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on Business Economics |
| By: | Theodosios Dimopoulos (University of Lausanne, Ecole Polytechnique Fédérale de Lausanne, and Swiss Finance Institute); Hannes F. Wagner (Bocconi University) |
| Abstract: | This paper provides a cross-country analysis to determine whether CEO turnover is a credible disciplining device for managers, whether it is effective in delivering performance improvements, and whether better governance improves the credibility and effectiveness of CEO turnover. The analysis is based on a detailed panel of 5,300 CEO years and spans two distinctly different financial systems- the U.K. and Germany-over the period 1995-2005. We find that CEOs face a credible threat of being removed for underperformance and that the hiring of new CEOs is effective in realizing large profitability improvements in the following years. We also find both relations to be virtually identical in both countries, despite large structural governance differences. Further, we consider a large number of firm-specific governance mechanisms previously proposed as indicators of better governance and find no evidence that any of them improves the observed relations between firm performance and CEO turnover. Taken together, our results suggest that replacing the CEO is an important component of successful turnarounds in underperforming firms and that this economic mechanism appears to work in nearly identical ways across very different financial markets, and across firms with very different quality of governance. |
| Keywords: | CEO, board, turnover, performance, restructuring |
| JEL: | G30 G34 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1216&r=bec |
| By: | MORITA, Hodaka; TANG, Cheng-Tao |
| Abstract: | Firms let their employees operate assets to produce goods and services. Firm-specificity of asset and human capital, key concepts of transaction cost economics and labor economics respectively, play important roles in determining firms' productivity and welfare consequences of their competition. How are the degrees of firm-specificity of asset and human capital determined? We address this question through exploring a new model that captures interconnections among asset specificity, human capital acquisition, managerial capability, and labor mobility. We consider a two-period model with two firms, where period 1 is the skill-acquisition period and period 2 is the output period. In the beginning of period 1, each firm chooses a level of its asset specificity and employs a certain number of workers from the labor market. The level of asset specificity is interpreted as the extent to which the firm tailors its asset to the unique features of the firm's business strategies and products. A firm's second-period productivity is determined by its managerial capability, the extent to which its asset is tailored, and its workers' familiarity with its asset specificity. Managerial capability here means the capability of a firm's top management to develop an effective strategy and create a unique competitive position. We find that, as the importance of managerial capability increases, the labor mobility increases, and both the level of asset specificity and firm size decrease. When a firm chooses the specificity of its asset and the number of workers it employs in period 1, it estimates how many workers it will retain and how many workers it will hire from its rival in period 2. A higher importance of managerial capability increases the difference of period 2 productivity between a high-capability and a low-capability firm. Then, as the importance of managerial capability increases, each firm anticipates higher labor mobility, because a larger number of workers will move from a low-capability to a high-capability firm. Anticipation of higher labor mobility, in turn, reduces each firm's incentives to hire more workers and increase the level of asset specificity in period 1. We discuss implications of our model in the contexts of cross-industry and cross-country comparisons. In a newly emerging industry or in a business undergoing revolutionary technological changes, a business's success critically depends on the quality of its strategic decision making because these industries face a high level of uncertainty. Whereas in industries facing lower levels of uncertainty, strategic decision making is less important. These arguments suggest that the importance of managerial capability is higher in the former types of industries, and the importance tends to be lower in the latter types of industries. Our model then predicts that labor mobility is higher, specificity of asset and human capital is lower, and average firm size is smaller in industries of the former type and vice-versa in industries of the latter type. Also, as the economy makes a transition from industrial capitalism to post-industrial capitalism, modern economies are becoming increasingly knowledge intensive which renders the disadvantage to the firms that heavily rely on physical assets. Our model yields new implications regarding the consequences of the transition. |
| Keywords: | Asset specificity, competition, firm size, firm specificity, human capital, managerial capability |
| JEL: | J24 L20 M50 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-42&r=bec |
| By: | Eric Mak; Aloysius Siow |
