Skill shortages and firms' employment behaviour

This study investigates the effects of skill shortages on the dynamics of employment at the firm level for UK manufacturing between 1984–94. We find that shortages of skilled labour have a statistically significant effect on firms' employment behaviour. It has a positive effect on firms' adjustment costs leading to employment being more sluggish to respond when the labour market is tight, implying that employment adjustment will be more responsive in the downward direction. This result is robust to the inclusion of a measure of firms' sales expectations, with the effect of skill shortages being greater in periods when firms expect sales to rise.     

Formation of firms' production decisions in finnish manufacturing industries

Business survey data have recently been used in several studies to shed light on the formation of firms' plans and expectations. The main tool for analysis has been the multivariate conditional log-linear model. The trichotomous answers in a typical business survey have an ordering. This makes it possible to analyse firms' production decisions with a categorized version of Cox's proportional hazards model. In this paper the production decisions of Finnish firms are investigated using data from the Finnish business survey. The results obtained are largely in accord with the implications of the production smoothing model of Blinder (1982).     

The effect of R&D novelty and openness decision on firms' catch-up performance: Empirical evidence from China

This paper explores the strategic dimensions of R&D decisions toward novelty and openness in explaining the performance of latecomer firms in a developing economy. A structural equation model of R&D decision-making is formulated using survey data from 279 Chinese firms. The dimension of R&D novelty is defined as the degree of technological newness found in firms' R&D projects, while R&D openness describes the degree to which technologies are acquired from external sources. Our results indicate that firms' R&D decisions regarding novelty and openness are associated with demand opportunities, market competition, technological capability, and external networks. Greater R&D novelty contributes positively to innovative output but does not affect sales growth. Greater R&D openness contributes positively to sales growth but negatively to innovative output.     

Last in,first out?: Estimating the effect of seniority rules in Sweden

In this paper we investigate whether a relaxation in seniority rules (the “last-in-first-out” principle) had any effect on firms' employment behaviour. Seniority rules exist in several countries, but consequences of seniority rules on firms' employment behaviour have not been examined previously. The “last-in-first-out” principle in Sweden was reformed in January 2001 such that employers with ten or fewer employees were allowed to exempt two workers from the seniority rule. Using an employer–employee unbalanced panel data for the period 1996–2005, we find that both hires and separations increased in small firms relative to large firms by 5%. This also implies that there were no effects on firms' net employment. Our results show that firms reacted to changes in the seniority rules, but we argue that the effects are not overwhelmingly large.     

Welfare Effects of Endogenous Information Acquisition and Disclosure in Duopoly Markets

Abstract

This paper investigates the interaction between firms' information acquisition decisions and disclosure of internally acquired information in a Cournot duopoly market under demand uncertainty. The main results are as follows. When the correlation between firms' demands is positive and sufficiently high, disclosure of information on demand uncertainty can enhance social welfare, given that the quality of firms' private information is constant. However, in the setting where firms' private information is endogenously determined, mandatory disclosure is not always desirable. This is because, when disclosure is mandated, firms acquire less precise information compared with the case where the acquired information is not disclosed; hence, their internal information environments are deteriorated. This can lead to unintended consequences such that disclosure regulation decreases social welfare.     

Are employment decisions based on rational expectations?

