utilizing a large sample with unique data gathered directly from private placement contracts, we address two important questions that remain unresolved in the literature. First, what types of relationships connect private placement investors and issuers, and how do these relationships affect issuer performance, deal structure and corporate governance? Second, do relationships between issuers and investors, or a lack thereof, shed light on the performance “puzzle” associated with private placements? Our primary finding is a strong, positive association between new relationships formed around the time of a placement and issuer performance at announcement and post-placement. The vast majority of new relationships are governance-related, so our findings are consistent with increased monitoring and/or stronger governance creating value for investors. We also find that relationship investors are more likely to gain governance influence than other investors. Issuers in “new economy” industries and with high specific risk grant investors more governance influence than other issuers, suggesting that access to governance is especially valuable when information asymmetries and/or specific investments are important. |
| JEL: | G32 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-18&r=bec |
| By: | Sarah Brown; Karl Taylor (Department of Economics, The University of Sheffield) |
| Abstract: | Using individual level panel data, we analyse the divergence between an unemployed individual´s reservation wage, as well as their expected wage, and their predicted market wage, focusing upon how job search activities influence the potential divergences. In addition, using propensity score matching techniques, we explore the implications of such divergences for future employment and wages. Our findings, which are consistent with job search theory, suggest that reservation wages (and expected wages) that are high relative to the predicted market wage influence both future employment and future wages. |
| Keywords: | Employment; Job Search; Reservation Wages |
| JEL: | J13 J24 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2008008&r=bec |
| By: | Francis X. Diebold (Department of Economics, University of Pennsylvania and NBER); Kamil Yilmaz (Department of Economics, Koc University) |
| Abstract: | Notwithstanding its impressive contributions to empirical financial economics, there remains a significant gap in the volatility literature, namely its relative neglect of the connection between macroeconomic fundamentals and asset return volatility. We progress by analyzing a broad international cross section of stock markets covering approximately forty countries. We find a clear link between macroeconomic fundamentals and stock market volatilities, with volatile fundamentals translating into volatile stock markets. |
| Keywords: | Financial market, equity market, asset return, risk, variance, asset pricing |
| JEL: | G1 E0 |
| Date: | 2008–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:08-031&r=bec |
| By: | Roger Best (University of Central Missouri) |
| Abstract: | In this research, I explore whether announcements of CEO confidence contain new information for investors. Information asymmetry implies that insiders such as Chief Executive Officers should have better information regarding the firm prospects than the average stock market participant. Thus, announcements of CEO perceptions may provide valuable insights to investors. Utilizing The Conference Board quarterly measures of CEO confidence and CEO six-month economic outlook, I find significant correlations between changes in CEO outlook and the announcement date returns on three major stock market indexes. These correlations are larger and more significant for indexes of smaller companies, implying announcements of CEO confidence provide unique and valuable information to stock markets. |
| Keywords: | CEO Confidence, Consumer Confidence, Stock Returns, Asymmetric Information |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:umn:wpaper:0808&r=bec |
| By: | Doidge, Craig (U of Toronto); Karolyi, G. Andrew (Ohio State U); Stulz, Rene |
| Abstract: | On March 21, 2007, the Securities and Exchange Commission (SEC) adopted Exchange Act Rule 12h-6 which makes it easier for foreign private issuers to deregister and terminate the reporting obligations associated with a listing on a major U.S. exchange. We examine the characteristics of 59 firms that immediately announced they would deregister under the new rules, their potential motivations for doing so, as well as the economic consequences of their decisions. We find that these firms experienced significantly slower growth and lower stock returns than other U.S. exchange-listed foreign firms in the years preceding the decision. There is weak evidence that firms experience negative stock returns when they announce deregistration and stronger evidence that the stock-price reaction is worse for firms with higher growth. When we examine stock-price reactions around events associated with the passage of the Sarbanes-Oxley Act (SOX), we find negative average stock-price reactions with some specifications but not others. Further, there is no evidence that deregistering firms were affected more negatively by SOX than foreign-listed firms that did not deregister. Our evidence supports the hypothesis that foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and that, when those opportunities disappear, a listing becomes less valuable to corporate insiders so that firms are more likely to deregister and go home. |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-14&r=bec |
| By: | Thomas Bolli (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Mathias Zurlinden (Swiss National Bank, Economic Analysis, Zurich) |
