Showing papers by "University of Ljubljana, Faculty of Economics published in 2006"

How Formal Performance Evaluation Affects Trust between Superior and Subordinate Managers

Abstract: An important question in the control literature concerns the role of interpersonal trust in the design and functioning of formal control systems for collaborative settings. Although some studies regard trust and formal controls as independent phenomena, recently studies have explored how formal controls affect interpersonal trust. These studies provide mixed results, as they show both positive and negative effects of formal control on trust. This suggests that our understanding of the mechanisms through which, and the conditions under which, formal control affects trust is important, but still limited. In this paper we aim to enhance our understanding of this relationship by investigating the relationship between formal control and interpersonal trust for the collaborative setting of superiors and subordinates. We argue that subordinate's trust in the superior depends on the formality of the performance evaluation procedure, that this relationship is mediated by managerial perceptions of justice and feedback, and that these effects differ across managerial functions. We test our expectations using survey data from a sample of 160 managers in 11 commercial banks. Overall, we find that formal performance evaluation affects trust, and that this relationship is mediated by managerial perceptions of justice and feedback. Furthermore, we find that formality matters more for managers in functions with less contractible outputs. The paper contributes to the literature by providing empirical evidence on the antecedents of trust in a performance evaluation setting. Furthermore, it provides additional evidence of positive effects of controls on trust, yet shows that these positive effects are contingent on the exact managerial setting.

Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications

Abstract: Countries that joined the European Union in 2004 have to decide when to adopt the Euro. This decision depends on the evaluation of the relative costs and benefits associated with giving up the exchange rate instrument. Recent empirical work on several new EU members has questioned the role of the exchange rate as a shock absorber, thus downplaying the potential costs in terms of macroeconomic stabilization. In this paper, we address the issue from a different perspective, emphasizing the role of pass-through from exchange rate to domestic inflation in new EU members. The focus is on four countries (Czech Republic, Hungary, Poland and Slovenia – NM-4) that have adopted some form of floating or managed exchange rate regimes. The paper reports empirical results indicating high pass-through coefficients and links them to the degree of policy accommodation. High exchange rate pass-through in NM-4 indicates that stabilization of nominal exchange rates would lower inflationary pressures and help fulfill criteria to enter the EMU.

Do External Knowledge Spillovers Induce Firms'Innovations? Evidence from Slovenia

Abstract: According to new growth theory, technological progress is endogenous and driven by an intentional investment of resources by profit-seeking firms. Still, innovation activities in firms depend heavily on external sources (Fagerberg, 2005). For most countries foreign sources of technology are of dominant importance for productivity growth (Eaton and Kortum, 1999; Keller, 2002). Therefore, economic analysis of innovation recognizes international knowledge flows (through FDI, trade, licensing and international technological collaborations) as important determinants of the development and diffusion of innovations. Here, the notion of technology and knowledge spillovers is central. It is based on theories of endogenous technical change of the early 1990s (Romer, 1990; Grossman and Helpman, 1991; Aghion and Howitt, 1998), claiming that the return to technological investments is partly private and partly public (Keller, 2004). Because of the non-rival character of technology, an innovation that is produced by one firm may also be used by another firm, without incurring very much additional cost (Smolny, 2000). These are technology or knowledge spillovers.

Competition and entry in banking: implications for capital regulation

Abstract: We assess how capital regulation interacts with the degree of competitiveness of the banking industry. We particularly ask two questions: i) how does capital regulation affect (endogenous) entry; and ii) how do (exogenous) changes in the competitive environment affect bank monitoring choices and the effectiveness of capital regulation? Our approach deviates from the extant literature in that it recognizes the fixed costs associated with banks’ monitoring technologies. These costs make market share and scale important for the banks’ cost structures. Our most striking result is that increasing (costly) capital requirements can lead to more entry into banking, essentially by reducing the competitive strength of lower quality banks. We also show that competition improves the monitoring incentives of better quality banks and deteriorates the incentives of lower quality banks; and that precisely for those lower quality banks competition typically compromises the effectiveness of capital requirements. We generalize the analysis along a few dimensions, including an analysis of the effects of asymmetric competition, e.g. one country that opens up its banking system for competitors but not vice versa.

