Labour unions and global bank loan market

This article attempts to collect a data set of labour unions in global 500 biggest banks and investigate whether labour unions of banks influence the designing of bank loan contracts. We use global syndicate loan market to examine this issue. For simplicity, banks with and without labour unions are referred to as ‘unionized banks’ and ‘nonunionized banks’, respectively. We find that unionized banks tend to loosen their lending standard in the bank loan contract: unionized banks are more likely to charge lower loan spread and favourable nonprice terms compared with nonunionized banks. Hence, our results support that unionized banks tend to lend more loans to reduce the negative effect of labour unions.     

The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market

We examine whether labour unions influence external auditor selection and audit scope. As a major user group of financial information, labour unions likely demand financial information of high quality and thus high-quality audits. As a union’s request for wage increases is likely strong when a firm is performing well, management facing wage negotiations with the labour union has incentives to manipulate earnings downward and may therefore prefer auditors who allow more discretion. Using union data unique to Korea during 2005–2008, we find that firms with a stronger labour union tend to choose higher-quality auditors (i.e. Big N or industry specialist auditors). We also find that unionization is negatively (positively) associated with positive (negative) abnormal audit fees and audit hours, and the effects are more pronounced when the union is stronger and more active. Given that departures from normal audit fees and audit hours in either direction arguably impair audit quality, this finding is consistent with our prediction of unions’ demand for high-quality audits. Overall, our findings suggest that labour unions play an important role in determining audit quality.     

Taxation and corruption: theory and firm-level evidence from Uganda

This article develops a simple framework to analyse the negotiation over bribe and tax payments during the tax collection process. We show that the larger the bribe a firm offers to a tax collector, the larger the tax rebate it gets. More particularly, we show that the negotiation over bribe and tax payments hinges on four other factors: firms’ official liabilities, detection, firms’ negotiation power and red tape costs imposed on firms. Some of the predictions from the theoretical model are tested using firm-level data from Uganda. We find that bribe and tax payments are inversely related, thereby supporting the hypothesis of a negotiation taking place between firms and tax collectors. In particular, a 1% point increase in average bribe payments per employee is associated with a 7% point reduction in average amount of tax payments per employee. Results are robust to various instruments dealing with the endogenous relationship between bribes and taxes.     

Excessive private sector leverage and its drivers: evidence from advanced economies

The paper provides novel quantitative assessments of the gaps between actual and sustainable levels of debt for households and corporates in selected advanced economies, revealing considerable heterogeneity across sectors and countries. The accumulation of gaps is found to precede financial distress. The paper also identifies key factors that drive excessive debt, separately for households and corporates. For households, excessive leverage is found to be higher in countries with lower interest rates and higher share of working population, but importantly also in countries with rising house prices and greater uncertainty as captured by unemployment. For corporates, debt overhang is estimated to be higher in countries with lower profitability, stronger insolvency frameworks and in absence of thin capitalization rules. There is therefore scope for the use of policy to limit the build-up of household and corporate debt overhang.     

The impact of political institutions on U.S. state bond yields during crises: evidence from the 2008 credit market seizure

This study examines how political institutions mediate bond market reactions to severe economic crisis, based on U.S. states’ experience of the 2008 credit market seizure. Following severe fiscal shocks, political institutions assume greater importance in assessing risk characteristics of state bonds. The bond market reacts most strongly to two factors: public sector union strength in a state and the proportion of Democrats in the state legislature. We suggest that the identity of political institutions becomes increasingly important, during periods of economic crises, when credit markets might expect that political systems can no longer delay stabilisations and must deliver policy.     

Corporate leverage and the terms of employment: evidence from French small businesses before and during the global crisis

Despite the particular importance of corporate leverage and human capital for small businesses, little is surprisingly known about the relationship between these two factors for this category of firms. Accordingly, this article tries to fill this gap by investigating the relationship between leverage and human capital examined through the investment in employee-related expenditure. The analysis focuses on a sample of French listed small businesses before and during the recent global crisis. The empirical findings show that leverage serves as a monitoring mechanism of corporate managers prone to over or underinvest in employee-related expenditure to obtain private benefits. Due notably to the availability of debt, this monitoring is more effective before the crisis period, especially for low growth firms. Overall, these results provide support to the theory that leverage has a disciplining role. Simultaneously, they lead to moderate the strength of this role according to the global crisis. Thus, they should provide useful insights for academics, regulators, managers and credit institutions.     

Employment protection and productivity: evidence from firm-level panel data in Japan

Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms’ production decisions or workers’ commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms’ total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs.     

