Kornelius Kraft

Cooperation, Productivity, and Profit Sharing

Firm-specific assets generate an ex post bargaining problem over surplus-division, and rational workers may collude to obtain a surplus-share in nonpecuniary form through restriction of effort. Conversely, profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring, since productive effort yields positive externalities to workers under contractual surplus sharing. In simultaneous Tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium-sized metalworking capitalist firms in West Germany. Proxies for human capital and organizational factors were included.

Are product and Process Innovations Independent of Each Other

This paper studies the relationship between product- and process-innovation. After discussing the determinants of product- and process-innovation, a simultaneous equation model is estimated. A positive impact of product-innovation on process-innovation can be proved, but no evidence for a reverse effect to the respect to the inclusion of product-innovation.

Market Structure, Firm Characteristics and Innovative Activity

In this study, the determinants of product innovation by West German firms operating in the metal industry are investigated. A strong positive impact of imperfect competition on innovative activity is estimated. Aside from competition and barriers to entry, factors like the ownership structure of a firm, internal finance, and the skill level of the workforce are considered. One result is that firms led by hired managers tend to innovate less intensively than owner-managed enterprises. Copyright 1989 by Blackwell Publishing Ltd.

Efficiency and Internal Organization: Works Councils in West German Firms

Efficiency-voice theory has not explained why highly competent managers cannot maintain effective communication without formal or mandatory institutions of l abors voice. Powerful West German works councils are negatively rela ted to productivity in the sample, suggesting that the best managers can do better without councils. However, excessive pressure on worker s should encourage both unionization and councils to gain compensatin g differentials, and the simultaneous WLS-Tobit estimates also suppor t this effect. General productivity benefits from formal voice organi zation are strongly rejected, but evaluating welfare, efficiency, and causality directly requires data on job satisfaction and managerial ability. Copyright 1987 by The Review of Economic Studies Limited.

On the choice of incentives in firms

Abstract Simple models of individual and group incentives under uncertainty are compared, and comparative performance is shown to depend upon various exogenous parameters. The incentive effects of profit sharing will thus vary with organizational and other characteristics that may be difficult to observe, and attempts to quantify productivity effects that neglect selection bias are likely to be misspecified. Significant selection effects are found in previously used firm-level data, and productivity effects of existing profit sharing are found to be much larger than potential effects in firms without sharing arrangements. This throws doubt on policies to encourage sharing in isolation.

Determinants of management compensation with risk-averse agents and dispersed ownership of the firm

Abstract The salaries of top managers consist of two parts: one part depending on profits, the other being constant. In a model of management compensation schemes with risk averse agents, Holmstrom and Milgrom (1987) predict that an increasing variance in profits should reduce the profit-relatedness of salaries. Using data from Germany, we show that indeed a larger variance of profits reduces the pay-performance sensitivity. Moreover, we analyze the relative influence of profits as compared to firm size on managerial compensation in general as well as the relationship between pay-performance sensitivity and ownership structure.

On the Profitability of Innovative Assets

Successful innovative activity is a major contribution to the intangible capital of firms. Although its importance is generally acknowledged, the contribution to companies’ profits is a priori unclear. We present the results of an empirical study on the effects of the patent stock on profitability. The database is a representative sample of German manufacturing firms and we use a number of control variables including measures of competition and firm governance. It turns out that the patent stock has a strong and robust effect on profitability.

Are Credit Ratings Valuable Information

Credit ratings are commonly used by lenders to assess the default risk, because every credit is connected with a possible loss. If the probability of a default is above a certain threshold, a credit will not be provided. The purpose of this study is to test whether credit ratings contribute valuable information on the creditworthiness of firms. Employing a large sample of Western German manufacturing firms, we investigate loan defaults. First, we estimate Probit models with publicly available information. Subsequently, we additionally use a credit rating and show that it contributes significantly to the regression fit. However, the publicly available information has an independent effect aside of the ratings. Simple calculations demonstrate that the interest rate has to increase significantly to compensate for a possible loss in case of default, if a firm has a weak rating.

Intra-Firm Wage Dispersion and Firm Performance - Is There a Uniform Relationship?

Empirical studies examining the impact of intra-firm wage dispersion on firm performance report extremely mixed results. Yet, almost all of the studies implicitly assume that there is a uniform relationship between wage dispersion and firm performance across all types of firms. In contrast, we argue that the effects of wage dispersion depend on the industrial relations regime and the type of incentive scheme employed. Using data on a sample of manufacturing establishments in Germany, our findings confirm that wage dispersion interacts with internal promotions, individual and group piece rates, works council presence and collective bargaining coverage. This strongly supports the notion that moderating factors play an important role in the relationship between intra-firm wage dispersion and productivity. Copyright 2007 Blackwell Publishing Ltd..

Innovation, rent-sharing and the organization of labour in the federal republic of Germany

Rent seeking by unions may inhibit various kinds of investment, particularly R&D, and unionization is often negatively related to innovation across industries. Formal organization and collective bargaining may also reduce the flexibility of work organization, and hence inhibit innovation. In a sample of small- and medium-sized firms in the FRG metal-working industry, a measure of organized labour was negatively related to product innovation, but there was little evidence for rent-seeking in simultaneous estimates.