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on Business Economics |
| By: | Bachmann, Ruediger; Bayer, Christian |
| Abstract: | Is time-varying firm-level uncertainty a major cause or amplifier of the business cycle? This paper investigates this question in the context of a heterogeneousfirm RBC model with persistent firm-level productivity shocks and lumpy capital adjustment, where cyclical changes in uncertainty correspond naturally to cyclical changes in the cross-sectional dispersion of firm-specific Solow residual innovations. We use a unique German firm-level data set to investigate the extent to which firm-level uncertainty varies over the cycle. This allows us to put empirical discipline on our numerical simulations. We find that, while firm-level uncertainty is indeed countercyclical, it does not fluctuate enough to significantly alter the dynamics of an RBC model with only first moment shocks. The mild changes we do find are mainly caused by a bad news effect: higher uncertainty today predicts lower aggregate Solow residuals tomorrow. This effect dominates the real option value effect of time-varying uncertainty, highlighted in the literature. |
| Keywords: | Ss model,RBC model,lumpy investment,countercyclical risk,aggregate shocks,idiosyncratic shocks,heterogeneous firms,news shocks,uncertainty shocks. |
| JEL: | E20 E22 E30 E32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:200915&r=bec |
| By: | Bachmann, Ruediger; Bayer, Christian |
| Abstract: | Using a unique German firm-level data set, this paper is the first to jointly study the cyclical properties of the cross-sections of firm-level real value added and Solow residual innovations, as well as capital and employment adjustment. We find two new business cycle facts: 1) The cross-sectional standard deviation of firm-level innovations in the Solow residual, value added and employment is robustly and significantly countercyclical. 2) The cross-sectional standard deviation of firm-level investment is procyclical. We show that a heterogeneousfirm RBC model with quantitatively realistic countercyclical innovations in the firm-level Solow residual and non-convex adjustment costs calibrated to the non-Gaussian features of the steady state investment rate distribution, produces investment dispersion that positively comoves with the cycle, with a correlation coefficient of 0.65, compared to 0.61 in the data. We argue more generally that the cross-sectional business cycle dynamics impose tight empirical restrictions on structural parameters and stochastic properties of driving forces in heterogeneousfirmmodels, and are therefore paramount in the calibration of these models. |
| Keywords: | Ss model,RBC model,cross-sectional firm dynamics,lumpy investment,countercyclical risk,aggregate shocks,idiosyncratic shocks,heterogeneous firms. |
| JEL: | E20 E22 E30 E32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:200917&r=bec |
| By: | Balcaen,S.; Buyze, J.; Ooghe,H. (Vlerick Leuven Gent Management School) |
| Abstract: | This paper provides new insights on the determinants of firm exit after distress. Using nested logit models and a sample of 6118 distress-related exits from Belgium, we analyze the impacts of available and potential slack and the relative efficiency of voluntary liquidation, compared to acquisition and merger, on the type of exit. It appears essential to examine the type of exit outcome as a two-stage process. The first stage considers the fundamental distinction between voluntary and involuntary exit, the latter being the least favorable and most avoided exit strategy. In this situation, high levels of available and potential slack resources, as reflected by large cash holdings, strong group relations and low current leverage, increase the probability of voluntary exit. High slack allows distressed firms to avoid bankruptcy and decide on their exit process. In the second stage, and provided that exit is voluntary, voluntary liquidation is compared to restructuring exit (acquisition, merger or split) In this stage, a higher relative efficiency of voluntary liquidation compared to a restructuring exit, as indicated by absence of group relations, small firm size, high secured debt level and large cash holdings, increase the likelihood of voluntary liquidation and reduce the probability of a restructuring exit. |
| Date: | 2009–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2009-21&r=bec |
| By: | Urban Jermann; Vincenzo Quadrini |
| Abstract: | In this paper we document the cyclical properties of U.S. firms' financial flows. Equity payouts are procyclical and debt payouts are countercyclical. We develop a model with explicit roles for debt and equity financing and explore how the observed dynamics of real and financial variables are affected by `financial shocks', that is, shocks that affect the firms' capacity to borrow. Standard productivity shocks can only partially explain the movements in real and financial variables. The addition of financial shocks brings the model much closer to the data. The recent events in the financial sector show up clearly in our model as a tightening of firms' financing conditions causing the GDP decline in 2008-09. Our analysis also suggests that the downturns in 1990-91 and 2001 were strongly influenced by changes in credit conditions. |
