Ownership and wages: Spatial econometric approach

Ogorevc, Marko and Verbič, Miroslav (2012): Ownership and wages: Spatial econometric approach.

Abstract

The aim of our paper is to disentangle the relationship between ownership and wages using cross-section data for Slovenian medium size and large companies, where we account for spatial dependencies in wage determination. Space here is not considered in geographical context, but as a set of relations between firms originating from the same owner. Using a detailed database on Slovenian ownership, we apply a spatial econometric approach to detect any ownership-based wage spillovers, while accounting for different standard factors, such as size, capital intensity and productivity, and also some ownership-based variables, such as ownership concentration and ratio of cash-flow to control rights. Our results indicate that ownership is an important factor in explaining differences in wage levels. Many large owners divert cash-flow into their own pockets which has a detrimental effect on wages and indicates that this behaviour induced by owners is not sustainable.

• Item Type: MPRA Paper
• Language: English
• Keywords: spatial econometrics; ownership; wage differentials; sustainability
• Subjects: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions

References

AJPES PRS (The Agency of the Republic of Slovenia for Public Legal Records and Related Services) (2011) Business registry of Slovenia (CD ROM).

Almeida, H.V. and Wolfenzon, D. (2006). 'A theory of pyramidal ownership and family business groups', Journal of Finance, Vol. 61, No. 6, pp. 2637–2680.

Berle, A. and Means, G. (1932) The Modern Corporation and Private Property, New York: Macmillan.

Blanchflower, D. (1984) 'Comparative pay levels in domestically-owned and foreign-owned manufacturing plants: a comment', British Journal of Industrial Relations, Vol. 22, No. 3, pp. 265–267.

Buckey, P.J. and Enderwick, P. (1983) 'Comparative pay levels in domestically-owned andforeign-ownedplants in UK manufacturing – evidence from the 1980 workplace industrial relations survey', British Journal of Industrial Relations, Vol. 21, No. 3, pp. 395–400.

Cliff, A.D. and Ord, J.K. (1981) Spatial Processes: Models and Applications, London: Pion.

Cubbin, J. and Leech, D. (1983) 'The effect of shareholding dispersion on the degree on control in British companies: Theory and measurement', Economic Journal, Vol. 93, No. 1, pp. 35-69.

Demsetz, H. and Lehn, K. (1985) 'The structure of corporate ownership: causes and consequences', Journal of Political Economy, Vol. 93, No. 6, pp. 1155–1177.

Demsetz, H. (1983) 'The Structure of Ownership and The Theory of the Firm', Journal of Law and Economics, Vol. 26, No. 2, pp. 375-390.

Doms, M.E. and Jensen, J.B. (1998) 'Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States'. In: Baldwin, R.E., Lipsey, R.E, Richards, J.D. (Eds..) Geography and Ownership as Bases for Economic Accounting. University of Chichago Press, pp. 235-258.

Eisenberg, M. (1976) The structure of the Corporation: A Legal Analysis, Boston: Little, Brown and Co..

Feliciano, Z. and Lipsey, R.E. (1999) 'Foreign ownership andwages in the UnitedStates, 1987–1992', NBER Working Paper 6932, Cambridge/MA.

Girma, S., Greenaway, D. and Wakelin, K. (2001) 'Who benefits from foreign direct investment in the UK?', Scottish Journal of Political Economy, Vol. 48, No. 2, pp. 119–33.

Globerman, St., Ries, J.C. and Vertinsky, I. (1994) 'The economic performance of foreign affiliates in Canada', Canadian Journal of Economics, Vol. 27, No. 1, pp. 143–156.

Gosh, S. (2009) 'Do productivity and ownership really matter for growth? Firm-level evidence', Economic Modeling, Vol. 26, No. 6, pp. 1403-1413.

Grossman, S.J. and Hart, O.D. (1980) 'Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation', The Bell Journal of Economics, Vol. 11, No. 1, pp. 42-64.

Holderness, C.G. and Sheehan. D.P. (1988) 'The role of majority shareholders in publicly held corporations: An exploratory analysis', Journal of Financial Economics, Vol. 20, pp. 317-346

Jensen, M.C. and Meckling, W. (1976) 'Theory of a firm: menagerial behaviour, agency cost and capital structure', Journal of Financial Economics, Vol. 3, No. 4, pp. 305-360.