Conventional employment functions with partial adjustment to output fitted to quarterly data tend to have positively autocorrelated residuals, to imply implausibly high returns to scale and almost always fail tests for parameter stability. The hypothesis of this paper is that mis-specified expectations are the main cause of these findings and rational and adaptive expectations models are compared. Further, employment is conditioned not on output but on variables which firms can more reasonably take as exogenous. ‘Disequilibrium’ features of labour markets are introduced by making adjustment costs depend upon current and expected labour market tightness.One of the implications of rational expectations is that the revision between points in time t and $\text{t ? 1}$ in the expected value of any variable should be independent of any information available before t and serially uncorrelated. Given a model of a forward looking firm whose hiring decisions are subject to quadratic adjustment costs, an appropriately transformed employment equation can be derived which has a very similar structure to the Koyck transformed employment equation which corresponds to adaptive expectations. Maximum likelihood estimation of the adaptive expectations form gives parameter estimates for quarterly British data for the manufacturing sector which are so unreasonable that this hypothesis can be rejected. Maximum likelihood estimation of the rational expectations form would involve modelling the stochastic processes of all the driving variables. However, conditional upon one parameter, consistent estimates of the remaining parameters can be obtained by OLS and these accord well with economic theory. This is the direct evidence in favour of the rational expectations hypothesis. However, it can also explain why the adaptive expectations form gives such poor results and why conventional employment functions give the unsatisfactory results referred to above. Further, rational expectations provides an explanation for the common finding, particularly in the context of employment and the demand for durable goods, of implausibly low or wrong signed levels effects in more general quarterly time series models with lagged dependent variables.     

Industry influence on firms' R&D and innovation

This paper examines the effect of peers on a firm's research and development (R&D) policy. We show that firms do not make R&D decisions in isolation, and that industry dynamics play an important role in defining a firm's R&D intensity. Using a large sample of 54,393 firm-year observations from 1991 to 2015 in the United States, we find that firms' R&D decisions are mainly driven by their industry peers' R&D policies. Moreover, we find that R&D mimicking is significant only in the presence of strong product market competition, whereas we do not find any evidence of information-based herding in R&D investments. Our additional analysis shows that our main conclusions remain valid even in the presence of financial constraints, and regardless of the firms' market positions. Finally, we provide evidence that R&D mimicking increases firms' future values, future patent outputs, and estimated patent dollar values. Our findings are robust to endogeneity concerns, and to using alternative sample compositions, R&D intensity proxies, and different industry classifications.     

Strategic Corporate Social Responsibility Activities and Corporate Governance in Imperfectly Competitive Markets

We investigate the incentives of firms' owners to commit voluntarily to corporate social responsibility (CSR) activities in an oligopolistic market. The socially responsible attributes attached to products are considered as credence goods, with consumers forming expectations about their existence and level. We show that hiring an ‘individually’ socially responsible CEO and delegating to him the CSR effort and market decisions acts as a commitment device for the firm's owners and credibly signals to consumers that the firm will undertake the ‘missioned’ CSR activities. We also find that CSR activities are welfare enhancing for consumers and firms and thus, they should be encouraged. Copyright © 2013 John Wiley & Sons, Ltd.     

Unemployment insurance and job turnover in Spain

The aim of this paper is to shed some light on the potential relationships between the unemployment insurance system and labour market turnover. This study assumes the incentives embedded in the unemployment insurance system have a heterogeneous impact, depending on the type of labour market transition (quits versus layoffs and recalls versus new job entrances) and on a worker's attachment to the labour market (gender and type of contract). The layoff hazard rate increases as workers qualify for unemployment benefits, whilst the quit hazard rate remains stable. Similarly, employment inflow increases sharply after the exhaustion of unemployment benefits. The timing and importance of the exit differ between recalls and new job entry and depend on a worker's attachment to the labour market. The results show that unemployment benefits appear to favour job turnover and both firms' and workers' decisions seem to matter.     

Share the Fame or Share the Blame? The Reputational Implications of Partnerships

We use an adverse selection model to study the dynamics of firms' reputations when firms implement joint projects. We show that in the case of joint projects a firm's reputation does not necessarily increase following a success and does not necessarily decrease following a failure. We also study how reputation considerations affect firms' decisions to participate in joint projects. We show that a high‐reputation partner is not necessarily preferable to a low‐reputation partner and, when implementation of the joint project by a single firm is possible, a high‐quality partner may not be preferable to a low‐quality partner.     