| Abstract: | The standard economy-wide indices of labor quality (or human capital) largely ignore the role of unobservable worker characteristics. In this paper, we develop a methodology for identifying the contri- butions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem. Based on data for Switzerland over the period 1991-2006, we find that a large part of growth in labor quality is caused by shifts in the distribution of un- observable characteristics. The contributions to growth attributed to education and age are corrected downwards, if unobservable worker characteristics are taken into account. Yet the standard indices of la- bor quality appear to be robust to this extension. |
| Keywords: | human capital, labor quality |
| JEL: | J24 J31 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:08-203&r=bec |
| By: | Baron, David P. (Stanford U); Harjoto, Maretno A. (Pepperdine U); Jo, Hoje (Santa Clara U) |
| Abstract: | This paper provides an empirical test of a theory that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure from government and social activist for improved social performance. A three-equation structural model is estimated for a large number of firms for 1996-2004. The estimates are statistically and economically significant and consistent with the theory. CFP as measured by Tobin’s q is increasing in CSP, indicating that it is rewarded by consumers, employees, or investors, and decreasing in social pressure. CSP is increasing in social pressure, indicating that social performance is responsive to social pressure which mitigates some of the negative effect of social pressure on CFP. CSP is also increasing in CFP, which is consistent with social performance being a perquisite for management. Social pressure is decreasing in CFP and increasing in CSP, which is consistent with social pressure being directed to soft targets that are likely to be responsive. The measures of CSP and social pressure are also disaggregated, and the relations among CFP, CSP, and social pressure are largely due to responsive CSP and social pressure arising from private politics. |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:1993&r=bec |
| By: | Constant, Amelie F. (DIW DC, Georgetown University and IZA) |
| Abstract: | In this paper I assert that the entrepreneurial spirit can also exist in salaried jobs. I study the determinants of wages and the labor market success of two kinds of entrepreneurial women in Germany – self-employed and salaried businesswomen – and investigate whether ethnicity is important in these challenging jobs. Employing data from the German Socioeconomic Panel I estimate selection adjusted wage regressions for both types of businesswomen by country of origin. I find that self-employment offers businesswomen a lucrative avenue with higher monetary rewards, albeit for a shorter spell. If salaried businesswomen went into self-employment, they would receive considerably higher wages and for at least 30 years. However, if self-employed businesswomen went into salaried jobs, their wages would decline, suggesting that it is the self-employment sector that offers better opportunities and monetary success. Self-employed women in Germany fare well and most importantly, success does not depend on their ethnicity. |
| Keywords: | businesswomen, entrepreneurship, self-employment, economics of minorities, immigrants wage differentials |
| JEL: | M13 J23 J15 J61 J31 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3644&r=bec |
| By: | Siebert, W. Stanley (University of Birmingham, UK); Zubanov, Nikolay (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | We study the impact of and reward to middle management ability using data from 245 stores of a nationwide retailer. The company scores six broad areas of management practice, the most important of which turns out to be "commercial awareness", where able managers raise labour productivity by 17% compared to less able. We show that the managers' incentive scheme is implicitly an insurance one, with managers taking a share in deviations of actual sales from expected. At the same time, abler managers do not receive higher pay all else equal, which implies that middle management ability is not fully tradable. |
| Keywords: | management, firm behaviour, business economics, productivity, compensation methods |
| JEL: | D21 J24 M20 J33 M52 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3645&r=bec |
| By: | Kim, Jongwook (Western Washington U); Mahoney, Joseph T. (U of Illinois at Urbana-Champaign) |
| Abstract: | This paper maintains that joining property rights theory and Austrian economics informs the dynamic capabilities approach by giving context to key constructs within this approach, particularly the nature of organizational processes and asset positions. By defining resources and capabilities as bundles of property rights, we can develop theory on how firms create, deploy, and renew those resources and capabilities. Developing, deploying and renewing capabilities involve a process of bundling and re-bundling resource combinations. Central to bundling resource combinations is the contracting process, which generates information that can lead to more efficient solutions achieved through bargaining and organizational innovation, which in turn leads to the discovery of new economic opportunities. In a world of positive transaction costs, the notion of the firm as a nexus of (complete) contracts is rightly discarded; rather, the firm is defined as a nexus of incomplete contracts, which allows for entrepreneurial alertness, creativity, and judgment under uncertainty. Thus, we maintain that the contracting process is a discovery process and entrepreneurial in nature, allowing firms to sense and seize new economic opportunities. Property rights theory enables a contractual process-oriented approach for how dynamic capabilities are developed, sustained and rejuvenated and in so doing intertwines firm boundary issues with the capabilities dimension of a strategic theory of the firm. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:illbus:08-0108&r=bec |
