Stock Liquidity and Corporate Labor Investment
Mong Shan Ee, Iftekhar Hasan, He Huang
Journal of Corporate Finance,
February
2022
Abstract
Labor is among the most crucial factors of production that maintain a firm's competitiveness. Given its economic importance, drivers of firms' labor investment policy have gained increasing attention in the financial economics literature. This study investigates the relation between stock liquidity and labor investment efficiency. We establish a causal relation between the two phenomena using an exogenous shock to liquidity: the 2001 decimalization of stock trading. We find that labor investment efficiency improves following an increase in stock liquidity, and the effect is prevalent in firms experiencing overinvestment in labor. Our findings further support the argument that stock liquidity improves the efficiency of labor investment by enhancing governance through shareholder exit threat.
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How Does Economic Policy Uncertainty Affect Corporate Debt Maturity?
Xiang Li
IWH Discussion Papers,
Nr. 5,
2022
Abstract
This paper investigates whether and how economic policy uncertainty affects corporate debt maturity. Using a large firm-level dataset for four European countries, we find that an increase in economic policy uncertainty is significantly associated with a shortened debt maturity. Moreover, the impacts are stronger for innovation-intensive firms. We use firms’ flexibility in changing debt maturity and the deviation to leverage target to gauge the causal relationship, and identify the reduced investment and steepened term structure as the transmission mechanisms.
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Firm Subsidies, Financial Intermediation, and Bank Risk
Aleksandr Kazakov, Michael Koetter, Mirko Titze, Lena Tonzer
Abstract
We study whether government subsidies can stimulate bank funding of marginal investment projects and the associated effect on financial stability. We do so by exploiting granular project-level information for the largest regional economic development programme in Germany since 1997: the Improvement of Regional Economic Structures programme (GRW). By combining the universe of subsidised firms to virtually all German local banks over the period 1998-2019, we test whether this large-scale transfer programme destabilised regional credit markets. Because GRW subsidies to firms are destabilised at the EU level, we can use it as an exogenous shock to identify bank responses. On average, firm subsidies do not affect bank lending, but reduce banks’ distance to default. Average effects conflate important bank-level heterogeneity though. Conditional on various bank traits, we show that well capitalised banks with more industry experience expand lending when being exposed to subsidised firms without exhibiting more risky financial profiles. Our results thus indicate that stable banks can act as an important facilitator of regional economic development policies. Against the backdrop of pervasive transfer payments to mitigate Covid-19 losses and in light of far-reaching transformation policies required to green the economy, our study bears important implications as to whether and which banks to incorporate into the design of transfer Programmes.
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Partisan Professionals: Evidence from Credit Rating Analysts
Elisabeth Kempf, Margarita Tsoutsoura
Journal of Finance,
Nr. 6,
2021
Abstract
Partisan perception affects the actions of professionals in the financial sector. Linking credit rating analysts to party affiliations from voter records, we show that analysts not affiliated with the U.S. president's party downward-adjust corporate credit ratings more frequently. Since we compare analysts with different party affiliations covering the same firm in the same quarter, differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results show that analysts' partisan perception has price effects and may influence firms' investment policies.
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The Impact of Political Uncertainty on Institutional Ownership
Bill Francis, Iftekhar Hasan, Yun Zhu
Journal of Financial Stability,
December
2021
Abstract
This paper provides original evidence from institutional investors that political uncertainty greatly affects investment behavior. Using institutional holdings of common stock, we find that institutions significantly reduce their holdings by 0.8–2.3% points during presidential election years. Such effect holds for gubernatorial elections with cross-state-border difference-in-difference analysis and for tests using a political uncertainty index. The effect is the opposite for American Depository Receipts (ADRs). In addition, we find that institutions benefit financially from the observed strategy, and such strategy is in line with predicted outcomes of presidential election polls.
