The private equity business model and associated strategies for HRM: evidence and implications?

Are private equity firms significant actors in the UK market for corporate control? Do they represent a new organizational form befitting a new business model? What are the direct and indirect pressures on management that flow from the diffusion of this business model and its associated organizational form? In terms of human resource management does acquisition by private equity have a significant or negligible effect? This paper looks at the development and diffusion of private equity and the ‘take private’ private equity business model (PEBM) and the effects of these on the management of HR. In addition to this the paper evaluates the PEBM within comparative institutional approaches to international business and HRM.     

The optimality of public–private partnerships under financial and fiscal constraints

The government may delegate two sequential tasks (e.g., building and operating an infrastructure) to the same or different agents (i.e., partnership vs. sequential contracts). Agents are risk-neutral but face financial constraints, whereas the government's contractual capacity may be limited by the renegotiation-proofness and fiscal constraints. By relying on history-dependent incentives, the partnership contract corrects moral hazard more effectively than sequential contracts. Thus, it is socially preferred unless bundling different tasks deteriorates the agent's financial conditions. Our results shed new light on the role of firms' financial and government's fiscal conditions in driving the cost–benefit analysis of public–private partnerships.     

Public–private sector wage differentials and the business cycle

This paper uses microeconomic data for the period from 1990 to 2004 to examine the relationship between public–private sector wage differentials and labour market conditions in Finland. The results show that the public sector wage premium is strongly counter-cyclical. On average, a 10 percent increase in the local unemployment rate increases the public–private sector wage gap by one percent. Separate analyses by government sector and quantiles of the distribution of wages reveal that it is local government workers and those working at lower skill levels who benefit more from increasing unemployment rate. The paper also exploits the longitudinal structure of the data to examine whether the results are constant over time. These results indicate that the cyclical pattern primarily emerges in years with deteriorated labour markets.     

Can you pay employees to innovate? Evidence from the Canadian private sector

Using 7 years of data representing the Canadian private sector, we estimate the effects of the major components of compensation on a rarely studied form of employee performance: innovation. Although there are some limitations inherent in the data, our results indicate the complex motivation required for consistent innovation success. Surprisingly, we find that fixed pay (salary) and individual performance pay have no effect on innovation, while variable group pay and indirect pay (employee benefits) have a positive effect. In other words, our results suggest that you can pay employees to innovate, provided that you select the right compensation incentives.     

How can firms access bank finance for circular business model innovation?

Access to bank finance has emerged as a key challenge for firms engaged in circular business model innovation (circular BMI), both in practice and in the academic literature. Through interviews, focus groups and archival documents, we document the experience of firms accessing finance for circular BMI and assess bank willingness to lend to firms that engage in circular BMI. Our findings offer potential strategies for firms who look for external (bank) finance to realise circular BMI. Using a case study-based theory-refining approach, we identify three core strategies that firms can use to obtain bank finance for circular BMI. First, firms can signal future cash flow expectations by aiming to secure customer contracts and preorders. Second, relationship building with banks, suppliers and customers improves the banks' risk perception of firms. Third, firms can design standardised, long-lasting circular assets that can serve as bank collateral, especially once secondary markets develop, overcoming the difficulty of lending based on innovative, firm-specific assets.     

Are universal banks bad for financial stability? Germany during the world financial crisis

This case study explores the contribution of universal banking to financial stability in Germany during the recent financial crisis. Germany is a prototype for universal banking and has suffered from a rather small number of banking crises in the past. We review the banking literature and analyze the major institutional and regulatory features of the German financial system to establish a nexus between universal banking and stability. We focus on the following questions. First, which banks failed and did they because they were universal or because of other reasons? Second, which types of distress beside outright bank failures resulted from the crisis and how did German universal banks dealt with them? We show that only few German banks failed and these banks did so not because they were universal banks but because they were publicly owned. Most banks instead contributed to reduce the impact of the recent crisis.     

Co-operation and conflict in industrial relations: what are the implications for employees and trade unions?

This article explores the effects on employees of co-operation and conflict the workplace, outlining six workplace types. A survey of union representatives UK steel industry reveals evidence of co-operative industrial relations linked to superior terms and conditions, employee involvement and health and safety outcomes. However, it fails to find evidence that co-operative industrial relations are associated a broader HRM package of workplace restructuring, high performance work teams security provisions. Nor is any association revealed between co-operation and a greater role for trade unions. These findings suggest workplace co-operation in this industry remains part of a traditional gainsharing package and an 'alliance of insiders' than an HRM partnership or union incorporation. This raises broader questions the ability of co-operation to deliver important aspects of organizational competitive advantage.     

Does financial integration affect real exchange rate volatility and cross-country equity market returns correlation?

