Junior Management Science, Volume 6, Issue 1, March 2021

The Value of CSR in Times of Increased Policy Uncertainty: Evidence from the Brexit Referendum

Olivia Hohlwegler, University of St Andrews (Master thesis)
Junior Management Science 6(1), 2021, 1-24

Scrutinising the 2016 Brexit Referendum, this paper examines the impact of economic policy uncertainty on the relationship between corporate financial performance and CSR using a sample of 320 non-financial firms listed at the London Stock Exchange. The sample covers the period of 2014 to 2018 with 2016 marking increased, and 2017 and 2018 representing years of moderated policy uncertainty. Using cross-sectional regression analysis of shock-period buy-and-hold returns, this paper finds (I) a statistically and economically significant inverse relationship between reservoirs of social capital previously accrued through CSR initiatives and returns. The effect is driven by the Governance component of CSR, whereas the impact of combined Environmental and Social pursues was not found to be meaningful. Using difference-in-difference methodology with continuous treatment, this investigation concludes (II) high-CSR and low-CSR firms do not differ in terms of sensitivity to adverse Brexit shock implications on operating performance, profitability, financial health, and firm value. Further, (III) effects of CSR on aforementioned aspects of real performance were not found to vary alongside levels of policy uncertainty.

Keywords: Brexit referendum; CSR; ESG investing; policy uncertainty.

Are Firms Paying for the Minimum Wage? Evidence from Germany

Maximilian Kühn, University of Mannheim (Bachelor thesis)

Junior Management Science 6(1), 2021, 25-38

Following an intensive discussion, Germany introduced a nationwide minimum wage on 1 January 2015, which was set at an hourly wage of €8.50. Undeniably, there is a significant amount of international and national literature that discusses the minimum wage, both generally and specifically, in Germany. Counterintuitively, only small, negative employment effects are identified for the German minimum wage, whereas some international studies (e.g. for the US) even found positive effects. However, only a few papers focus on different sorts of adjustment channels that firms are applying as a response to the higher labor costs. This thesis focuses on the analysis of firms’ profitabilities and asks if profit margins significantly declined in highly affected industries, as a response to the nationwide minimum wage. Therefore, this paper uses a Difference-in-Difference approach that compares the ratio of pre-tax profits to revenue in industries which are more exposed than their less affected counterparts. To define the exposure of an industry to the minimum wage, the Structure of Earnings Survey of 2014 is used to calculate industry specific bite measures. Surprisingly, no significant decrease in firm’s profitability can be found as a response to the German minimum wage introduction in 2015. This result is consistent over all model specifications that are used in the underlying thesis.

Keywords: Minimum wage; Germany; difference-in-difference; adjustment channels; profitability; firm-level performance.

The Glass Cliff – Women’s Thrive to Save Poor Performance and how to Approach it in the Workplace

Julia Vetter, ESCP Europe (Bachelor thesis)
Junior Management Science 6(1), 2021, 39-59

For decades the rise of women to leadership positions in the workplace has been a conspicuous matter on a global spectrum. Women are challenging the prospects that were once emplaced upon them and continue to break the forefronts of opportunity that face them. This thesis brings life to Eleanor Roosevelt’s quote “A woman is like a tea bag: you never know how strong she is until she gets into hot water” by exploring the glass cliff phenomenon. Stating that women have a higher chance of rising into leadership positions during a time of poor company performance, the research conducted for this paper aims to look further into the background of the principles creating this subtle form of discrimination. To discover the root cause of the glass cliff phenomenon, this thesis aims to understand when, how and why these positions are conceived furthering on how to approach the changes coveted by modern society regarding female leadership. This composition takes into account an amalgamation of existing research and the individual empirical research conducted, explaining the causation behind the glass cliff through understanding the biases, stereotypes and societal dynamics that enable glass cliff positions in the workplace.

Keywords: Glass cliff; women in leadership; discrimination; equality; management.

Employment Protection Legislation, Youth Unemployment and the Role of the Educational System

Kimberly Klebolte, University of Oxford (Master thesis)
Junior Management Science 6(1), 2021, 60-80

Research on the effect of employment protection legislation (EPL) on unemployment is extensive. However, results are ambiguous and were not able to show a clear pattern of how EPL is affecting labour market outcomes. Recent research has focussed on the effect of EPL on youth unemployment, linking higher protection to higher unemployment among young labour market entrants compared to their adult peers. Moreover, it is argued that EPL might not have a universal effect on youth unemployment but must be considered in an interplay of institutional factors, including vocational specificity. Based on these findings, this thesis provides a comprehensive assessment of the effects of EPL and vocational specificity on the labour market chances of young people compared to adults. As young people in particular often find their way into the labour market via temporary contracts, it is distinguished between EPL for regular and temporary contracts. A total of 28 OECD countries are examined from 1985 to 2013 using OECD data. In line with previous research, there appear to be no main effects of regular EPL or the vocational specificity on its own on the level of youth unemployment or the youth-to-adult unemployment ratio, but there is a positive effect of temporary EPL on the youth-to-adult ratio. This suggests that especially for young people deregulation of these contracts — contrary to the usual theoretical assumptions — can have a positive effect on their labour market situation.