Competition and Entry in Banking: Implications for Stability and Capital Regulation

Abstract: We assess the influence of competition and capital regulation on the stability of the banking system We particularly ask two questions: i) how does capital regulation affect (endogenous) entry; and ii) how do (exogenous) changes in the competitive environment affect bank monitoring choices and the effectiveness of capital regulation? Our approach deviates from the extant literature in that it recognizes the fixed costs associated with banks' monitoring technologies These costs make market share and scale important for the banks' cost structures Our most striking result is that increasing (costly) capital requirements can lead to more entry into banking, essentially by reducing the competitive strength of lower quality banks We also show that competition improves the monitoring incentives of better quality banks and deteriorates the incentives of lower quality banks; and that precisely for those lower quality banks competition typically compromises the effectiveness of capital requirements We generalize the analysis along a few dimensions, including an analysis of the effects of asymmetric competition, eg one country that opens up its banking system for competitors but not vice versa

Housing Tenure Preferences in the Post-privatisation Period: The Case of Slovenia

Abstract: The privatisation of social housing transformed many transitional countries in Central and Eastern Europe into societies with predominant homeownership and a marginalised rental sector. The case of Slovenia shows that, despite a low level of government support of homeowners, the homeownership rate has remained at its unsustainably high level and households continue to express strong preferences for homeownership. The paper explores factors explaining current homeownership preferences in Slovenia. A comprehensive model of housing preferences is built. The model follows the proposition that tenure preferences are strongly influenced by general cultural norms and factors characterising the social, economic and political environments. The model is tested using structural equation modelling based on a survey of Slovenian households. The results reveal that the strong preferences for homeownership in Slovenia can be explained by the firm perceptions of the financial advantages of homeownership and by the lack o...

Forecasting macroeconomic variables for the accession countries

Abstract: The accession of ten countries into the European Union makes the forecasting of their key macroeconomic indicators such as GDP growth, inflation and interest rates an exercise of some importance. Because of the transition period, only short spans of reliable time series are available which suggests the adoption of simple time series models as forecasting tools, because of their parsimonious specification and good performance. Nevertheless, despite this constraint on the span of data, a large number of macroeconomic variables (for a given time span) are available which are of potential use in forecasting, making the class of dynamic factor models a reasonable alternative forecasting tool. We compare the relative performance of the two forecasting approaches, first by means of simulation experiments and then by using data for five Acceding countries. We also evaluate the role of Euro-area information for forecasting, and the usefulness of robustifying techniques such as intercept corrections and second differencing. We find that factor models work well in general, even though there are marked differences across countries. Robustifying techniques are useful in a few cases, while Euro-area information is virtually irrelevant.

Inward Foreign Direct Investment and Industrial Restructuring: Micro Evidence - The Slovenian Firms’ Growth Model

Abstract: We examine the impact of inward foreign direct investment (FDI) on the growth of local firms in terms of employment and total factor productivity (TFP) for the Slovenian manufacturing sector in the 1994-2003 period. The theoretically predicted channels through which inward FDI affects the firm dynamics in a host country prove to be in general significant. First, there is evidence of the direct impact of foreign firms through so-called direct technology transfer as foreign-owned firms have higher growth of TFP compared to domestically-owned firms after controlling for other determinants. Secondly, the entry of foreign firms stimulates the re-shuffling of the resources from less to more efficient local firms. The firm selection process is, namely, characterised by the least efficient firms experiencing a drop in their employment growth upon a foreign firm’s entry. Thirdly, regarding the productivity spillover effects from foreign to local firms we provide indirect evidence that they mostly operate through vertical linkages rather than within the same industry. In general, it seems that not all firms are equally able to benefit from foreign firms’ presence and that absorptive capacity plays an important role.

Development Prospects of the Banking Industry in the New EU Member Countries and Forthcoming Member Countries

Abstract: Bank consolidation has substantially decreased the number of banks in European banking, which has had important implications for the banking sectors structure in all EU member countries. The consolidation processes have had a tremendous impact on the developments in banking sectors of new EU member countries, where major structural changes have been initiated mostly by new entrant banks from the old EU member countries. The future banking development in new EU member countries will very likely follow some main patterns known from the old EU members. Rather speculative conjectures, which are based on a comparison with banking sectors in other EU member countries indicate, that the total-asset-to-GDP ratio in new member countries should further improve in the future. The banking sector growth will be based mostly on the growth of the credit to non-banking sector, while banks are not expected anymore to use non-bank deposits as a predominant way of funding. Instead potentials for alternative funding possibilities should be activated. Although the non-bank financial intermediaries in new EU members represent a serious competition to banks, their relative underdevelopment prevents them from impacting the developments in banking sectors as known from old EU member countries.

The role of foreign direct investment in the firm selection process in a host country: evidence from slovenia

Abstract: This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994-2003 period by assessing the impact of the entry and presence of foreign firms on a domestic firm's probability of exiting. The results confirm that not only do foreign entrants tend to be above-average productive but they also find it easier to exit (particularly those entering in the form of acquisitions). Further, the least efficient firms are found to experience a drop in their survival probability upon a foreign firm's entry. In addition, a foreign firm's entry seems to stimulate the selection process not only within the industry but also through backward linkages in the upstream supplying industries. Regarding the productivity spillover effects from foreign to local firms the results suggest that they mostly operate through vertical linkages rather than within the same industry.