Existing empirical studies show that financial integration affects the behavior of average excess returns, cross-country equity market returns (EMR) correlations and real exchange rate (RER) volatility. We employ a recently developed two-country model with recursive preferences, frictionless and complete markets and highly correlated long-run innovations to examine whether full financial integration (i.e. full risk-sharing) affects the US-Canada EMR correlation and the US RER volatility, consistently with existing empirical findings. First, full risk-sharing gives rise to a relatively high RER volatility. Second, it induces very strong positive cross-country EMR correlations. Both quantities are higher than those observed in the US-Canada asset pricing data, and increase as the risk-sharing incentive increases. In contrast, “international consumption quantities” are weakly sensitive to changes in the level of aversion to consumption and utility risk.     

What drives dynamic connectedness of the U.S equity sectors during different business cycles?

The study investigates (i) the time-varying and directional connectedness of nine equity sectors through intra- and inter-sector volatility spillover periods and (ii) assesses the impact of state variables on aggregate volatility spillovers. The study finds about 76% of volatility linkage is associated with cross-sector volatility transmissions. Aggressive sectors, which are sensitive to macroeconomic risk, play the net volatility transmission role. Defensive sectors that are largely immune to macroeconomic risk play the net volatility receiving role. The intensity and direction of volatility transmissions among the sectors vary with economic expansion and recession periods. Over time, some sectors switching from net transmitting to net receiving role and vice versa. Macro and financial market uncertainty variables significantly impact volatility spillover at lower volatility spillover (economic expansion period) and higher volatility (economic recession periods) volatility spillover quantiles. Political signals are seemingly more imprecise and uninformative during economic expansion or low quantiles, intensifying volatility spillover. Overall, the causal effects of macro, financial, and policy uncertainty variables on aggregate volatility spillover are asymmetric, nonlinear, and time-varying. The study's result supports the cross-hedging and financial contagion views of volatility transmission across nine US equity sectors.     

Self-employment and business cycle persistence: Does the composition of employment matter for economic recoveries?

Self-employment comprises an important share of employment in many countries, and tends to expand during downturns through higher inflows from unemployment. Furthermore, countries with higher self-employment shares exhibit lower cyclical output persistence. I build a business cycle model with frictional labor markets where individuals can be self-employed or salaried employed. I show that economies with larger self-employment shares exhibit faster economic recoveries. Differences in the ease of entry into self-employment as the economy recovers explain the contrasting cyclical dynamics. The model successfully captures the cyclical patterns of self-employment and the relationship between self-employment and output persistence in the data.     

Are the interdependence characteristics of the US and Canadian energy equity sectors nonlinear and asymmetric?

Nonlinear, symmetric, and asymmetric dependence characteristics in energy equity sectors matter to portfolio investors and risk managers because of the risks and diversification opportunities they entail. Specifically, nonlinear dependence dynamics between assets are harder to predict, monitor, and manage, and can make investment positions go wrong unexpectedly. In this paper, we investigate whether the dependence dynamics of US and Canadian large-capitalized energy equity portfolios are nonlinear, symmetric, or asymmetric. We draw our results by implementing a robust copula approach based on time-varying parameter copulas and vine copula methods. Both time varying parameter and vine-copula methods indicate that the Canadian energy sector portfolio is driven by nonlinear negative tail asymmetric dependence during the global financial crisis and when the full sample period is employed. On the other hand, it displays nonlinear symmetric dependence during the oil price crisis, implying the need for close monitoring and rebalancing and a more continuous assessment of long investment positions. The US energy sector portfolio is driven by positive tail asymmetric dependence, and by symmetric dependence dynamics during crisis and non-crisis periods.     

Public and private healthcare services: What drives the choice?

This paper has explored patients' propensity to consume private healthcare services. We based our analysis on the typical tangible and intangible (for instance, responsiveness, reliability, assurance and staff empathy) domains of the SERVQUAL and SERVPERF methods. These variables may influence patients' decision-making when they choose between the public and private sectors. We combined factor analysis (to obtain a set of latent factors related to perceived quality) and a partial proportional ordered logit model to estimate the probability that a patient would access private healthcare services. To test the main hypotheses, we used data from a stratified sample in Sardinia, a peripheral region of Italy. Findings revealed that private and public healthcare are substitutes, especially for primary/specialised services. Patients who used public healthcare frequently and had a low income were unlikely to change to private healthcare or to recommend private services. ‘Responsiveness’ and perceptions on ‘tangibles’ were key in determining the probability that a patient would choose and recommend private services. This paper offers a multifaceted framework that can be used in future research to generalise these findings, especially in insular regions that are constrained by mobility.     