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Stock Liquidity, Empire Building, and Valuation
Sris Chatterjee, Iftekhar Hasan, Kose John, An Yan
Journal of Corporate Finance,
2021
Abstract
We conjecture that high stock liquidity negatively affects firm valuation by inducing inefficient investment. Using takeovers of public targets to study the empire-building motive, we find that a liquid firm is more likely than an illiquid firm to acquire a public firm. Such a takeover by a bidder with higher stock liquidity destroys bidder value to a larger degree. These patterns occur in both stock and cash acquisitions and hold after we use decimalization of tick size as a quasi-exogenous shock to stock liquidity. Finally, we show that financial constraints and corporate governance play important roles in the effects of stock liquidity on empire building in mergers and acquisitions.
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O Brother, Where Start Thou? Sibling Spillovers on College and Major Choice in Four Countries
Adam Altmejd, Andrés Barrios-Fernández, Marin Drlje, Joshua Goodman, Michael Hurwitz, Dejan Kovač, Christine Mulhern, Christopher Neilson, Jonathan Smith
Quarterly Journal of Economics,
Nr. 3,
2021
Abstract
Family and social networks are widely believed to influence important life decisions, but causal identification of those effects is notoriously challenging. Using data from Chile, Croatia, Sweden, and the United States, we study within-family spillovers in college and major choice across a variety of national contexts. Exploiting college-specific admissions thresholds that directly affect older but not younger siblings’ college options, we show that in all four countries a meaningful portion of younger siblings follow their older sibling to the same college or college-major combination. Older siblings are followed regardless of whether their target and counterfactual options have large, small, or even negative differences in quality. Spillover effects disappear, however, if the older sibling drops out of college, suggesting that older siblings’ college experiences matter. That siblings influence important human capital investment decisions across such varied contexts suggests that our findings are not an artifact of particular institutional detail but a more generalizable description of human behavior. Causal links between the postsecondary paths of close peers may partly explain persistent college enrollment inequalities between social groups, and this suggests that interventions to improve college access may have multiplier effects.
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The Effect of Language on Investing: Evidence from Searches in Chinese Versus English
Hui-Ching Chuang, Iftekhar Hasan, Yin-Siang Huang, Chih-Yung Lin
Pacific-Basin Finance Journal,
June
2021
Abstract
This study examines the language effect on investing behavior in local stock markets for local- and foreign-language investors using Google search records. First, we find that attention to a local language stimulates attention to a foreign language, increases abnormal news coverage, and has better predictability on stock returns. Second, investors who do Google searches in the local language react faster to a news event's shock than those who search in the foreign language. Third, only attention to the local language can reduce the price drift of an earnings surprise. Last, firm-level information asymmetry is a channel for local advantage. Therefore, we suggest that investors who use a stock market's local language have a local advantage when seeking more profitable investment opportunities in that stock market.
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Labor in the Boardroom
Jörg Heining, Simon Jäger, Benjamin Schoefer
Quarterly Journal of Economics,
Nr. 2,
2021
Abstract
We estimate the wage effects of shared governance, or codetermination, in the form of a mandate of one-third of corporate board seats going to worker representatives. We study a reform in Germany that abruptly abolished this mandate for stock corporations incorporated after August 1994, while it locked the mandate for the slightly older cohorts. Our research design compares firm cohorts incorporated before the reform and after; in a robustness check we draw on the analogous difference in unaffected firm types (LLCs). We find no effects of board-level codetermination on wages and the wage structure, even in firms with particularly flexible wages. The degree of rent sharing and the labor share are also unaffected. We reject that disinvestment could have offset wage effects through the canonical hold-up channel, as shared governance, if anything, increases capital formation.
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VC Participation and Failure of Startups: Evidence from P2P Lending Platforms in China
Iftekhar Hasan, Xiaoyang Li
Finance Research Letters,
May
2021
Abstract
We investigate how VC participation affects the failure of startups. Using a unique dataset of the survival of peer-to-peer (P2P) platforms in China, we identify two types of failures, bankruptcy, and run off with investors' money. The Competing Risk Model results show that while VC participation reduces bankruptcy hazard, it has little impact on the runoff failures. The findings are robust to the use of matched subsamples that disentangle the influence of pre-investment screening by VC. Further analysis of exit routes reveals that conditional on failure, VC participation is associated with a higher chance of running for the exit.
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