| JEL: | E32 G10 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15338&r=bec |
| By: | Thomas I. Palley (Economics for Democratic & Open Societies, Washington DC) |
| Abstract: | This paper argues that Hyman Minsky's financial instability hypothesis weaves together a medium term Keynesian approach to the business cycles in the spirit of Samuelson (1936) and Hicks (1950) with long cycle thinking of economists such as Schumpeter (1939) and Kondratieff. Post Keynesians have devoted considerable attention to the medium term dimension of Minsky's thinking. The current paper concentrates on the long swing dimension and introduces the idea of "Minsky super-cycles." It is the supercycle that ultimately permits financial crisis. Whereas financially driven business cycles occur every decade, financial crises occur over longer durations reflecting the longer phase of the super-cycle. |
| Keywords: | Minsky, business cycles, financial instability hypothesis |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:5-2009&r=bec |
| By: | Antonelli Cristiano (University of Turin); Colombelli Alessandra |
| Abstract: | In this paper we articulate and test the hypothesis that TFP is a reliable and relevant measure of firm’s innovation capabilities, and, as such, accounts for Tobin’s q indicator. With this aim, we investigate empirically the relationship between firm level total factor productivity and the Tobin’s q. Measuring Tobin’s q allows inferring the actual value of knowledge capital from stock market valuation. We use a panel of companies listed on UK and the main continental Europe financial markets (Germany, France and Italy) for the period 1995 - 2005. Our results confirm that TFP is a reliable indicator of firm’s innovative capabilities. When we control for firm’s R&D investments, the effects of TFP on market value remain highly significant. This suggests that TFP is a broader measure of innovation capability than R&D is. The validation of the Tobin’s q and TFP relationship has important implications concerning firm’s technological innovation measurement. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:uto:labeco:200912&r=bec |
| By: | Marian Rizov (Middlesex University Business School, UK and Wageningen University, The Netherlands); Patrick Paul Walsh (SPIRe and The Geary Institute University College Dublin) |
| Abstract: | We compute the productivity gaps in manufacturing industries by urban, rural less sparse and rural sparse locations in the UK. This is done by using firm-specific total factor productivities, which are estimated by a semi-parametric algorithm within 4-digit manufacturing industries using FAME data over the period 1994-2001, by each location. We analyse the productivity differentials across locations by decomposing them into firm differences within the same industry and by differences that are explained by industry composition effects. Our analysis indicates that at the end of twentieth century a rural-urban divide in manufacturing productivity still remains but there is a tendency of convergence between rural and urban location categories. Even though industry productivity is different by location, industry composition effects are positively correlated with industry productivity by location suggesting that locations with high productivity are also characterised by industrial structures with higher productivity. |
| Keywords: | Total factor productivity, structural estimation, rural-urban divides, UK manufacturing |
| JEL: | D24 R11 R30 |
| Date: | 2009–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200927&r=bec |
| By: | Ingela Alger (Department of Economics, Carleton University); Ching-to Albert Ma (Department of Economics, Boston University); Regis Renault (Universite de Cergy-Pontoise, THEMA) |
| Abstract: | A principal requires a manager for production. He can use an internal manager, or contracts with an external manger. In each case, the manager obtains experience benefits from production. When the principal uses an internal manager, both parties share cost information. When the principal contracts with an external manager, only the external manager acquires cost information. The internal manager has limited access to the credit market; he has a minimum income constraint. The external manager has adequate access and has no minimum income constraint. The principal faces a tradeo. Hiring an internal manager eliminates asymmetric information, but extracting experience rent is more difficult due to the minimum income constraint. Hiring an external manager means giving up information rent, but extracting experience rent is feasible. Whether the principal uses an internal or an external manager depends on the tightness of the minimum income constraint and the magnitude of the experience benefit. The principal's optimal choice may not be socially efficient. |
