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on Business Economics |
| By: | Alexander Karaivanov (Simon Fraser University); Sonia Ruano (Banco de España); Jesús Saurina (Banco de España); Robert Townsend (MIT) |
| Abstract: | This paper examines whether financial constraints affect firms’ investment decisions for older (larger) firms. We compare a group of unbanked firms to firms that rely on formal financing. Specifically, we combine data from the Spanish Mercantile Registry and the Bank of Spain Credit Registry (CIR) to classify firms according to their number of banking relations: one, several, or none. Our empirical strategy combines two approaches based on a common theoretical model. First, using a standard Euler equation adjustment cost approach to investment, we find that single-banked firms in our sample are most likely to exhibit cash flow sensitivity while unbanked firms are not. Second, using structural maximum likelihood estimation, we find that unbanked firms have a financial structure which is close to credit subject to moral hazard with unobserved effort, whereas single-banked firms have a financial structure which is more limited, as in an exogenously imposed traditional debt model. Firms in the unbanked category do not rely on bonds, equity, or formal financial markets, but rather on other firms in a financial or family-tied group (with either pyramidal or informal structure). We are among the first to document the importance of such groups in a European country. We control for reverse causality by treating bank relationships as endogenous and/or by appropriate stratifications of the sample. |
| Keywords: | financial constraints, bank lending, investment Euler equations, moral hazard, structural estimation and testing |
| JEL: | C61 D82 D92 G21 G30 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1003&r=bec |
| By: | Francesca Cornelli (London Business School and CEPR); Zbigniew Kominek (European Bank for Reconstruction and Development (EBRD)); Alexander Ljungqvist (Stern School of Business, New York University, ECGI and CEPR) |
| Abstract: | We test under what circumstances boards discipline managers and whether such interventions improve performance. We exploit exogenous variation due to the staggered adoption of corporate governance laws in formerly Communist countries coupled with detailed ‘hard’ information about the board’s performance expectations and ‘soft’ information about board and CEO actions and the board’s beliefs about CEO competence in 473 mostly private-sector companies backed by private equity funds between 1993 and 2008. We find that CEOs are fired when the company underperforms relative to the board’s expectations, suggesting that boards use performance to update their beliefs. CEOs are especially likely to be fired when evidence has mounted that they are incompetent and when board power has increased following corporate governance reforms. In contrast, CEOs are not fired when performance deteriorates due to factors deemed explicitly to be beyond their control, nor are they fired for making ‘honest mistakes.’ Following forced CEO turnover, companies see performance improvements and their investors are considerably more likely to eventually sell them at a profit. |
| Keywords: | Corporate Governance, Large Shareholders, Boards of Directors, CEO Turnover, Legal Reforms, Transition Economies, Private Equity |
| JEL: | G34 G24 G32 K22 O16 P21 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.30&r=bec |
| By: | Gropp, Reint; Köhler, Matthias |
| Abstract: | In this paper, we analyse whether bank owners or bank managers were the driving force behind the risks incurred in the wake of the financial crisis of 2007/2008. We show that owner controlled banks had higher profits in the years before the crisis, and incurred larger losses and were more likely to require government assistance during the crisis compared to manager-controlled banks. The results are robust to controlling for a wide variety of bank specific, country specific, regulatory and legal variables. Regulation does not seem to mitigate risk taking by bank owners. We find no evidence that profit smoothing drives our findings. The results suggest that privately optimal contracts aligning the incentives of management and shareholders may not be socially optimal in banks. -- |
| Keywords: | Banks,risk taking,corporate governance,ownership structure,financial crisis |
| JEL: | G21 G30 G34 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10013&r=bec |
| By: | Fabio Canova; David Lopez-Salido; Claudio Michelacci |
| Abstract: | We analyze how unemployment, job finding and job separation rates react to neutral and investment-specific technology shocks. Neutral shocks increase unemployment and explain a substantial portion of unemployment volatility; investment-specific shocks expand employment and hours worked and mostly contribute to hours worked volatility. Movements in the job separation rates are responsible for the impact response of unemployment while job finding rates for movements along its adjustment path. Our evidence qualifies the conclusions by Hall (2005) and Shimer (2007) and warns against using search models with exogenous separation rates to analyze the effects of technology shocks. |
| Keywords: | Unemployment, technological progress, labor market flows, business cycle models. |
| JEL: | E00 J60 O33 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1213&r=bec |