| Abstract: | Integrating Roy with Becker, this paper studies occupational choice and matching in the labor market. Our model generates occupation earnings distributions which are right skewed, have firm fixed effects, and large changes in aggregate earnings inequality without significant changes in within firm inequality. The estimated model fits the earnings distribution both across and within firms in Brazil in 1999. It shows that the recent decrease in aggregate Brazilian earnings inequality is largely due to the increase in her educational attainment over the same years. A simulation of skilled biased technical change in the model also qualitatively fit the recent changes in earnings inequality in the United States. |
| Keywords: | occupational choice, matching, earnings distribution, inequality |
| JEL: | J J31 |
| Date: | 2017–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-577&r=bec |
| By: | Carol Newman; John Rand; Finn Tarp |
| Abstract: | This paper explores the relationship between imports and firm productivity, focusing on imported intermediates. Using firm-level data on over 20,000 manufacturing firms in Viet Nam, we find evidence for competition-induced productivity gains from trade. We show that gains in intermediate sectors spill-over to downstream sectors such that firms using more inputs from import-intensive sectors experience higher productivity gains. The evidence indicates that the main source of spill-over is better quality, domestically produced inputs. Ignoring the gains from trade through this mechanism may significantly underestimate the impact of trade on productivity. |
| Keywords: | imports, supply chains, productivity, Viet Nam |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2016-090&r=bec |
| By: | Sotiris Blanas; Adnan Seric; Christian Viegelahn |
| Abstract: | Using firm-level data, we study the differences in the quantity and quality of jobs offered by foreign-owned and domestic firms in Sub-Saharan Africa, and identify how country-level institutional factors determine these differences. After controlling for numerous firm-level characteristics in regressions, we find that foreign-owned firms, especially those whose main business purpose is to serve the home or foreign markets, offer more stable and secure jobs than domestic firms. Specifically, they have more permanent full-time workers, a lower probability of offering temporary work and employ less temporary workers. The job stability and security advantage of foreign-owned firms is smaller in countries with higher firing costs and governance quality, where domestic firms are induced to offer more stable and secure jobs. In addition, foreign-owned firms are less likely to offer unpaid work and have less of these workers. They also invest more in training, especially of managers, and pay higher wages to non-production and managerial workers, particularly those firms whose main business purpose is to serve the home or foreign markets. A higher wage to production workers is paid only by those whose owners are from high-income countries. The wage premia of foreign-owned firms are lower in countries with higher governance and social policy standards, where domestic firms are induced to pay higher wages. |
| Keywords: | Job quantity, Job quality, FDI, Institutions, Sub-Saharan Africa |
| JEL: | F14 F16 F21 F23 F66 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:152465485&r=bec |
| By: | Jimmy Saravia; Carlos Garcia; Paula Almonacid |
| Abstract: | This paper investigates how of systematic risk varies over the lifecycle of the firm. If market equity beta is determined by firm characteristics as the literature on the determinants of systematic risk holds, and if those characteristics change over the lifecycle of the firm following a definite pattern as firm lifecycle theory suggests, then market equity beta should change over the lifecycle of the firm following a predictable pattern. Our findings indicate that, holding other determinants of beta constant, the coefficient of systematic risk tends to fall in magnitude following a nonlinear pattern as firm age increases. In addition, we find that the volatility of market equity beta also tends to fall over the lifecycle of the firm. We argue that our main variable of concern, i.e. firm age, proxies for variables that have hitherto been omitted in the literature on the determinants of systematic risk. In particular, we maintain that firm age may proxy for the positive reputation that firms acquire over time with shareholders. This research is useful for both practitioners and researchers in that it may suggest ways to adjust empirical estimates of systematic risk. In addition, our results are important for research on beta forecasting as they show that the length of the stationary interval of betas is shorter for young companies, so that beta forecasting may be less accurate for firms in the early stages of their lifecycle compared to beta forecasting for mature firms. |
| Keywords: | Systematic risk, firm lifecycle, intrinsic business risk, financial leverage, operating risk. |
| JEL: | G11 G12 |
| Date: | 2016–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:015299&r=bec |
| By: | Lynda Sanderson (Ministry of Business, Innovation and Employment) |
| Abstract: | This note draws out data from the International Engagement module of the Business Operations Survey 2011. The module was designed to capture information on the international activities of a large, representative sample of New Zealand firms, including the types of activities they are involved in and the barriers they encounter. The note focuses on the level of interest that firms show in becoming internationally engaged, and how the barriers they perceive in entering and maintaining a place in international markets differ by their level of interest and experience. It also considers the extent to which interest in overseas income as reported in both the 2007 and the 2011 International Engagement modules translates to export market entry in later years, and how future entry propensity differs according to the barriers, motivations and strategies reported by the firm. |