Why do employees keep choosing the high-premium health care plan? An investigation of the financial consequences and logic of employee health care plan selections

In 1991, Dannon employees had the choice to stay with their current health care plan or switch to a new plan which offered a lower premium and less hospital cost coverage that better fit the needs of most employees. Both plans were the same in all other respects. Only 25% of employees chose the new lower-premium plan over the old plan. This article reports a collaborative effort between The Dannon Company and Cornell University's Center for Advanced HR Studies to identify the patterns of employee choices, and the effects of those choices on the actual costs that employees incurred. The actual decisions of 287 Dannon employees were examined, and the out-of-pocket costs that they actually incurred in the two years after the plan was introduced were calculated. © 1996 by John Wiley & Sons, Inc.     

An error-correction model of the demand for equity mutual funds in the U.S. 1973–1994

The purpose of this paper is to estimate an error-correction model of the U.S. demand for equity mutual funds. Using annual data for the period 1973–1994, this study finds that changes in the demand for equity mutual funds have been significantly influenced by the changes in the rate of return on equity mutual funds and savings deposits, as well as by the growth in income over the long run. The authors would like to thank an anonymous referee of this journal for many useful comments and suggestions.     

Predicting equity premium using dynamic model averaging. Does the state–space representation matter?

Dynamic model averaging (DMA) has become a very useful tool with regards to dealing with two important aspects of time-series analysis, namely, parameter instability and model uncertainty. An important component of DMA is the Kalman filter. It is used to filter out the latent time-varying regression coefficients of the predictive regression of interest, and produce the model predictive likelihood, which is needed to construct the probability of each model in the model set. To apply the Kalman filter, one must write the model of interest in linear state–space form. In this study, we demonstrate that the state–space representation has implications on out-of-sample prediction performance, and the degree of shrinkage. Using Monte Carlo simulations as well as financial data at different sampling frequencies, we document that the way in which the current literature tends to formulate the candidate time-varying parameter predictive regression in linear state–space form ignores empirical features that are often present in the data at hand, namely, predictor persistence and predictor endogeneity. We suggest a straightforward way to account for these features in the DMA setting. Results using the widely applied Goyal and Welch (2008) dataset document that modifying the DMA framework as we suggest has a bearing on equity premium point prediction performance from a statistical as well as an economic viewpoint.     

Organized crime and business subsidies: Where does the money go?

Business support policies are widespread in advanced countries, to foster employment and productivity. This paper analyses the role of organized crime in the allocation of public subsidies to businesses. We assemble an innovative data set on the Italian mafia at municipality level and test whether mafia-ridden municipalities receive a disproportionally higher amount of funds. We exploit exogenous variation at municipality level to instrument mafia activity and show that the presence of organized crime positively affects the probability of obtaining funding and the amount of public funds. Organized crime is also found to lead to episodes of corruption in the public administration sector. A series of robustness checks confirms the above findings.     

Are there major differences in the attitudes and service quality of standard and seasonal employees? An empirical examination and implications for practice

Despite the increased use of seasonal employees by organizations, few studies have been completed on the attitudes and service quality of seasonal office workers. Using Lautsch's classification model, we analyzed the organizational context in which the standard and seasonal workers in this study were employed. Hypotheses were developed based upon the organizational analysis and social exchange theory. Results from archival data obtained from a web‐based organizational survey of 205 clerical and professional workers indicated contrary to expectations, standard and seasonal employees did not significantly differ in terms of perceptions of overall job conditions, perceived organizational support (POS), or job engagement. However, seasonal employees did report significantly fewer opportunities to work on challenging tasks, less comfortable physical working conditions, and less job security than the standard workers. As predicted, standard employees reported significantly higher levels of service quality performance than seasonal employees. Additionally, job engagement mediated the relationship between POS and service quality for both the standard and seasonal employees. Implications for managing seasonal employees are discussed.     

What do indebted employees do? Financialisation and the decline of industrial action

While isolated episodes of work stoppages keep occurring, aggregate industrial action rates have been on the decline over the last five decades. Attempts to explain this trend centre on the short-term effects of the business cycle and the long-term impacts of labour market liberalisation, deindustrialisation and globalisation. This paper argues that household indebtedness is a missing piece of the puzzle. Since indebted employees tend to become self-disciplined at the workplace on the fear of losing their job and defaulting, this paper argues that the post-1970 rise of household financialisation is associated with the decline of strike activity. The econometric evidence reported provides strong support to this argument for the cases of Japan, Korea, Sweden, the United States and the United Kingdom over the period 1970–2018.     

Developing the e-commerce sector for the fishery industry: What business are we really in?

In this study, we use the theory of the marketing firm to explain marketing relationships between consumers and firms selling fish in the context of developing the e-commerce sector for the fishery industry. We use a unique dataset composed of quantitative and qualitative data to provide a behavioral economic analysis and interpretation. The results reveal interdependent managerial and consumer behavioral relationships, indicating the presence of bilateral contingencies. The results also provide some indication of the theory of transaction cost, where cost-intensive activities are likely to be internalized within marketing firms selling fish.