Competition and inter-firm credit: Theory and evidence from firm-level data in Indonesia

Using firm-level data we investigate the relationship between trade credit and suppliers' market structure and find a ∩-shaped relationship between competition and trade credit, with a discontinuous increase in credit provision between monopoly and duopoly. This “big jump” arises because monopolists are more likely to not offer any trade credit than firms in competitive environments. Our model exploits the fundamentally different nature between cash and trade credit sales, arguing that firms are unable to commit ex ante to a trade credit price. We show that monopolists will often sell only on cash, while credit is always provided in competitive environments.     

Monetary Expressions of Labour Time and Market Prices: Theory and Evidence from China,Japan and Korea

This article presents estimates of labour values and prices of production following two approaches: the first is based on the classical and Marxian theory of value and distribution; the second on the so-called ‘new solution’ to the ‘transformation problem’ and its variant, the Temporary Single-System Interpretation (TSSI). The major advantage of the latter approach is its simplicity, along with the relatively low data requirements. Our empirical findings from the economies of China, Japan and South Korea suggest that both approaches give estimates of labour values and prices of production which are extremely close to each other as well as to actual market prices. On further examination, however, we conclude that our empirical findings are absolutely consistent with the theoretical requirements of the classical approach and contradict those of the TSSI.     

Productivity and R&D: an econometric evidence from Spanish firm-level data

This article analyses the relationship between productivity growth and R&D investments of Spanish manufacturing firms during the 1990s. The theoretical model is a version of the Cobb–Douglas production function in its growth rate form. The purpose is to estimate the rate of return to R&D expenditures. The econometric specification is a distributed lag model. The estimation applies the generalized method of moments method. The main empirical finding is that a positive and significant role is played by R&D expenditures on productivity growth. The rate of return to R&D expenditures is 26.598%.     

Values, prices of production and market prices: some more evidence from the Greek economy

This paper extends the empirical investigation of the relationbetween labour values and different price forms in the caseof the Greek economy. Subjecting the labour theory of valueto empirical tests with data from various countries helps inthe derivation of general conclusions regarding its empiricalvalidity and practical usefulness. Our results on the closenessof values and prices as measured by their absolute deviationand correlation, the shape of the wage–profit curves,the predictive power of labour values over market prices comparedwith other ‘value bases’, and the comparison offundamental Marxian categories when estimated in value and priceterms provide further support for the empirical strength ofthe labour theory of value.     

Exploring outward FDI and the choice of destination: evidence from Swedish firm-level data

Using Swedish firm-level data on all firms and their affiliates abroad, we investigate what observable firm and country characteristics affect the size of an affiliate in a particular destination. We employ the richness of the data to investigate the importance of destination country factors in explaining firm outward FDI activities and distinguish between the factors that affect such activities in manufacturing versus services firms as well as vertical versus horizontal investments. Our results lend support to existing theories of multinational activity of manufacturing but not services firms. We also find observable differences between vertical and horizontal manufacturing firms that are not always explained by theory.     

Firm investment and financial conditions in the euro area: evidence from firm-level data

We explore whether the sensitivity of firm-level investment to cash flow, typically associated with an external financing premium, is time-varying and in particular whether it varies with overall financial conditions. We find that financial conditions have indeed played a significant role in corporate investment decisions over recent years, rendering financing constraints even more binding. This finding appears to be robust to a number of control variables and robustness tests. Moreover, the impact of credit conditions is not uniform across firms, but rather it varies depending on firm size and leverage, with constrained firms being substantially more likely to condition their investment decisions on overall credit conditions. Our results cast new light on the interplay between financial and real cycle downturns and underline the need for monetary, fiscal and macroprudential policy to be countercyclical with respect to financial conditions.     

High-speed rail and inventory reduction: firm-level evidence from China

Using a balanced panel of manufacturing firms from China between 2007 and 2013, we estimate that being connected to a high-speed rail (HSR) system leads to 9.5% reduction in local firms’ input inventory spending. The effect is stronger for downstream industries and private enterprises. A back-of-envelope calculation suggests that each dollar of HSR investment reduces input inventory stock by 12 cents, which is significantly larger than the effects found in previous studies based on highway or road investment. Declines in transportation and communication cost, as well as agglomeration effect, are identified as plausible mechanisms. Our findings reveal a micro channel through which improved transport infrastructure brings about economic gains, and contribute to the cost-benefit assessment of HSR investment.     