| By: | Fehr, Ernst (University of Zurich); Brown, Martin (Swiss National Bank); Zehnder, Christian (University of Zurich) |
| Abstract: | We study the impact of reputational incentives in markets characterized by moral hazard problems. Social preferences have been shown to enhance contract enforcement in these markets, while at the same time generating considerable wage and price rigidity. Reputation powerfully amplifies the positive effects of social preferences on contract enforcement by increasing contract efficiency substantially. This effect is, however, associated with a considerable bilateralisation of market interactions, suggesting that it may aggravate price rigidities. Surprisingly, reputation in fact weakens the wage and price rigidities arising from social preferences. Thus, in markets characterized by moral hazard, reputational incentives unambiguously increase mutually beneficial exchanges, reduce rents, and render markets more responsive to supply and demand shocks. |
| Keywords: | wage rigidity, price rigidity, relational contracts, reciprocity, reputation |
| JEL: | D82 J3 J41 E24 C9 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3655&r=bec |
| By: | Vereecke, A.; De Meyer, A.; Van Dierdonck, R. (Vlerick Leuven Gent Management School) |
| Abstract: | The strategic role of plants is an important decision variable in the design of international plant networks. The framework introduced by Ferdows in the 1990s offers an interesting typology, classifying plants according to their strategic role. Empirical research testing the framework showed its value as a tool for the analysis and assessment of the role of plants in such networks. This paper reports on a follow-up of this empirical study, ten years later. It shows that the typology has predictive value for the future perspectives of the plant. While most of the lead plants have survived, several off-shore and source plants, and some of the server and contributor plants have disappeared from the network. As such, the framework can be useful for plant managers whose objective is to safeguard the future of their plant, as well as for executives in headquarters, who design and redesign plant networks for future competitiveness. |
| Keywords: | international manufacturing, strategic role, survival |
| Date: | 2008–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2008-07&r=bec |
| By: | Alexander Muravyev (DIW - Berlin); Dorothea Schaefer (DIW - Berlin and Free University of Berlin); Oleksandr Talavera (Aberdeen Business School and Kyiv School of Economics) |
| Abstract: | This paper studies gender discrimination against entrepreneurs by financial institutions. Based on the cross-country Business Environment and Enterprise Performance Survey (BEEPS) our analysis suggests that, compared to male-managed counterparts, female-managed firms are less likely to obtain a bank loan. In addition, we find that female entrepreneurs are charged higher interest rates when loan applications are approved. There is also some evidence that the gender differences in access to financing vanish with the level of financial development, which is consistent with the Becker-type discrimination. The results of our analysis are robust to a number of specification checks. |
| Keywords: | Entrepreneurship, financial constraints, gender, discrimination |
| JEL: | G21 J16 L26 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:kse:dpaper:11&r=bec |
| By: | Arindrajit Dube; Richard Freeman |
| Abstract: | This paper examines the relationship between shared capitalist modes of pay and shared modes of decision-making via employee involvement and related committees and between them and measures of productivity and worker well-being in two data sets: the employee based Worker Participation and Representation Survey and the California Establishment Survey. It finds in both data sets that the forms of shared compensation are complementary in the sense that they are more likely to be found together than if firms chose them separately; that shared compensation systems are positively associated with shared decision-making; and that combining shared compensation systems and employee involvement has greater impacts on outcomes than each system by itself. |
| JEL: | J33 J54 L23 L25 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14272&r=bec |
| By: | François Rycx (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn); Ilan Tojerow (DULBEA, Université libre de Bruxelles, Brussels.); Daphné Valsamis (DULBEA, Université libre de Bruxelles, Brussels) |
| Abstract: | This study compares the structure and determinants of inter-industry wage differentials in Eastern and Western European countries on the basis of the 2002 European Structure of Earnings Survey. Findings show substantial differences in earnings across sectors in all countries, even when controlling for a wide range of employee, job and employer characteristics. The hierarchy of sectors in terms of wages appears to be quite similar in Eastern and Western European countries. In contrast, the dispersion of inter-industry wage differentials is found to fluctuate considerably across countries and to be strongly correlated with collective bargaining characteristics. |
| Keywords: | Inter-industry wage differentials, Collective bargaining, Europe, Matched employer-employee data. |