Volatile multinationals? Evidence from the labor demand of German firms

Does more FDI make the world a riskier place for workers? We analyze whether an increase in multinational firms' activities is associated with an increase in firm-level employment volatility. We use a firm-level dataset for Germany which allows us to distinguish between purely domestic firms, exporters, domestic multinationals and foreign multinationals. Employment in multinationals could be more volatile than employment in domestic firms if multinationals were facing more volatile demand or if they react more to aggregate developments. We therefore decompose the labor demand of firms into their reaction and their exposure to aggregate developments. We find no above-average wage and output elasticities for multinational firms.     

Management turnover expectations: a variable to explain company readiness to engage in continuous management training

What makes companies give their support to Continuous Management Training (CMT) and why, on occasion, do they block its progress? If a company thinks its managers might leave in the near future, would there be reasons for it to provide continuous training of these professionals? Do companies interpret all likely resignations in the same way? We attempt to provide an answer to these questions, by analysing the behaviour of companies' vis-à-vis continuous management training in terms of their expectations of the appropriability of the benefits that stem from such training. Appropriability is in turn assessed with regard to firms' expectations that their managers will leave their organisation without it having had the chance to recover the outlay invested in training. The analysis of business behaviour also demands an understanding of how these turnover expectations are produced and, more specifically, of the variables on which turnover expectations depend or might depend. The empirical study we carried out with over 300 Spanish companies revealed that company projections for voluntary turnover of management employees are positively connected with earlier experiences of turnover, with markets prone to change, and with business risk situations, and negatively associated with developed social management networks, satisfied managers and their degree of specificity in relation to the company. Nevertheless, no significant relationship was observed between expected turnover and the intensity of continuous management training. In general, companies make their management training investment decisions independently of the overall turnover expectations they might have. Different causes might exist for this absence of a relationship, centred in particular on the need for management training and an associated sense of urgency, which takes precedence over the risk of not recovering the investment when the business decision is taken, and on the nature of the management turnover perceived by the company, which is more complex than a strictly economic one.     

Integrated thinking and sustainability reporting assurance: International evidence

Recently, there has been increasing demand by stakeholders for firms to demonstrate how they create value within the context of their operating environment. Consequently, a new reporting approach, integrated reporting (IR), was conceptualised with its development linked to the firm's integrated thinking (IT). Yet very little is known about the effects of IT on firms' reporting decisions. Hence, we investigate whether IT influences firms' decision to publish an assured sustainability report. Using an international dataset, we find that IT is positively associated with sustainability reporting assurance. We also find that this association is moderated by the type of legal system such that for firms in code law countries, the IT effects are reduced. Nevertheless, the effects of IT remain strong, indicating that IT is important for reporting decisions regardless of the firm's contextual setting. These findings have implications for policymakers and organisations interested in promoting high-quality sustainability reporting.     

Institutional quality and corporate financing decisions around the world

We investigate the influence of the recent comprehensive institutional quality dimensions of Karolyi (2015), such as market capacity, operational efficiency, foreign accessibility, corporate transparency, legal protection, and political stability, on financing decisions of firms across 56 countries between 2000 and 2015. We find that stronger institutional quality or lower fundamental risks in a country ease firms' access to long-term debt, and equity financing. We attribute our results to institutional environments influencing financing decisions by shaping the severity of market frictions, such as agency conflicts and information asymmetry, and transaction costs. As a result, we conclude that any improvement in a country's institutional environment will boost firms' access to long-term financing, and thus longer-term investments that promote countries' economic growth will be more feasible. Our findings are robust to potential endogeneity issues.     

A new argument using embeddedness and sensemaking to explain small firms' responses to employment regulation

In this essay, we develop a new argument about how the concept of embeddedness and a sensemaking approach can be used to theorise small firms' regulatory responses, especially to employment regulation. We want to move beyond the simplistic and narrow conceptualisations of resistant action in small firms in response to regulation. We contribute to theorising on small firms' regulatory responses by developing an embedded account of social action that takes us beyond the dichotomy of individualised (micro) and institutional accounts (macro) explanations of firm behaviour. Our argument emphasises the situatedness of small firm behaviour shaped by, and in turn shaping, the contexts in which they are embedded. We go beyond stereotypes to give a nuanced account of situated action. In conclusion, we briefly outline how our ideas can be operationalised to explain small firms' diverse responses to regulation.     