| Keywords: | Theory of the firm, job experience rent, informational rents. |
| JEL: | D23 L22 |
| Date: | 2009–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:09-03&r=bec |
| By: | Winkler, Roland C.; Wohltmann, Hans-Werner |
| Abstract: | This paper analyzes the impacts of news shocks on macroeconomic volatility. Whereas in any purely forward-looking model, such as the baseline New Keynesian model, anticipation amplifies volatility, we obtain ambiguous results when including a backward-looking component. In addition to these theoretical findings, we use the estimated model of Smets and Wouters (2003) to provide numerical evidence that news shocks increase the volatility of key macroeconomic variables in the euro area when compared to unanticipated shocks. |
| Keywords: | Anticipated shocks,business cycles,volatility |
| JEL: | E32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:200905&r=bec |
| By: | Marco Corsino; Roberto Gabriele; Enrico Zaninotto |
| Abstract: | This paper aims to reconcile the logic behind stochastic models of firm growth and the notion of organizational capabilities as drivers of economic performance. In the proposed behavioral model of bounded rational firms, two mechanisms drive growth: independent stochastic growth of individual opportunities and the process by which firms capture new opportunities. To extend the stochastic framework, this research incorporates behavioral assumptions about the interactions between the firm and the business environment and the mechanism by which firms sense and seize business opportunities. The model generates statistical regularities in firm size, growth rates, and profit differentials between firms that are consistent with observed patterns in real-world settings. The greater the selective power of organizational capabilities, the more the steady-state distribution of firm size appears to deviate from log normality, which provides a potential explanation of various observed departures from the Law of Proportionate Effect. With regard to firm diversity, the distribution of opportunities per firm is skewed; just a few entities account for most of the business opportunities that arise during the simulation period. Moreover, the interaction between the external environment and the internal structure of firms influences heterogeneity in the value of the opportunities that they capture, as well as the persistence of long-run profits. |
| Keywords: | Organizational Capabilities; Firm Size Distribution; Growth Rates; Profitability |
| JEL: | C14 C63 D21 L25 |
| Date: | 2009–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2009/10&r=bec |
| By: | Bannier, Christina E. |
| Abstract: | This paper studies the effects that heterogeneous multiple bank financing has on a firm's risk- and information-policy, particularly with respect to credit renegotiation efficiency. We find that a significant, yet limited, degree of relationship lending enables firms with high asset specificity to credibly signal their desire to abstain from strategic default. This allows the firm's policy to eliminate the risk of inefficient liquidation even in the case of bleak cash-flow expectations. This hold-up benefit comes at a cost, though: firms with low asset specificity cannot always eliminate the risk of coordination failure by their banks. |
| JEL: | D82 G21 L14 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fsfmwp:117&r=bec |
| By: | Faria, Joao; Jellal, Mohamed |
| Abstract: | An optimizing representative firm pays efficiency wages to skilled workers to produce technological innovations, which are assumed to be of labor saving type, affecting negatively the hiring rate of unskilled workers. The results are: i) The efficiency wage of skilled workers is determined by the Solow condition; ii) There is underemployment of unskilled workers whenever the added value of innovations is greater than the opportunity cost of skilled workers’ wages; iii) The optimal level of technology is independent of technological parameters; iv) The employment of skilled workers increases with the level of technology and decreases with the efficiency wage; v) The employment of unskilled workers is not necessarily negatively affected by technological innovations in the steady state. |
| Keywords: | Unemployment; Dynamic Efficiency Wage Model; Technological Change |
| JEL: | J41 O33 D92 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17185&r=bec |
| By: | Paolo Casadio; Antonio Paradiso |