| By: | Alexandra Ferreira-Lopes (ISCTE - Lisbon University Institute - Department of Economics, UNIDE-ERC and DINÂMIA); Tiago Neves Sequeira (UBI and INOVA-UNL) |
| Abstract: | In this article we document the features of business cycles in German Länders from 1970 and 2007. Specifically, we answer the question if German Länders are becoming more synchronized or not. All results indicate that the synchronization of cycles is stronger inside the former Western Germany and inside the former Eastern Germany. The reunification process has had a strong influence in terms of business cycle association. However, a process of cyclical convergence has begun, although slowly, after the reunification. |
| Keywords: | Business Cycle Association, Synchronization, and Convergence, Germany Reunification. |
| JEL: | C14 C65 E32 F33 O52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:isc:wpaper:ercwp0410&r=bec |
| By: | Bertola, Giuseppe; Dabusinskas, Aurelijus; Hoeberichts, Marco; Izquierdo, Mario; Kwapil, Claudia |
| Abstract: | This paper analyses information from survey data collected in the framework of the Eurosystem's Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend - in theoretically sensible ways - on the intensity of competition in firms' product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the passthrough of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger. -- |
| Keywords: | Wage bargaining,labour-market institutions,survey data,European Union |
| JEL: | J31 J38 P50 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201002&r=bec |
| By: | John Schmitt |
| Abstract: | This report reviews the characteristics of the immigrant workforce and analyzes the impact of unionization on the pay and benefits of immigrant workers. According to the most recent available data, immigrant workers are now over 15 percent of the workforce and almost 13 percent of unionized workers. Even after controlling for systematic differences between union and non-union workers, union representation substantially improves the pay and benefits received by immigrants. |
| Keywords: | unions, wages, benefits, pension, health insurance, immigrants |
| JEL: | J J1 J3 J31 J32 J41 J5 J58 J6 J68 J88 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2010-07&r=bec |
| By: | Xavier Freixas; Antoine Martin; David Skeie |
| Abstract: | A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs. This paper studies the efficiency of the interbank lending market in allocating funds. We consider two different types of liquidity shocks leading to different implications for optimal policy by the central bank. We show that, when confronted with a distributional liquidity-shock crisis that causes a large disparity in the liquidity held among banks, the central bank should lower the interbank rate. This view implies that the traditional tenet prescribing the separation between prudential regulation and monetary policy should be abandoned. In addition, we show that, during an aggregate liquidity crisis, central banks should manage the aggregate volume of liquidity. Two different instruments, interest rates and liquidity injection, are therefore required to cope with the two different types of liquidity shocks. Finally, we show that failure to cut interest rates during a crisis erodes financial stability by increasing the risk of bank runs. |
| Keywords: | Bank liquidity, interbank markets, central bank policy, financial fragility, bank runs. |
| JEL: | G21 E43 E44 E52 E58 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1202&r=bec |
| By: | Almeida-Santos, Filipe (Universidade Catolica Portuguesa, Lisbon); Chzhen, Yekaterina (University of York); Mumford, Karen A. (University of York) |
| Abstract: | We use household panel data to explore the wage returns associated with training incidence and intensity (duration) for British employees. We find these returns differ depending on the nature of the training; who funds the training; the skill levels of the recipient (white or blue collar); the age of the employee; and if the training is with the current employer or not. Using decomposition analysis, training is found to be positively associated with wage dispersion: a virtuous circle of wage gains and training exists in Britain but only for white-collar employees. |
| Keywords: | training, wage compression, performance |
| JEL: | J24 J31 J41 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4821&r=bec |
| By: | Pierre Blanchard; Carl Gaigné; Claude Mathieu |
| Abstract: | We study the impact of trade liberalization on the international strategy of firms (to export and/or invest abroad as well as the number of products to be produced and exported) when product differentiation is endogenous. By considering product differentiation as a strategic variable, our analysis sheds new light on the impact of trade barriers on the decision to produce abroad and on the choice of product range, in accordance with recent empirical evidence. Indeed, we show that, even though technology exhibits the same productivity for each variety, firms drop some varieties with trade integration. In addition, our results reveal that, contrary to the standard theoretical literature, the relationship between the decision to export and trade costs is non-linear. When trade costs are relatively high, each firm export and is multi-product. Then, when trade costs take intermediate values, firms may invest abroad and the choice of producing abroad results from a prisoner's dilemma game. Finally, when trade costs are low, firms export but become single-product. |
