The efficiency view of corporate boards: theory and evidence

We build a simple model in which corporate governance may allow for institutions acting as commitment devices (e.g., the introduction of independent and minority members in the board). The model predicts that the incentive to adopt an institution — letting the general interest of shareholders prevail over private benefits of control by dominant shareholders — is decreasing in ownership concentration and increasing in free cash flow. We take the predictions of our theoretical model to the data, by providing empirical evidence on the board structure of Italian listed companies over the period 2004-2007. We find that board composition favors independent members in firms where the free cash flow is large, and executive members in firms with high ownership concentration and in family firms, supporting the view of corporate governance as a mechanism to control agency costs. More ambiguous conclusions are reached as for the link between governance and firm value, as the presence of minority lists in the board appears to improve value while that of independent members reduces performance.corporate boards, agency problems, private benefits, firms’ performance.

Another unconsidered sinister effect of indusrty-specific crises? On the possible emergence of adverse selection phenomena on the survival of entrepreneurial ventures.

This article explores the possibility that under an intensely negative industry-specific shock, the commonly detected positive relationship between the human capital of founders and the survival prospects of start-up businesses may actually be reversed. Starting from an analysis of the issue from a theoretical perspective in order to derive the necessary and sufficient conditions for the emergence of these adverse selection phenomena in entrepreneurship, the study examines a sample of 179 Italian start-ups operating in the ICT services market created during the boom period from 1995 to early 2000. Econometric analyses provide evidence that, during an intense industry crisis (i.e., early 2000 to 2003), entrepreneurs with a substantial amount of human capital may pursue an exit strategy.High-tech entrepreneurship; Adverse selection; Industry crises.

The Impact of Training on Productivity: Evidence from a Large Panel of Firms

This paper investigates the e®ects of training on labor productiv- ity using a unique nationally representative panel of Italian ¯rms for the period 2002 to 2005. We ¯nd that training has a positive and signi¯cant e®ect on productivity. Using a variety of panel estimation techniques, we show that failing to account for unobserved heterogene- ity leads to overestimate the impact of training on productivity, while failing to account for endogeneity leads to substantially underestimate it. Training also has a positive and signi¯cant impact on wages, but this e®ect is about half the size of the e®ect on productivity. Within occupational groups, the e®ect of training on productivity is large and signi¯cant for blue-collars, but small and not signi¯cant for white collars.On-the-Job-Training; Productivity; Wages; Panel Data

Complementary Assets, Start-Ups and Incentives to Innovate

In this paper we examine in a game theoretic framework in how far market conditions facilitating start-up formation positively affect technical change and firms' profits. We consider a model in which R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to form a start-up. Market conditions, in particular the availability of complementary assets, influence whether new firms are created and determine expected profits for start-up-founders. Easy availability of complementary assets has the direct effect that the generation of start-ups, which leads to the diffusion and duplication of know-how, is fostered. However, incentives of incumbent firms to invest in R&D might be reduced because of the increased danger of knowledge loss through spin-out formation. We fully characterize the effects of an increase in the availability of complementary assets, demonstrating that under certain market conditions the effects on innovative activities and industry profits can be negative.Complementary Assets, Technical Change, R&D Effort, Startup

Money, Inventories and Underemployment in Deflationary Recessions

This paper investigates monetary shocks and the rôle of inventories with respect to the occurrence of deflationary recessions. We propose a non-tâtonnement approach involving temporary equilibria with rationing in each period and price adjustment between successive periods. By amplifying spillover effects inventories imply that, following a restrictive monetary shock, the economy may converge to a quasi-stationary Keynesian underemployment state, in which case money is persistently non-neutral. Contrary to conventional wisdom, this is favored by sufficient downward flexibility of the nominal wage. The model is applied to the current deflationary Japanese recession, and we propose an economic policy to overcome itInventories, non-tatonnement, price adjustment, non-neutrality of money, deflationary recession

Investment decisions and the soft budget constraint: evidence from Hungarian manufacturing firms

This paper investigates the investment behaviour of a large panel of Hungarian firms in the period 1989–99, in order to assess the impact of institutional and regulatory changes on the efficiency of credit allocation. We find that the role of financial factors for investment decisions has changed significantly after the introduction of major financial reforms, and that firms were affected differently depending on their ownership type. Reforms have hardened the budget constraint of private domestic firms, particularly small ones, and reduced informational problems for foreign-owned firms. State-owned firms remained subject to a soft budget constraint. In particular, small state firms became more sensitive to financial conditions, whereas large state firms were unaffected and kept operating under a soft budget constraint.Investment, financial constraints, soft budget constraint, transition

Persistent disequilibrium dynamics and economic policy

We develop a theoretical model involving temporary equilibria with quantity rationing in each period and price adjustment between periods. The resulting dynamic system may present a variety of dynamic behaviors, ranging from the convergence to stationary or quasi-stationary states, to complex or even chaotic dynamics. In particular, our framework has the property of being able to endogenously allow for the characterization of persistent disequilibrium phenomena — such us unemployment or deflation. It provides therefore for an ideal setup to investigate the effects and persistency of recessionary phases, and to study the effectiveness of different economic policies aimed at resolving them.non-tâtonnement, complex dynamics, Phillips curve, expectations, inventories, non-neutrality of money, deflation

The Social Value of Public Information with Costly Information Acquisition

In a beauty contest framework, we show that more precise public information contributes to higher welfare when the precision of private information is endogenous. We consider a Stackelberg game in which public authorities decide the accuracy of public information taking into account how this affects the acquisition of private information and the choice of individual actions in equilibrium. Because the acquisition of private information is costly, an increase in the precision of public information increases welfare by reducing the incentives for acquisition of private information, thereby inducing socially valuable savings of private resources.Public information, private information, coordination, welfare

When Stackelberg and Cournot Equilibria Coincide

We compare two-stage Stackleberg with Cournot equilibrium under the assumption of quantity competition and homogeneous goods.  We show that, when the curvature of the inverse market demand equals the total number of firms in the industry, the outcome of the two games coincides.

The Role of Expectations in a Macroeconomic Model with Inventories

In this paper we use a non-tâtonnement dynamic macroeconomic model with overlapping generations of consumers to study the role of expectations and inventories in the business cycle. Prices are fixed at the beginning of each period but adjusted between periods, taking into account possible market imbalances that have occurred within the period in an equilibrium with stochastic rationing. Producers hold inventories if they do not succeed to sell all their supply in the current period. Consumers too may store the consumption good so as to transfer it to the second period of their life. Whether they do this depends on their price expectations: only if they expect the price to rise will they desire to buy the planned consumption for both periods in the first period. Therefore price expectations are decisive for the type of dynamics that comes forth. In particular there are multiple equilibria in the sense that, for otherwise the same parameters but with different types of expectations, there are sequences of inflationary as well as deflationary equilibria with self-confirming expectations. In addition, and consistent with expectations, there may be endogenous expectations-switching along a trajectory. The above framework is applied to policy evaluations regarding the effectiveness of measures to overcome a quasi-stationary state of deflationary recession with underemployment, as is currently occurring in Japan. Such a state may have been provoked by a restrictive monetary shock and exasperated by over-investment and inventory holding, the latter by amplifying the spill-over effect from the goods to the labour market. If the recession is not to deep, creating inflationary expectations succeeds in exiting from the recession. Otherwise there may be a temporary effect of reducing unemployment but then the economy falls back into recession. Thus in that case other policy measures have to be taken, too. Among these, and contrary to conventional wisdom, balanced-budget cuts in taxes and government spending combined with downward rigidity of nominal wages seem to be the most effective ones.expectations, inventories, non-neutrality of money, deflation