Forthcoming Articles

Internal Labor Markets, Wage Convergence, and Investment

Rui C. Silva

I document wage convergence in conglomerates using detailed plant-level data: workers in low-wage industries collect higher-than-industry wages when the diversified firm also operates in high-wage industries. I confirm this effect by exploiting the implementation of NAFTA and changes in minimum wages at the state-level as sources of exogenous increases in wages in some plants. I then track the evolution of wages of the remaining workers of the firm, relative to workers of unaffiliated plants. Plants where workers collect higher-than-industry wages operate with higher capital intensity, suggesting that internal labor markets may affect investment decisions in internal capital markets.

Dynamics of Arbitrage

Louis H. Ederington, Chitru S. Fernando, Kateryna V. Holland, Thomas K. Lee, and Scott C. Linn

We study the dynamics of cash-and-carry arbitrage using the U.S. crude oil market. Sizable arbitrage-related inventory movements occur at the NYMEX futures contract delivery point but not at other storage locations where, instead, operational factors explain most inventory changes. We add to the Theory of Storage literature by introducing two new features. First, due to arbitrageurs contracting ahead, inventories respond to not only contemporaneous but also lagged futures spreads. Second, storage capacity limits can impede cash-and-carry arbitrage, leading to the persistence of unexploited arbitrage opportunities. Our findings suggest that arbitrage-induced inventory movements are, on average, price stabilizing.

Economic Policy Uncertainty and Self-Control: Evidence from Unhealthy Choices

Ivalina Kalcheva, Ping McLemore, and Richard Sias

We hypothesize that greater economic policy uncertainty (EPU) leads to increases in unhealthy behaviors by lowering individuals’ impulse control. Based on 6.1 million interviews over 22 years, our analyses reveal a positive relation between EPU and the propensity to make poor lifestyle choices including higher rates of alcohol consumption, a larger number of drinks consumed, and more binge drinking. EPU has long-lasting effects on drinking behavior, consistent with habit formation. Moreover, the relation is stronger for younger individuals whose habits are more malleable. We find similar results when using smoking rates to measure unhealthy choices.

Can Restructuring Gains Be Sustained Without Ownership Changes? Evidence from Withdrawn Privatizations

Gabriele Lattanzio and William L. Megginson

By employing a novel, hand-collected sample of withdrawn and completed share-issue privatizations (SIPs) we show that both groups undergo comparable restructuring processes over the three years preceding the event. We employ matching procedures to explicitly control for the identified restructuring effect, isolating the ultimate consequences of the ownership transfer from state to private investors on corporate policies and performance. We document that, absent the ownership transfer, most of the gains realized during the restructuring process are re-absorbed over the post-treatment period. The transition from state to private ownership thus represents a necessary condition for the long-term success of privatization programs.

How Does Acquisition Experience Affect Managerial Career Outcomes?

Daniel Greene and Jared Smith

We use hand-collected data from acquisition press releases to investigate how acquisition experience affects the career outcomes of non-CEO senior managers. To address the non-random nature of gaining experience, we separately use manager and firm-year fixed effects, as well as an instrumental variable analysis. Acquisition experience is positively related to compensation, the likelihood of a future board seat, and the likelihood of promotion to CEO.  Further tests suggest that the effects of experience decay over time, have diminishing returns, and do not depend on deal quality.  Finally, we search SEC filings to document novel information on managerial roles in M&As.

Government Employment Guarantee, Labor Supply, and Firms’ Reaction: Evidence from the Largest Public Workfare Program in the World

Sumit Agarwal, Shashwat Alok, Yakshup Chopra, and Prasanna Tantri

Using establishment-level employment and operating data, we examine the impact of the Indian government’s employment guarantee program on labor and firm behavior. We exploit the staggered implementation of the program for identification and find that the program led to a 10% reduction in permanent workforce in firms. Firms responded to the adverse labor supply shock by resorting to increased mechanization. This significantly increases the firms’ cost of production, thereby leading to a decline in net profits and productivity. These effects manifest primarily in firms paying low wages, having low labor productivity and greater sales volatility.

Pricing Liquidity Risk with Heterogeneous Investment Horizons

Alessandro Beber, Joost Driessen, Anthony Neuberger, and Patrick Tuijp

We develop an asset pricing model with stochastic transaction costs and investors with heterogeneous horizons. Depending on their horizon, investors hold different sets of assets in equilibrium. This generates segmentation and spillover effects for expected returns, where the liquidity (risk) premium of illiquid assets is determined by investor horizons and the correlation between liquid and illiquid asset returns. We estimate our model for the cross-section of U.S. stock returns and find that it generates a good fit, mainly due to a combination of a substantial expected liquidity premium and segmentation effects, while the liquidity risk premium is small.

Do Excess Control Rights Benefit Creditors? Evidence from Dual-Class Firms

Ting Xu

Excess control rights by inside shareholders have been documented to hurt minority shareholders. This paper shows that such governance feature may benefit creditors. Using a sample of U.S. dual-class firms, I show that these firms take less operational and financial risk than similar single-class firms, consistent with insiders’ emphasis on long-term survival to access ongoing private control benefits. Such risk avoidance translates into lower borrowing costs for dual-class firms. Further, lenders are able to use specific covenants to prevent potential expropriations by insiders. The overall relationship between excess control rights and firm value may be less negative than previously thought.