The puzzle on the causality of the productivity and employment growth: evidence from firm-level data

This article analyses the causality between the firm’s employment and productivity growth based on the population of manufacturing firms registered in Slovenia in the 1994–2003 period. By using the system GMM estimator, we show that the employment–productivity growth trade-off does not exist. Moreover, we find significant complementarities between employment and productivity growth, mostly driven by SMEs and firms from high-tech industries. Accordingly, we argue that the job-creation policy and productivity-promoting policy are complementary rather than trade-offs and that policymakers should focus on the optimal policy mix that provides the highest aggregate effect with regard to all growth aspects. Further, significant differences among the factors of employment and productivity growth suggest that job-creation policy measures are most successful when targeted at younger export-oriented firms with high total factor productivity levels and capital-intensive production. Meanwhile, the outcome of policy measures aimed at promoting productivity increases with a firm’s capital intensity and size up to the threshold employment level and with the intensity of market competition.     

The one constant: a causal effect of collective bargaining on employment growth? Evidence from German linked‐employer‐employee data

A large number of articles have analysed ‘the one constant’ in the economic effects of trade unions, namely that collective bargaining reduces employment growth by 2–4% points per year. Evidence is, however, mostly related to Anglo‐Saxon countries. We investigate whether a different institutional setting might lead to a different outcome, making the constant a variable entity. Using linked‐employer‐employee data for Germany, we find a negative correlation between being covered by a sector‐wide bargaining agreement or firm‐level contract and employment growth of about 1% point per annum. However, the correlation between employment growth and collective bargaining is not robust to the use of panel methods. We conclude that the results of the literature using cross‐section data might be driven by selection.     

The impact of new goods and service products on firm growth: evidence from Austrian-linked firm-level data

Using a matched innovation survey and structural business statistics, we investigate the impact of the introduction of new service products and other types of technological innovations on firm growth measured as subsequent two-year employment growth. Results, based on median and robust regression methods for manufacturing firms, show that, on average, both the introduction of new goods and process innovations have a significant and positive impact on subsequent firm growth. In contrast, the introduction of new services does not, on average, have a significant impact on firm growth for both manufacturing and service firms. However, quantile regressions show that the introduction of new service products has a significant and positive impact on firm growth for high-growth service firms. Finally, in manufacturing, the introduction of product innovations has a positive impact on firm growth at both the lower and higher ends of distribution (i.e. for both high-growth and shrinking firms).     

Sunk capital,unions and the hold-up problem: Theory and evidence from cross-country sectoral data

In this paper we study the hold-up problem by considering the effect of union bargaining power on the level of investment per worker across sectors characterised by different levels of sunk capital investment. We develop a search and matching model with heterogeneous sectors and ex-post collective wage bargaining and test the predictions of the model using a difference-in-difference approach on manufacturing sector data in a set of OECD countries during the period 1980–2000. We find that union power reduces investment per worker particularly in sunk capital intensive industries. We refine our empirical analysis showing that the underlying hold-up problem is exacerbated when strikes are not regulated after a collective contract is signed and there is no arbitration, while the presence of social pacts may sustain cooperative equilibria that alleviate the hold-up problem. Our results are robust to a series of controls and possible endogeneity of union power.     

Mean reverting financial leverage: theory and evidence from Pakistan

Grounding concepts of the two competing theories of capital structure (trade-off theory, pecking order theory) are quite opposite to each other. Trade-off theory claims that there is an optimal (target) capital structure and firms try to achieve that optimal (target) point. Whereas pecking order theory argues that there is no optimal (target) capital structure but the firms follow a specific pattern of financing. Using the two competing theoretic frameworks, this study applies Fisher-type panel unit root test to an unbalanced panel data of 13 115 firm-year observations of nonfinancial firms listed on Karachi Stock Exchange Pakistan spread over 38 years (1973–2010). Overall panel test results, for short-term, long-term, as well as total leverage support trade-off financing behaviour while individual firm results do not. Individual firm results show that only 16% of the firms have short-term target, 25% of the firms have long-term target and 12% of the firms have total target leverage ratio. Further, industry results explain that most of the industries do have target leverage ratios and classification of data into profitable and lossmaking firm-year observations explains that profitable firms clearly follow trade-off financing behaviour while the results for lossmaking firms do not support trade-off financing behaviour. Our study indicates that it is important for the government to ensure policies to develop well-balanced financial markets and to improve accountability systems.     

Job quality and the economics of New Labour: a critical appraisal using subjective survey data

This paper assesses the record on job quality during the earlyterm of office of the New Labour government by interpreting,from a political economy perspective, changes in a variety ofsubjective measures of job quality taken from several differentdata sources. We find some improvements in job quality overthe period 1998–2004; however we argue that these improvementshave arisen not because of New Labour's policies towards theworkplace but because of low and falling rates of unemployment.Despite recent improvements, a large number of workers in Britainremain in low quality jobs and, without a radical change ofpolicy direction, sustained and substantial progress in thequality of work will remain elusive.