Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework.

Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework.

I show that rising temperatures can detrimentally affect the sovereign creditworthiness of emerging economies. To this end, I collect long-term monthly temperature data of 54 emerging markets. I calculate a country’s temperature deviation from its historical average, which approximates present-day climate change trends. Running regressions from 1994m1 to 2018m12, I find that higher temperature anomalies lower sovereign bond performances (i.e., increase sovereign risk) significantly for countries that are warmer on average and have lower seasonality. The estimated magnitudes suggest that affected countries likely face significant increases in their sovereign borrowing costs if temperatures continue to rise due to climate change. However, results indicate that stronger institutions can make a country more resilient towards temperature shocks, which holds independent of a country’s climate.

The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.

Despite their importance, the discussion of spillover effects in empirical research often misses the rigor dedicated to endogeneity concerns. We analyze a broad set of workhorse models of firm interactions and show that spillovers naturally arise in many corporate finance settings. This has important implications for the estimation of treatment effects: i) even with random treatment, spillovers lead to a complicated bias, ii) fixed effects can exacerbate the spillover-induced bias. We propose simple diagnostic tools for empirical researchers and illustrate our guidance in an application.

We examine the pricing of U.S. multinational firms' foreign earnings in regard to their risk of expropriation and unfair treatment by the governments of the countries in which their international subsidiaries are located. Using 8,891 firm-years observations during the 2001–2013 period, we find that the value relevance of foreign earnings increases with the improvement of the protection from state expropriation risk in the subsidiary host-countries. Our results are not driven by the earnings management practice, investor distraction, country informativeness, and political and trade relationship of a foreign country with the U.S. Furthermore, our results are robust to the confounding effects of country factors, measurement error in the variable of the risk of expropriation, the influence of private contracting institutions, and endogeneity in the decision of the location of subsidiaries.

Using daily data for 34 emerging markets in the period 1994–2016, we find robust evidence that higher export commodity prices are associated with lower sovereign default risk, as measured by lower EMBI spreads. The economic effect is especially pronounced for heavy commodity exporters. Examining the drivers, we find that, first, commodity dependence is higher for countries that export large volumes of commodities, whereas other portfolio characteristics like volatility or concentration are less important. Second, commodity-sovereign risk dependence increases in times of recessions and expansionary U.S. monetary policy. Third, the importance of raw material prices for sovereign financing can likely be mitigated if a country improves institutions and tax systems, attracts FDI inflows, invests in manufacturing, machinery and infrastructure, builds up reserve assets and opens capital and trade accounts. Fourth, the country’s government indebtedness or amount of received development assistance appear to be only of secondary importance for commodity dependence.