Accounting Skills Hotel Enterprises Need Today

Abstract: The article presents a view of current happenings in the business and economic environment that are significantly influencing the knowledge requirements of modern accountants both worldwide and locally. First, we define the specific skills accountants are required to have apart from an in-depth expert knowledge of accounting. These skills have set the final boundary between accounting and bookkeeping. Later, the perspectives of certified accountants in Great Britain and Slovenia, as well as accountants working for Slovenian hotel enterprises are presented as regards the key factors influencing a change in accountants' tasks. Finally, the skills of modern accountants are presented, along with the underlying education and training system needed for gaining the title of a certified accountant.

Business value of business intelligence systems lies in improved business processes

Abstract: In today's competitive marketplace, organizations must focus scarce resources on the strategies most likely to yield success. Business intelligence (BI) helps them achieve this focus giving the complete vision to learn from the past, monitor and communicate the present, and gain insight into the future. In the paper we propose a framework for analyzing benefits of BI systems that is based on three tier analysis of their business value, where we separate the goals of better information quality from business goals (e.g. changes in business processes that contribute to the fulfillment of strategic business goals and more appropriate response to business drivers). We maintain that the business value of BI systems does not arise only from better information processes and information quality but mostly from the consequently improved core and key business processes.

Testing for Discontinuity or Type of Distribution

Abstract: In this paper, we propose a simple test for the continuity of a distribution function or of the type of distribution. The main advantage of our test in comparison to others, as used in earnings-management studies, for example, is that no assumptions regarding the underlying distribution function are necessary. Nonetheless, by use of the Chebyshev inequality we are able to define the upper limit of probabilities of test values. Results of Monte Carlo simulations indicate the robustness of the test in that the hypothesis of continuity for distribution functions with jumps is rejected whilst for continuous distributions it is not rejected. We also show that the test appropriately rejects/does not reject hypotheses regarding the type of distribution that a set of data follows. The test is particularly reliable for samples of more than 5000 observations. Applications employing such tests, for example in the earnings-management literature, typically exceed this threshold.

The Effect of Parallel OTC-DVP Bond Market Introduction on Yield Curve Volatility

Abstract: The goal of this paper is to analyze the effect of OTC-DVP (over the counter delivery versus payment) fixed income market introduction in Slovenia on the term structure estimation and on the volatility of zero coupon yields and forward interest rates. For the purpose of the analysis Slovenian zero coupon and forward curves were estimated. The model used for yield curve estimation was Nelson-Siegel model as it proved to be superior in terms of goodness of fit, to other statistical methods of yield curve estimation, namely: Svensson model, B-splines model, smoothing B-splines model and Merrill Lynch exponential splines model. Results of analysis show that OTC-DVP bond market introduction (as parallel bond market) has improved the information content of bond prices for term structure estimation purpose. The volatility of spot and forward rates for mid and long remind maturities has fallen with the highest density on the longest maturity segment.

The Convergence of Cultures: from Socialism to Capitalism

Abstract: In the article we discuss the convergence of cultures in the period of transition from socialism to capitalism in the case of three post-socialist countries: Slovenia, Serbia and Russia. The research is focused on studying of the on-going convergence of values between different nations and different generations as it may be observed in the business environment. This research is based on the Trompenaars model, who has made an extensive study of national and organizational dimensions of culture of managers. Our findings show that there are significant differences between the values of senior and younger managers. National differences are more accentuated among older managers than younger. The values of younger generations of managers are more similar. There are many reasons for the convergence of cultures among young generation, our research shows that one of the key reasons lies in education.

In Search of True Productivity Differences

Abstract: Recent work on production functions estimation revealed that substantial biases can be introduced into the estimates when the assumption of perfect competition and price exogeneity is not satised in the data itself As Klette and Griliches (1996) show applying traditional econometrics in diferentiated food markets will negatively bias the scale estimates of the production function In fact, when deated sales are used as a proxy for output in case of diferentiated good industries scale economies (and subsequently productivity) cannot be estimated independently of markups We extend this basic framework to show that, if exporting markups are smaller than those attainable in the domestic market, the Klette-Griliches estimation procedure will tend to overestimate exporting markups and underestimate their productivity In addition, we provide an estimation algorithm based on the Olley-Pakes (1996) framework that could serve to ensure unbiased estimates of ex-porter productivity