| Keywords: | Foreign direct investment, exports, multi-product competition, endogenous differentiation product, trade integration |
| JEL: | F12 F23 L11 L25 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:rae:wpaper:201002&r=bec |
| By: | Carstensen, Kai; Wohlrabe, Klaus; Ziegler, Christina |
| Abstract: | In this paper we assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, we use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, we employ tests that account for specific problems typically encountered in forecast exercises. Specifically, we pay attention to nested model structures, we alleviate the problem of data snooping arising from multiple pairwise testing, and we analyze the structural stability in the relative forecast performance of one indicator compared to a benchmark model. Moreover, we consider loss functions that overweight forecast errors in booms and recessions to check whether a specific indicator that appears to be a good choice on average is also preferable in times of economic stress. We find that on average three indicators have superior forecast ability, namely the EuroCoin indicator, the OECD composite leading indicator, and the FAZ-Euro indicator published by the Frankfurter Allgemeine Zeitung. If one is interested in one-month forecasts only, the business climate indicator of the European Commission yields the smallest errors. However, the results are not completely invariant against the choice of the loss function. Moreover, rolling local tests reveal that the indicators are particularly useful in times of unusual changes in industrial production while the simple autoregressive benchmark is difficult to beat during time of average production growth. |
| Keywords: | weighted loss; leading indicators; euro area; forecasting |
| JEL: | C32 C53 E32 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11442&r=bec |
| By: | A. Fedele; A. Mantovani; F. Liucci |
| Abstract: | In this paper we consider a moral hazard problem between a creditworthy firm which needs funding and a bank. We first study under which conditions the firm does not obtain the loan. We then determine whether and how the intervention of an external financial institution can facilitate the access to credit. In particular, we focus on the European Investment Bank Group (EIBG), which provides (i) specific credit lines to help banks that finance small and medium-sized enterprises (SMEs)and (ii) guarantees for portfolios of SMEs'loans. We show that only during crises the EIBG intervention allows to totally overcome the credit crunch. |
| JEL: | D82 D21 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:699&r=bec |
| By: | Corak, Miles (University of Ottawa); Piraino, Patrizio (Statistics Canada) |
| Abstract: | We find that about 40% of a cohort of young Canadian men has been employed with an employer for whom their father also worked; and six to nine percent have the same employer in adulthood. The intergenerational transmission of employers is positively related to paternal earnings, particularly at the very top of the earnings distribution, and to the presence of self-employment income and the number of employers with which the father has had direct contact. It has an important influence in determining nonlinear patterns in the intergenerational elasticity of earnings. |
| Keywords: | intergenerational mobility, job search |
| JEL: | J62 J64 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4819&r=bec |
| By: | Nikita Perevalov; Philipp Maier |
| Abstract: | The good forecasting performance of factor models has been well documented in the literature. While many studies focus on a very limited set of variables (typically GDP and inflation), this study evaluates forecasting performance at disaggregated levels to examine the source of the improved forecasting accuracy, relative to a simple autoregressive model. We use the latest revision of over 100 U.S. time series over the period 1974-2009 (monthly and quarterly data). We employ restrictions derived from national accounting identities to derive jointly consistent forecasts for the different components of U.S. GDP. In line with previous studies, we find that our factor model yields vastly improved forecasts for U.S. GDP, relative to simple autoregressive benchmark models, but we also conclude that the gains in terms of forecasting accuracy differ substantially between GDP components. As a rule of thumb, the largest improvements in terms of forecasting accuracy are found for relatively more volatile series, with the greatest gains coming from improvements of the forecasts for investment and trade. Consumption forecasts, in contrast, perform only marginally better than a simple AR benchmark model. In addition, we show that for most GDP components, an unrestricted, direct forecast outperforms forecasts subject to national accounting identity restrictions. In contrast, GDP itself is best forecasted as the sum of individual forecasts for GDP components, but the improvement over a direct, unconstrained factor forecast is small. |
| Keywords: | Econometric and statistical methods; International topics |
| JEL: | C50 C53 E37 E47 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:10-10&r=bec |