Veranstaltung
17
Dez 2018

14:15 - 15:45
IWH Research Seminar

The Stability of Dividends and Wages: Effects of Competitor Inflexibility

We analyze how risk sharing between a firm’s employees and owners depends on its competitors’ response to industry-wide shocks.

Wer
Alex Stomper  (Humboldt Universität zu Berlin)
Wo
IWH conference room
Alex Stomper

Zur Person

Alex Stomper is Professor of Finance at the School of Economics and Business of Berlin's Humboldt University.

We analyze how risk sharing between a firm’s employees and owners depends on its competitors’ response to industry-wide shocks. Focusing on the electricity industry, we obtain a sample of firms with exposure to similar industry risks but different production technologies. We document that firms are more exposed to industry shocks, when their competitors use lower-cost production technologies. This "competitor inflexibility" destabilizes payouts to equityholders, but there is no evidence that it compromises wage stability. Firms do not share systematic risk due to competitor inflexibility with their employees and set wages as if their shareholders’ risk preferences were given. (read more)

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