| Abstract: | This paper investigates the relationship between asset markets and business cycles with regard to the United States economy. We consider the Goldman Sachs approach (2003) developed to study the dynamics of financial balances. By means of a small econometric model we find that asset market dynamics are fundamental to determining the long-run financial sector balance dynamics. The gap between long-run equilibrium values and the actual values of the financial balances help to explain the cyclical path of the economy. Among all financial sectors balances, the financing gap in the corporate sector shows a leading effect on business cycles, in a Minskyan spirit. The last results appear innovative with respect to Goldman Sachs's findings. Furthermore, our econometric results are robust and quite stable. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_576&r=bec |
| By: | Robert B. Barsky; Eric R. Sims |
| Abstract: | We implement a new approach for the identification of "news shocks" about future technology. In a VAR featuring a measure of aggregate technology and several forward-looking variables, we identify the news shock as the shock orthogonal to technology innovations that best explains future variation in technology. In the data, news shocks account for the bulk of low frequency variation in technology. News shocks are positively correlated with consumption, stock price, and consumer confidence innovations, and negatively correlated with inflation innovations. The disinflationary nature of news shocks is consistent with the implications of sensibly modified versions of a New Keynesian model. |
| JEL: | E0 E00 E1 E10 E2 E20 E3 E30 E31 E32 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15312&r=bec |
| By: | Gerhard Kling; Utz Weitzel |
| Abstract: | Recent empirical studies on stock misvaluation as a possible determinant of mergers are inconclusive concerning the central hypothesis that over(under)valuation is negatively (positively) associated with merger announcement returns in stock mergers, but not in cash mergers. We provide empirical support for this hypothesis. In contrast to prior research, we employ a two-stage model to account for endogenous mergers and suggest an alternative specification of misvaluation based on an asset-pricing model (bidder momentum). In the first stage, we specify panel logit models to predict U.S. mergers from 1981 to 2003 and find that bidder momentum triggers stock mergers, but not cash mergers. In a second stage, we regress cumulated abnormal returns on merger probabilities to control for the endogeneity of mergers. This reveals a lower market response for stock mergers compared to cash mergers, which we identify as market correction of misvalued acquirers. |
| Keywords: | Mergers and acquisitions; overvaluation; endogeneity; momentum |
| JEL: | G14 G34 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0922&r=bec |
| By: | Faria, Joao; Jellal, Mohamed |
| Abstract: | This paper provides a socio-psychological theory of efficiency wage growth. The model blends agency theory with the Forced Savings hypothesis by assuming that firms set an increasing wage profile to minimize shirking costs, and that workers’ effort is positively related to the variation of wages. In its simple formulation the model derives some interesting results, such as: i) a positive relationship between the growth rate of efficiency wages and the discount rate; ii) for the case of constant returns of motivation, the growth rate of wages is unrelated with technology and workers’ preferences. The model also allows the analysis of the optimal path of employment. The positive impact of increasing efficiency wage profile on job creation depends only on workers’ returns of motivation and technology. |
| Keywords: | Dynamic Efficiency Wage Profile, Job Satisfaction,Jobs Creation |
| JEL: | J41 J28 J23 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17184&r=bec |
| By: | Paloma López-García (Banco de España); Sergio Puente (Banco de España) |
| Abstract: | Many studies have established that a small number of firms, known as fast-growth firms or Gazelles, create most of the new jobs. In spite of the importance of this topic from a policy-point of view, most of those studies are descriptive and limited to a comparison of the characteristics of the high-growth group with respect to a control group of firms. This paper, on the other hand, performs a multivariate analysis of the determinants of the fast growth of Spanish firms controlling for the possible endogeneity of some variables. We use for that purpose a firm-level database with information for about 200,000 Spanish firms per year between 1996 and 2003. We find that being a start-up increases the probability of fast growth by more than 30 percentage points, conditioned on having survived over the period. Firms with initial higher relative wages and debt ratio, up to a certain point, also experience higher chances of fast growth. Hence, as it was established elsewhere, better access to finance and to human capital are key to increase the number and growth of Gazelles. We also find that high-growth firm sustain their expansion with relatively more debt and fixed-term contracts than the rest of the firms in the sample. |
| Keywords: | Gazelles, Job creation, Firm-level data |
| JEL: | J23 L11 L25 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0920&r=bec |
| By: | Ferrer, Ana; Gagné, Lynda |