| JEL: | J31 J51 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:dul:wpaper:08-17rs&r=bec |
| By: | Monique Ebell |
| Abstract: | This paper considers a real business cycle model with search frictions in the labor market andlabor supply which is elastic along the extensive (participation) margin. Previous authorshave found that such models generate counterfactually procyclical unemployment and apositively-sloped Beveridge curve. This paper presents a calibrated model which does indeedgenerate countercyclical unemployment and a negatively-sloped Beveridge curve despite thepresence of a participation margin. |
| Keywords: | Unemployment, Business Cycles, Labor Force Participation |
| JEL: | E24 E32 J21 J64 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0873&r=bec |
| By: | Hany El Shamy (University of Surrey); Paul Temple (University of Surrey) |
| Abstract: | This paper considers the sources of technological change and productivity growth in the small firm sector of UK manufacturing over the period 1973- 2002, focusing on the mechanisms by which spillovers occur between the large firms which perform the bulk of R&D and smaller firms which are the recipients. It is argued that the current volume of domestic R&D generates profitable and high productivity opportunities for smaller firms. However this mechanism ignores the ways in which R&D also contributes to the more general knowledge base available to small firms as codified information which frequently takes the measurable form of industrial standards. A simple model of labour demand among small manufacturing is developed which employs two measures of technological activity intended to capture both these channels. A co-integrating relationship based upon an augmented labour demand equation is established for UK manufacturing, showing the relevance of both channels for the explanation of productivity growth in the small firm sector. |
| Keywords: | Key Words: Small firms; productivity; technological change; R&D; standards. |
| JEL: | J23 L25 L26 O32 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0708&r=bec |
| By: | Erel, Isil (Ohio State U) |
| Abstract: | Bank mergers will increase or decrease loan spreads, depending on whether the increased market power outweighs gains in operating efficiency. Using a proprietary loan-level data set for U.S. commercial banks, I find that, on average, mergers reduce loan spreads, and that the reduction is greater for acquirers with larger declines in operating costs post merger. Market overlap between the acquirer and the target leads to more potential for cost savings, which push spreads down. However, if the overlap is significant, the enhanced market power dominates the cost savings and, therefore, spreads increase. The findings are robust to using variation in dates of intrastate banking deregulation as an exogenous instrument for the timing of the in-market mergers. Furthermore, contrary to what might be expected, bigger acquirers do not impose less favorable terms on small businesses. Indeed, the average reduction in spreads is significant for small loans, showing that small borrowers typically pay lower interest rates to banks that have expanded during the previous few years through mergers. |
| JEL: | G21 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2006-19&r=bec |
| By: | Schnabel, Claus (University of Erlangen-Nuremberg); Wagner, Joachim (University of Lüneburg) |
| Abstract: | Using data from the social survey ALLBUS for West Germany in the period 1980 to 2006, this paper demonstrates that union members are on average older than non-unionized employees. The probability of being unionized shows the inverted U-shaped pattern in age conjectured by Blanchflower (BJIR 2007) only in very few years. It is demonstrated that both intra-cohort change and cohort replacement effects have played a roughly equal role in the substantial fall in union density since 1980. If older cohorts with high densities continue to be replaced by young cohorts with low densities, average union density will fall further. |
| Keywords: | union membership, union density, cohort effects, West Germany |
| JEL: | J51 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3661&r=bec |
| By: | Chauvet, Marcelle; Potter, Simon |
| Abstract: | This paper examines the predictive content of coincident variables for monitoring U.S. recessions in the presence of instabilities. We propose several specifications of a probit model for classifying phases of the business cycle. We find strong evidence in favor of the ones that allow for the possibility that the economy has experienced recurrent breaks. The recession probabilities of these models provide a clearer classification of the business cycle into expansion and recession periods, and superior performance in the ability to correctly call recessions and to avoid false recession signals. Overall, the sensitivity, specificity, and accuracy of these models are far superior as well as their ability to timely signal recessions. The results indicate the importance of considering recurrent breaks for monitoring business cycles. |
| Keywords: | Recession; Instability; Bayesian Methods; Probit model; Breaks. |
| JEL: | E32 C35 C11 |
| Date: | 2007–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10149&r=bec |
| By: | Aggarwal, Reena (Georgetown U); Erel, Isil (Ohio State U); Stulz, Rene M. (Ohio State U); Williamson, Rohan (Georgetown U) |
| Abstract: | We construct a firm-level governance index that increases with minority shareholder protection. Compared to U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms. Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders. |
| JEL: | G32 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2007-14&r=bec |