| Keywords: | export barriers; firms; overseas income; international engagement |
| JEL: | D22 F10 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:16/04&r=bec |
| By: | Nathan Chappell; Isabell Sin (Motu Economic and Public Policy Research) |
| Abstract: | An amendment to legislation in 2009 enabled New Zealand firms with fewer than 20 employees to hire new workers on trial periods. The scheme was subsequently extended to employers of all sizes. The policy was intended to encourage firms to take on more employees, and particularly more disadvantaged job seekers, by reducing the risk associated with hiring an unknown worker. We use unit record linked employer-employee data and the staggered introduction of the policy for firms of different sizes to assess the policy effect on firm hiring behaviour. We find no evidence that the policy affected the number of hires by firms on average, either overall or into employment that lasted beyond the trial period. We also do not find an effect on hiring of disadvantaged jobseekers. However, our results suggest that the policy increased hiring in industries with high use of trial periods by 10.3 percent. |
| Keywords: | 90-day trials; employment; labour market flexibility; firm hiring |
| JEL: | J08 J63 J64 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:16/03&r=bec |
| By: | Alberto Plazzi (University of Lugano and Swiss Finance Institute); Walter N. Torous (Massachusetts Institute of Technology) |
| Abstract: | Poor corporate governance permits unreliable financial reporting by a firm's management. The AGR governance rating is based on the premise that a more accurate assessment of the effects of corporate governance can be formulated by taking this output of corporate governance into account in addition to traditional governance inputs such as board structure. We document that the time series variation in a firm's AGR score reliably forecasts the firm's Return on Assets (ROA) and other measures of firm performance. A portfolio going long shares of better governed firms with high AGR scores and shorting shares of poorly governed firms with low AGR scores generates a risk-adjusted return of approximately 5% per year. Most of this return differential originates with firms having poor corporate governance. Overall, our results are consistent with a causal link between corporate governance and future firm and stock price performance. |
| Keywords: | corporate governance, AGR, operating performance |
| JEL: | G11 G12 G14 G34 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1654&r=bec |
| By: | Molnarova, Zuzana; Molnárová, Zuzana; Reiter, Michael |
| Abstract: | This paper studies the relative importance of aggregate and industry-specific shocks in generating business cycle fluctuations. We assess the role of demand and supply side shocks at the aggregate and the industry level. We build a highly disaggregated multi-industry DSGE model with an input-output network structure. In the model, fluctuations in measured total factor productivity can arise as an endogenous response to demand shocks. The model is estimated by the simulated method of moments using U.S. industry data from 1960 to 2005. We show that aggregate technology shocks play a small role in explaining business cycles. Instead, aggregate demand shocks together with industry-specific technology shocks are important drivers of fluctuations of output and productivity. Demand shocks explain 60% of the variance of GDP and more than 10% of measured aggregate productivity. Industry-specific technology shocks are transmitted via input-output linkages and affect output and measured productivity in connected industries. They alone explain 50% of the variance of aggregate productivity and more than 20% of the variance in GDP. The presence of the input-output network is crucial for the results. The linkages between industries decrease the share of aggregate fluctuations explained by aggregate technology shock by 40 percentage points. |
| JEL: | E32 E37 D24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145804&r=bec |
| By: | Benjamin Faber; Thibault Fally |
| Abstract: | A growing literature has emphasized the role of firm heterogeneity within sectors in accounting for nominal income inequality. This paper explores the implications for household price indices across the income distribution. Using detailed matched US home and store scanner microdata, we present evidence that rich and poor households source their consumption from different parts of the firm size distribution within disaggregated product groups. We use the microdata to examine alternative explanations, write down a quantitative model featuring two-sided heterogeneity across producers and consumers that rationalizes the observed moments, and calibrate it to explore general equilibrium counterfactuals. We find that larger, more productive firms endogenously sort into catering to the taste of wealthier households, and that this gives rise to asymmetric effects on household price indices. These effects amplify observed changes in nominal income inequality over time, and lead to a more regressive distribution of the gains from international trade. |
| JEL: | E31 F61 O51 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23101&r=bec |