We estimate the effects of worker voice on productivity, job quality, and separations. We study the 1991 introduction of a right to worker representation on boards or advisory councils in Finnish firms with at least 150 employees, designed primarily to facilitate workforce-management communication. Consistent with information sharing theories, our difference-in-differences design reveals that worker voice slightly raised labor productivity, firm survival, and capital intensity. In contrast to the exit-voice theory, we find no effects on voluntary job separations, and at most small positive effects on other measures of job quality. A 2008 introduction of shop-floor representation had similarly limited effects.

We study how connections to German federal parliamentarians affect firm dynamics by constructing a novel dataset linking politicians and election candidates to the universe of firms. To identify the causal effect of access to political power, we exploit (i) new appointments to the company leadership team and (ii) discontinuities around the marginal seat of party election lists. Our results reveal that connections lead to reductions in firm exits, gradual increases in employment growth without improvements in productivity. Adding information on credit ratings, subsidies and procurement contracts allows us to distinguish between mechanisms driving the effects over the politician’s career. 

We examine effects of government-imposed employment targets on firm behavior. Theoretically, such policies create “polarization," causing low-productivity firms to exit the market while others temporarily distort their employment upward. Dynamically, firms are incentivized to improve productivity to meet targets. Using novel data from East German firms post-privatization, we find that firms with binding employment targets experienced 25% points higher annual employment growth, a 1.1% points higher annual exit probability, and 10% points higher annual productivity growth over the target period. Structural estimates reveal substantial misallocation of labor across firms and that subsidizing productivity growth would yield twice the long term increases in employment.

We study the productivity effect of the German national minimum wage combining administrative firm datasets. We analyze firm- and market-level effects, considering output price changes, factor substitution, firm entry and exit, labor reallocation, and short- versus long-run effects. We document higher firm productivity even net of output price increases. Productivity gains are persistent in manufacturing and service sectors. The minimum wage also increased manufacturing productivity at the aggregate level. Neither firm entry and exit nor other forms of employment reallocation between firms contributed to these gains. Instead, aggregate productivity gains from the minimum wage solely stem from within-firm productivity improvements.

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.

A natural experiment and matched bank/firm data are used to identify the effects of bank guarantees on allocative efficiency. We find that with guarantees in place unproductive firms receive larger loans, invest more, and maintain higher rates of sales and wage growth. Moreover, firms produce less productively. Firms also survive longer in banks’ portfolios and those that enter guaranteed banks’ portfolios are less profitable and productive. Finally, we observe fewer economy-wide firm exits and bankruptcy filings in the presence of guarantees. Overall, the results are consistent with the idea that guaranteed banks keep unproductive firms in business for too long.

This paper documents that "zombie" lending by undercapitalized banks distorts competition and impedes corporate innovation. This misallocation of capital prevents both the exit of zombie and entry of healthy firms in affected industries adversely impacting output and competition. Worse, capital misallocation depresses patent applications, particularly in high technology- and R&D-intensive sectors, and industries with neck- and-neck competition. We strengthen our results using an IV approach to address reverse causality and innovation survey data from the European Commission. Overall, our results are consistent with externalities imposed on healthy firms through the misallocation of capital.