Creditor-control Rights and the Nonsynchronicity of Global CDS Markets
Iftekhar Hasan, Miriam Marra, Eliza Wu, Gaiyan Zhang
Review of Corporate Finance Studies,
forthcoming
Abstract
We analyze how creditor rights affect the nonsynchronicity of global corporate credit default swap spreads (CDS-NS). CDS-NS is negatively related to the country-level creditor-control rights, especially to the “restrictions on reorganization” component, where creditor-shareholder conflicts are high. The effect is concentrated in firms with high investment intensity, asset growth, information opacity, and risk. Pro-creditor bankruptcy reforms led to a decline in CDS-NS, indicating lower firm-specific idiosyncratic information being priced in credit markets. A strategic-disclosure incentive among debtors avoiding creditor intervention seems more dominant than the disciplining effect, suggesting how strengthening creditor rights affects power rebalancing between creditors and shareholders.
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Total Factor Productivity Growth at the Firm-level: The Effects of Capital Account Liberalization
Xiang Li, Dan Su
Journal of International Economics,
forthcoming
Abstract
This study provides firm-level evidence on the effect of capital account liberalization on total factor productivity (TFP) growth. We find that a one standard deviation increase in the capital account openness indicator constructed by Fernández et al. (2016) is significantly associated with a 0.18 standard deviation increase in firms’ TFP growth rates. The productivity-enhancing effects are stronger for sectors with higher external finance dependence and capital-skill complementarity, and are persistent five years after liberalization. Moreover, we show that potential transmission mechanisms include improved financing conditions, greater skilled labor utilization, and technology upgrades. Finally, we document heterogeneous effects across firm size and tradability, and threshold effects with respect to the country's institutional quality.
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Trust, Politics and Post-IPO Performance: SOEs vs. the Private Sector
Bill Francis, Iftekhar Hasan, Xian Sun, Mingming Zhou
Economic and Political Studies,
forthcoming
Abstract
This paper empirically investigates the role of social trust in the long-term performance of the initial public offerings (IPOs) in China, controlling for the formal institutional environment. We find that privately owned or smaller IPO firms experience significantly better post-IPO performance when they are incorporated in regions with more social trust. The state-owned and bigger IPO firms, on the other hand, experience better long-term post-IPO performance when they are incorporated in regions with stronger formal institutions (e.g. court enforcement and contract holding). Political pluralism turns out to benefit all IPOs in the long term. In addition, our evidence shows that stronger social trust substitutes for the quality of court enforcement but complements the role of contract holding. These results are robust after controlling for alternative definitions of ownership, outliers, non-linear effects of institutions, and the potential endogeneity of institutions in the model.
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The Aggregate Effects of the Decline of Disruptive Innovation
Richard Bräuer
IWH Discussion Papers,
No. 22,
2023
Abstract
This paper proposes a model that explains both recently documented facts about the decline of disruptive innovation and the decline in productivity growth as the result of large firms trying to monopolize technologies by poaching inventors from disruptive activities. To come to this conclusion, the paper builds an endogenous growth model with inventor labor markets on which firms can interact strategically. To inform this model, I perform an event study of the effect of disruptive inventions on their technology fields using PATSTAT (1980-2010). I document that technology classes without disruption slowly trend towards incrementalism and that after a disruption, more patents get registered and research becomes less incremental.
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The Labor Effects of Judicial Bias in Bankruptcy
Aloisio Araujo, Rafael Ferreira, Spyridon Lagaras, Flavio Moraes, Jacopo Ponticelli, Margarita Tsoutsoura
Journal of Financial Economics,
No. 2,
2023
Abstract
We study the effect of judicial bias favoring firm continuation in bankruptcy on the labor market outcomes of employees by exploiting the random assignment of cases across courts in the State of São Paulo in Brazil. Employees of firms assigned to courts that favor firm continuation are more likely to stay with their employer, but they earn, on average, lower wages three to five years after bankruptcy. We discuss several potential mechanisms that can rationalize this result, and provide evidence that imperfect information about outside options in the local labor market and adjustment costs associated with job change play an important role.
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Regulation and Information Costs of Sovereign Distress: Evidence from Corporate Lending Markets
Iftekhar Hasan, Suk-Joong Kim, Panagiotis Politsidis, Eliza Wu
Journal of Corporate Finance,
October
2023
Abstract
We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected.
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Safety Net or Helping Hand? The Effect of Job Search Assistance and Compensation on Displaced Workers
Daniel Fackler, Jens Stegmaier, Richard Upward
IWH Discussion Papers,
No. 18,
2023
Abstract
We provide the first systematic evidence on the effectiveness of a contested policy in Germany to help displaced workers. So-called “transfer companies” (Transfergesellschaften) employ displaced workers for a fixed period, during which time workers are provided with job-search assistance and are paid a wage which is a substantial fraction of their pre-displacement wage. Using rich and accurate data on workers’ employment patterns before and after displacement, we compare the earnings and employment outcomes of displaced workers who entered transfer companies with those that did not. Workers can choose whether or not to accept a position in a transfer company, and therefore we use the availability of a transfer company at the establishment level as an IV in a model of one-sided compliance. Using an event study, we find that workers who enter a transfer company have significantly worse post-displacement outcomes, but we show that this is likely to be the result of negative selection: workers who lack good outside opportunities are more likely to choose to enter the transfer company. In contrast, ITT and IV estimates indicate that the use of a transfer company has a positive and significant effect on employment rates five years after job loss, but no significant effect on earnings. In addition, the transfer company provides significant additional compensation to displaced workers in the first 12 months after job loss.
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Committing to Grow: Privatizations and Firm Dynamics in East Germany
Ufuk Akcigit, Harun Alp, André Diegmann, Nicolas Serrano-Velarde
IWH Discussion Papers,
No. 17,
2023
Abstract
This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term.
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Import Competition and Firm Productivity: Evidence from German Manufacturing
Richard Bräuer, Matthias Mertens, Viktor Slavtchev
World Economy,
No. 8,
2023
Abstract
Abstract We study how different types of import competition affect firm productivity using firm-product data from German manufacturing (2000-2014). Competition from high-income countries causes affected domestic firms to increase their productivity and lower their prices. Oppositely, import competition from low-wage countries does not lead to firm productivity gains. Instead, domestic firms' sales and input usage decline. Our findings confirm the intuition of ladder models that the effect of competition depends on the "closeness" of competitors. They are in line with widespread X-inefficiencies throughout the economy, which firms reduce in response to competition from high-income countries.
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R&D Tax Credits and the Acquisition of Startups
William McShane, Merih Sevilir
IWH Discussion Papers,
No. 15,
2023
Abstract
We propose a novel mechanism through which established firms contribute to the startup ecosystem: the allocation of R&D tax credits to startups via the M&A channel. We show that when established firms become eligible for R&D tax credits, they increase their R&D and M&A activity. In particular, they acquire more venture capital (VC)-backed startups, but not non-VC-backed firms. Moreover, the impact of R&D tax credits on firms’ R&D is increasing with their acquisition of VC-backed startups. The results suggest that established firms respond to R&D tax credits by acquiring startups rather than solely focusing on increasing their R&D intensity in-house. We also highlight evidence that startups do not appear to benefit from R&D tax credits directly, perhaps because they typically lack the taxable income necessary to directly benefit from the tax credits. In this context, established firms can play an intermediary role by acquiring startups and reallocating R&D tax credits, effectively relaxing the financial constraints faced by startups.
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