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Buying success or redistributing payment: bidirectional causality in Korean Professional Baseball League

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Abstract

Salary payments are important to us for understanding both the relationship and the causality between salary structures and team performance in labour market theory. Using salary data from the Korean Professional Baseball League (KPBL), this paper conducts Panel Granger tests to investigate the causality between pay and performance. Our empirical results show that the causality only runs from the dispersion of salary payment to team performance, but not vice versa. Moreover, the evidence also shows that total salary does not cause team performance, and vice versa. Therefore, payrolls cannot buy wins, and wins cannot bring payrolls in the KPBL.

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Notes

  1. This is certainly the case in Major League Baseball (MLB). In 2011, Alex Rodriguez was the highest paid player, earning 32 million dollars, while MLB players in the first few years of their careers earned 414 thousand dollars, the league minimum.

  2. In labor economics, the amount and pay dispersion between workers on a firm performance is usually discussed. This includes papers on strategic orientations (e.g., Altindag et al. 2011), environmental investment (e.g., Nakamura 2011), executive compensation (e.g., Main et al. 1993; Eriksson 1999; Abe et al. 2005) and professional sports (e.g., Ehrenberg and Bognanno 1990a, b; Frick et al. 2003; Jane 2013). One common feature of these papers is their focus on industries for which productivity measures at the individual level are observable.

  3. Lee and Smith (2008) authored the first study to explain KPBL attendance empirically using team-level data. They provide new evidence in support of rational addiction for the case of Major League Baseball, but fail to find such support in data from the Korean Professional Baseball League.

  4. Using data from Major League Baseball for the period from 1995–1999, Burger and Walters (2003) found robust evidence that market size and team performance interactively affect marginal revenues and, therefore, teams’ willingness to bid for playing talent.

  5. The strand of literature included Harder (1992), Forrest and Simmons (2002), and Frick et al. (2003) etc. Harder (1992) explored the effects of an objectively determined, continuous measure of inequity on composite measures of individual performance in the major-league baseball (MLB) and the National Basketball Association (NBA). He found that the effects of the continuous measure of inequity on performance were greater for over-rewarded individuals than for under-rewarded individuals. Frick et al. (2003) used data from four major leagues in North America and the team’s Gini coefficient to test the relationship between salary disparity and performance. They found a higher degree of salary disparity enhances the performance of basketball and hockey teams, but it decreases the winning percentage of football and baseball teams.

  6. The data source for the website is http://www.koreabaseball.com/TeamRank/TeamRank.aspx. In 2008, Nexen Heroes bought Hyundai Unicorns. These two teams are treated as the same in our sample because only the ownership/sponsorship changed between corporations.

  7. Different from the traditional literature on Granger Casualty Tests in time series, the PGC test model proposed by Hurlin (2001) proposes two types of processes to deal with heterogeneity among individual cross-sectional units. One way is via the process of distinctive intercepts, and another is via the variances of variable’ slopes. The former one is a simple and intuitive way, and is used in this paper.

  8. Because this test for panel unit roots allows a different number of lag lengths for each equation, a lag-order, for example 2, refers to the average of the lag lengths included in this test.

  9. We used the Akaike Information Criterion (AIC) to determine the optimal lag length. In order to avoid the loss of degrees of freedom, we followed Justesen (2008) and included a lag-length up to two for yit, x1it and x2it in the estimated equation.

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Authors and Affiliations

  1. National Taiwan Normal University, Taipei, Taiwan

    Jye-Shyan Wang & Chih-Fu Cheng

  2. Department of Economics, Shih Hsin University, Taipei, Taiwan

    Wen-Jhan Jane

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  1. Jye-Shyan Wang
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  2. Chih-Fu Cheng
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  3. Wen-Jhan Jane
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Correspondence to Wen-Jhan Jane.

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Wang, JS., Cheng, CF. & Jane, WJ. Buying success or redistributing payment: bidirectional causality in Korean Professional Baseball League. Eurasian Bus Rev 4, 247–260 (2014). https://doi.org/10.1007/s40821-014-0013-x

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  • DOI: https://doi.org/10.1007/s40821-014-0013-x

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