Influences on Sustainable Innovation Adoption: Evidence from Leadership in Energy and Environmental Design

The adoption of innovations associated with environmental sustainability has been a topic of growing interest among scholars. The research presented in this paper draws on Abrahamson's theoretical framework of fads and fashions to argue that dimensions of uncertainty and degree of external versus internal influence provide significant insights into firms' decisions to adopt sustainable building innovations. We develop three hypotheses, reflecting three views of adoption influence: fad, fashion, and efficient‐choice. We find that adoption of Leadership in Energy and Environmental Design (LEED) green building certification in the United States was more likely among firms similarly oriented toward end‐consumers and among firms strategically positioned as environmental leaders. These results provide support for the fad and efficient‐choice views of adoption, respectively. Contrary to expectations suggested by the fashion perspective, adoption was not more likely among firms located in states whose political leaders are more committed to environmental protection. Our findings offer important implications for practitioners and policy makers seeking to encourage sustainable building design. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

The adoption of chief diversity officers among S&P 500 firms: Institutional,resource dependence,and upper echelons accounts

The importance of workforce diversity has become a salient management concern given that demographic minorities comprise key sources of the workforce and consumers. As a result, some firms created chief diversity officer (CDO) positions to manage workforce diversity. This study takes a multitheoretic approach, drawing upon institutional, resource dependence, and upper echelons theories to explain firms' adoptions of this key position. Using Cox event history analyses based on a sample of S&P 500 firms, we find that, from an institutional theory perspective, firms are more likely to adopt CDOs when they are headquartered in legalized gay marriage states and the accumulative number of industry CDO adoptions is high. From a resource dependence perspective, we find that firm innovation intensity, diversification levels, transient institutional ownership, and industry female and African American employment bases can predict firms' adoptions of CDO positions. From an upper echelons explanation, we find that female top management team representation is positively associated with firms' adoptions of CDO positions.     

An econometric model of U.K. manufacturing employment using survey data on expected output

A model of U.K. manufacturing employment is estimated in which output expectations data are derived from Confederation of British Industry (CBI) survey information. The output expectations terms are highly significant, and equations including them encompass more traditional models that use current and lagged output. In addition, the equations also successfully predict the sharp falls in manufacturing employment that occurred after 1979. One interesting implication of these equations is that the decline in ‘cyclically adjusted’ productivity around 1975, and the subsequent improvement around 1980, can be largely explained in terms of a prolonged period of over-optimistic output expectations by U.K. firms.     

Market structure,common ownership,and coordinated manager compensation

We study oligopolistic competition in product markets where the firms' quantity decisions are delegated to managers. Some firms are commonly owned by shareholders such as index funds, whereas the other firms are owned by independent shareholders. Under such an asymmetric ownership structure, the common owners have an incentive to coordinate when designing the manager compensation schemes. This implicit collusion induces a less aggressive output behavior by the coordinated firms and a more aggressive behavior by the noncoordinated firms. The profits of the noncoordinated firms are increasing in the number of coordinated firms. The profits of the coordinated firms exceed the profits without coordination if at least 80% of the firms are commonly owned.     

Endogenous managerial incentive contracts in a differentiated duopoly,with and without commitment

In a differentiated Cournot duopoly, we examine the contracts that firms' owners use to compensate their managers and the resulting output levels, profits and social welfare. If products are either sufficiently differentiated or sufficiently close substitutes, owners use Relative Performance contracts. For intermediate levels of product substitutability, they use Market Share contracts. When owners do not commit over the types of contracts, each type is an owner's best response to his rival's choice. Product substitutability has differential effects on output levels and profits, depending on the configuration of contracts in the industry. Finally, managerial incentive contracts are welfare enhancing if they increase consumers' surplus. Copyright © 2010 John Wiley & Sons, Ltd.