Kamada, T. and Kawai, S. (1989) 'An algorithm for drawing general undirected graphs'. Information Processing Letters, Vol. 31, No. 1, pp. 7 -15.

Kang, J. and Shivdasani, A. (1995) 'Firm Performance, Corporate Governance, and Top Executive Turnover in Japan', Journal of Financial Economics, Vol. 38, No. 1, pp. 29-58.

KDD (Central Securities Registry) (2010) Top 50 (CD ROM).

Kelejian, H.H. and Prucha, I.R. (1997) 'Estimation of spatial regression models with autoregressive errors by two stage least squares procedures: A serious problem', International Regional Science Review, Vol. 20, No. 1/2, pp. 103–111.

Kelejian, H.H. and Prucha, I.R. (1998) 'A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances', Journal of Real Estate Finance and Economics, Vol. 17, No. 1, pp. 99-121.

Kelejian, H.H. and Prucha I.R. (2007) 'HAC estimation in a spatial framework', Journal of Econometrics, Vol. 140, No. 1, pp. 131–154.

Kelejian, H.H. and Prucha, I.R. (2010) 'Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances', Journal of Econometrics, Vol. 157, No. 1, pp. 53-67.

Kmenta, J. (1997). Elements of Econometrics (second edition), New York: Macmillan.

La Porta, R., Lopez-de-Silane, F., Shleifer, A. and Vishny, R.W. (1997) 'Trust in Large Organizations', American Economic Review, Vol. 87, No. 2, pp. 333-338.

La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (1999) 'Corporate ownership around the world', Journal of Finance, Vol. 54, No. 2, pp. 471-517.

Maddala, G.S. (2001) Introduction to Econometrics. West Sussex: John Wiley & Sons Ltd.

Morck, R., Shleifer, A. and Vishny, R. (1988) 'Management ownership and market valuation: an empirical analysis', Journal of Financial Economics, Vol. 20, No. 1, pp. 293-315.

Ogorevc, M. and Šlander Wostner, S. (2011) 'Shareholders and Wage Determination'. Working paper No. 54, Ljubljana: Institute for Economic Research.

Oulton, N. (1998) Investment, capital andforeign ownership in UK manufacturing. NIESR Discussion Paper, No. 141, August, London.

Patuelli, R., Griffith D.A., Tiefelsdorf, M. and Nijkamp, P. (2006) 'The use of spatial filtering techniques', Tinbergen Institute Discussion paper, TI2006-049/3.

Piras, G. (2010) 'Sphet: Spatial models with Heteroskedastic Innovations in R', Journal of Statistical Software, Vol. 35, No. 1, pp. 1-21.

Roe, M.J. (1994) Strong Managers, Weak Owners: Political Roots of American Corporate Finance. Princeton: Princeton University Press.

Shleifer, A. and Vishny, R.W. (1986) 'Large Shareholders and Corporate Control', Journal of Political Economy, Vol. 94, pp. 461-488.

Shleifer, A. and Vishny, R.W. (1997) 'A survey of corporate governance', Journal of Finance, Vol. 52, No. 2, pp. 737–783.

The Economist (2010) 'China buys up the world', The Economist, November 13, pp. 11.

Tiefelsdorf, M., Griffith, D.A. and Boots, B. (1999) 'A variance-stabilizing coding scheme for spatial link matrices'. Environment and Planning A, Vol. 31, No.1, pp. 165 – 180.

Tiefelsdorf, M. and Griffith, D.A. (2006) 'Semi-parametric Filtering of Spatial Autocorrelation: The eigenvector aproach', Evironment and Planning A, Vol. 39, No. 5, pp. 1193-1221.

Tobler W. (1970) 'A computer movie simulating urban growth in the Detroit region', Economic Geography Supplement, Vol. 46, pp. 234-240.

Winter-Ebmer, R. and Zweimüller, J. (1999) 'Intra-firm Wage Dispersion and Firm Performance', Kyklos, Vol. 4, pp. 555-572.