Keywords: Labour market; EPL; unemployment; youth; education.

The Impact of Management, Family and Employee Ownership Concentration on Firm Performance

Michael Amroudi, Technical University of Munich (Bachelor thesis)
Junior Management Science 6(1), 2021, 81-99

This thesis investigates the relation between ownership structure and firm performance using a sample of 2,120 publicly traded European companies. The question of whether this relation should be positive or negative has been the subject of a wide-ranging discussion and was addressed by many researchers. Of particular interest have been management, family, and employee owners. Nevertheless, there is no consensus in the literature, and empirical studies on European companies are scarce. Utilising data from the European Federation of Employee Share Ownership (EFES) and the Bureau Van Dijk Orbis database, this relation is analysed using multiple linear regression with continuous and categorical predictors. The results show that firms having a management owner concentration up to strategic levels report a significantly higher Tobin’s Q than firms having a no or no significant management concentration. The same effect holds true for family owners and employee owners. Measuring the ownership structure as the fraction of shares of the largest shareholder does not yield a significant effect and highlights the value of management, family, and employee owners.

Keywords: Ownership concentration; family ownership; management ownership; employee ownership; firm performance.

The Impact of Taxation on Managerial Incentives and the Use of Bonus Banks

Daniel Dyck, Bielefeld University (Master thesis)
Junior Management Science 6(1), 2021, 100-148

This study examines how taxes and tax code features influence a firm owner´s use of a managerial incentive scheme known as bonus bank. Bonus banks have a unique property: part of the manager´s earned bonus in one period is withheld and subsequently paid out only in case future period´s firm goals are met. While prior literature on bonus banks either neglected taxes or took managerial incentives as given, I incorporate both aspects into a multi-period agency model with a risk neutral, limited liability agent. The model especially captures corporate income taxes, loss-offset restrictions as well as a manager´s flat, period-dependent income tax rate. The results are twofold: First, compared to fixed remuneration contracts, the use of bonus banks is adversely affected by all investigated taxes and tax code features, except for the loss-offset restrictions. Second, compared to periodical bonus remuneration, bonus banks possess an income smoothing characteristic, weakening the negative effect loss-offset restrictions and income tax progressivity have on a firm owner´s future value. Overall, the results complement the literature on the decision relevance of taxes when designing compensation contracts.

Keywords: Prinzipal-Agenten Theorie, Steuereffekte, Bonusbank, mehrperiodige Vertragsstruktur.

Modern Approaches to Dynamic Portfolio Optimization

Philipp Schiele, Ludwig Maximilian University of Munich (Master thesis)
Junior Management Science 6(1), 2021, 149-189

Although appealing from a theoretical point of view, empirical assessments of dynamic portfolio optimizations in a mean-variance framework often fail to reach the high expectations set forth by analytical evaluations. A major reason for this shortfall is the imprecise estimation of asset moments and in particular, the expected return. This work levers recent advancements in the field of machine learning and employs three types of artificial neural networks in an attempt to improve the accuracy of the asset return estimation and the expected associated portfolio performances. After an introduction of the dynamic portfolio optimization framework and the artificial neural networks, their suitability for the considered application is analyzed in a two asset universe of a market and a risk-free asset. A comparison of the corresponding risk-return characteristics and those achieved using a more traditional exponentially weighted moving average estimator is subsequently drawn. While outperformance of the artificial neural networks is found for daily and monthly estimated returns, significance can only be established in the latter case, especially in light of trading costs. Multiple robustness checks are performed before an outlook for subsequent research opportunities is given.

Keywords: Portfolio optimization; machine learning; multilayer perceptron; convolutional neural network; long short-term memory.

Analysis of Global Tax Standards of the OECD on Digital Business Models

Christina Winder, University of Liechtenstein (Bachelor thesis)
Junior Management Science 6(1), 2021, 190-236

“With the emergence of new digital business models, the effectiveness of international tax law is increasingly disputed. The discussion whether tax law is still capable of taxing digital business models correctly and fairly is also being further ignited by US corporations. The OECD is working intensively on a global proposal to be able to tax digital corporations now in market states as well. The following research question “”Which challenges arise upon the taxation of digital business models and which global tax standards are proposed by the OECD in relation to the taxation of digital business models?”” is answered by this thesis.
This bachelor thesis illustrates that the basic concepts of international tax law are no longer able to effectively tax digital business models. The OECD’s proposed solution revolutionizes international tax law and increasingly turns away from the concept of physical presence. The proposal will lead to a shift of taxation substrate towards market states. The OECD’s Unified Approach is capable of reducing and solving existing problems in the taxation of the digital economy.”

Keywords: Digitale Geschäftsmodelle; internationale Unternehmensbesteuerung; Unified Approach; globale Steuerstandards.