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Business strategy can be defined as a firm's plan to generate economic profits based on lower cost, better quality, or new products. The analysis of business strategy is thus at the intersection of market competition and a firm's efforts to secure persistently superior performance via investments in better management and organization. We empirically analyze the interaction of firms' business strategies and their managerial practices using a unique, detailed dataset on business strategy, internal firm organization, performance and innovation, which is representative of the entire Canadian economy. Our empirical results show that measures of business strategy are strongly correlated with firm performance, both in the cross-section and over time, and even after controlling for unobserved profit shocks exploiting intermediates utilization. Results are particularly striking for innovation, as firms with some priority in business strategies are significantly more likely to innovate than firms without any strategic priority. Furthermore, our analysis highlights that the relationship between strategy and management is driven by two key organizational trade-offs: employee initiative vs. coordination as well as exploration of novel business opportunities vs. exploitation of existing profit sources.

Zonder onderwerpscode: economie

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Using new transaction data I find that consumption is excessively sensitive to salient, predetermined, large and regular payments from the Alaska Permanent Fund, with a large average marginal propensity to consume (MPC) of 30% for nondurables and services. This excess sensitivity is very heterogeneous: The deviation from the standard consumption model is largest for households for whom the loss from failing to smooth consumption is smallest in terms of equivalent variation. The estimated MPCs are monotonically decreasing in the loss and increasing in income for households with sufficient liquidity. I show that the economically and statistically significant excess sensitivity is consistent with households following near-rational alternative plans. For macroeconomic policies, such as an economic stimulus program, these near-rational alternatives might represent the more relevant behavior than the standard consumption model.

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The existence of complementarity across management practices has been proposed as one potential explanation for the persistence of firm-level productivity differences. However, thus far no conclusive population-level tests of the complementary joint adoption of management practices have been conducted. Using unique detailed data on internal organization, occupational composition, and firm performance for a nationally representative sample of firms in the Canadian economy, we exploit regional variation in income tax progression as an instrument for the adoption of performance pay. We find systematic evidence for the complementarity of performance pay and decentralization of decision-making from principals to employees. Furthermore, in response to the adoption of performance pay, we find a concentration of decision-making at the level of managerial employees, as opposed to a general movement towards more decentralization throughout the organization. Finally, we find that adoption of performance pay is related to other types of organizational restructuring, such as greater use of outsourcing, Total Quality Management, re-engineering, and a reduction in the number of layers in the hierarchy.