| Abstract: | We use data from the Canadian Workplace and Employee Survey (1999-2002) to assess the take-up of family-friendly benefits that are provided by employers. We distinguish between availability and actual use of benefits to account for worker selection into firms according to benefit availability. We find that selection is important for understanding the takeup of family-friendly benefits, although it does not differ much between genders. We also find that the provision of these benefits helps workers relatively little to manage the work-family conflict and benefits are often unavailable to those who need them most. Our findings suggest that the market fails to help employees balance their family-work conflict. |
| Keywords: | work and family balance, family-friendly benefits, take up of employer benefits |
| JEL: | J32 J39 |
| Date: | 2009–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:clssrn:clsrn_admin-2009-47&r=bec |
| By: | Klaus Prettner; Alexia Prskawetz |
| Abstract: | Persistent low fertility rates lead to lower population growth rates and eventually also to decreasing population sizes in most industrialized countries. There are fears that this demographic development is associated with declines in per capita GDP and possibly also increasing inequality of the wage distribution. We investigate whether this is true in the context of neoclassical growth models, augmented with endogenous fertility decisions and endogenous educational decisions. Furthermore we allow for imperfect substitutability across workers of different age in the production process and learning by doing effects as well as human capital depreciation. In particular, we assess the intergenerational wage redistribution effects which follow after a demographic change to persistent low fertility rates. |
| Keywords: | Population decline, economic growth, intergenerational wage gap. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:vid:wpaper:0906&r=bec |
| By: | Faria, Joao; Jellal, Mohamed |
| Abstract: | This paper studies a dynamic model with efficiency wages and adjustment costs associated with hiring and firing decisions. With linear adjustment costs, the optimal efficiency wage and employment are affected by the real interest rate and adjustment costs. When lumpy costs or convex adjustment costs (symmetric or asymmetric) are taken into account, the interest rate and the adjustment costs do not play any role in determining the equilibrium efficiency wage and level of employment. |
| Keywords: | Wage determination; Jobs creation |
| JEL: | J41 J23 |
| Date: | 2009–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17183&r=bec |
| By: | Simona COMI; Mara GRASSENI |
| Abstract: | The aim of this paper is to analyse the wage gap between temporary and permanent jobs in 12 European countries. We use the semi-parametric (quantile regression) approach and evaluate the wage gap across the entire wage distribution. We show that the fixed-term wage gap decreases as higher quantiles are considered, and that having a fixed-term contract penalizes low–skilled workers (at the bottom of the earnings distribution) more than high–skilled ones. Finally, we decompose the wage differential across the entire wage distribution in order to account for the relative importance of observed characteristics versus different returns to skills. We find that workers with the same characteristics as temporary workers would receive higher wages if they worked on permanent contracts in almost all the countries considered, and that this finding is stable across? the entire wage distribution. |
| Keywords: | Temporary jobs, fixed-term contracts, wage differentials, quantile regression, decomposition. |
| JEL: | J31 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp17_09&r=bec |
| By: | Busch, Ramona; Kick, Thomas |
| Abstract: | In the last few years it has been possible to observe decreasing interest margins for German universal banks. At the same time, institutions increasingly moved part of their business from interest to fee-earning activities. This study analyzes the determinants of non-interest income and its impact on financial performance and the risk profile of German banks between 1995 and 2007. We find empirical evidence that for all German universal banks risk-adjusted returns on equity and total assets are positively affected by higher fee income activities. Additionally, for commercial banks we show that a strong engagement in fee-generating activities goes along with higher risk. In order to analyze possible cross-subsidization effects between interest and fee business we also examine how banks' expansion in fee-based services has affected their interest margin. For savings and commercial banks we find that institutions with a strong focus on fee business charge lower interest margins when credit risk is controlled. |
| Keywords: | Income diversification,interest income,fee income,interest margin,two-stage least squares estimator |
| JEL: | G11 G21 G32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:200909&r=bec |