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40
The Litigation Environment of a Firm and its Impact on Financial Policy∗
, 2009
"... Theory suggests that management may be able to increase firm value through the strategic use of debt when facing contingent liabilities. This paper examines whether managers strategically use financial policy when facing the risk of one such liability- litigation claims. I find that greater litigati ..."
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Theory suggests that management may be able to increase firm value through the strategic use of debt when facing contingent liabilities. This paper examines whether managers strategically use financial policy when facing the risk of one such liability- litigation claims. I find that greater litigation exposure leads firms to choose higher leverage. I show that this leverage increase is brought on by an active decision to repurchase shares. These repurchases appear to be financed with a combination of excess cash and short term debt as they coincide with a significant decrease in cash holdings and an increase in short term liabilities. These firms also increase their use of operating leases, which, due to their priority in bankruptcy, have similar characteristics to secured debt. Finally, the effects seem to be stronger for firms with a higher probability of bankruptcy. These results run counter to anecdotal suggestions that firms may adjust financial policy to build a war chest in anticipation of litigation and they suggest that firms use capital structure strategically to increase shareholder value. 1
Changes in the Funded Status of Retirement Plans after the Adoption of SFAS No. 158: Economic Improvement or Balance Sheet Management?
, 2011
"... Statement of Financial Accounting Standards No. 158 (SFAS 158) requires all companies to report the funded status of defined benefit pension plans and other postretirement plans, such as retiree healthcare plans, on the balance sheet for fiscal years ending after December 15, 2006. Prior to this, un ..."
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Statement of Financial Accounting Standards No. 158 (SFAS 158) requires all companies to report the funded status of defined benefit pension plans and other postretirement plans, such as retiree healthcare plans, on the balance sheet for fiscal years ending after December 15, 2006. Prior to this, underfunded retirement plans were often not recorded as a liability on company‟s balance sheets. At the end of 2005, the average defined benefit pension plan of the companies in this study was underfunded by $324 million and the average other postretirement plan was underfunded by $760 million. After the adoption of SFAS 158 in 2006, this average underfunding decreased. After controlling for changes in market conditions, I find that companies with debt contracting incentives to manage their balance sheets had a larger increase in their defined benefit pension plan funded status subsequent to the adoption of SFAS 158. This increase was at least partially due to the choice of assumptions used to measure the pension obligation.
Survival of the fittest? Financial and economic distress and restructuring outcomes in Chapter 11
"... We employ straightforward proxies to identify firms in financial versus economic distress and show that Chapter 11 outcomes and asset restructurings vary according to these firm types. The results from our sample of large bankruptcies from 1991 to 2004 are consistent with the view that the Chapter 1 ..."
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We employ straightforward proxies to identify firms in financial versus economic distress and show that Chapter 11 outcomes and asset restructurings vary according to these firm types. The results from our sample of large bankruptcies from 1991 to 2004 are consistent with the view that the Chapter 11 process preserves the going concern value of financially distressed firms while redeploying the assets of economically distressed firms. These results hold for asset redeployments resulting both from liquidations or acquisitions and those resulting from partial asset liquidations of firms that reorganize in Chapter 11. The empirical findings run counter to concerns that inefficiencies and conflicts of interest severely compromise the Chapter 11 process. Further, we provide the first empirical evidence that the put option inherent in lease contracts is frequently exercised in Chapter 11, that the disposition of lease contracts in bankruptcy constitutes a large portion of asset restructurings, and that the ability to put lease contracts may mitigate the indirect costs of asset fire sales. We also find that unionized firms experience smaller debt reductions in Chapter 11 than do non-unionized firms.
FIRING COSTS AND CAPITAL STRUCTURE DECISIONS
"... Rights Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the aut ..."
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Rights Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. Downloaded 17-Sep-2016 10:33:42
HOW INFORMED STOCK TRADING CAN AFFECT LABOR INVESTMENT EFFICIENCY
"... In this paper, we examine whether managers use information included in stock prices when making labor investment decisions. Specifically, we examine whether stock price informativeness affects labor investment efficiency. We find that a higher probability of informed trading (PIN) is associated with ..."
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In this paper, we examine whether managers use information included in stock prices when making labor investment decisions. Specifically, we examine whether stock price informativeness affects labor investment efficiency. We find that a higher probability of informed trading (PIN) is associated with lower deviations of labor investment from the level justified by economic fundamentals i.e., higher labor investment efficiency. This finding is robust to using alternative proxies for stock price informativeness and labor investment efficiency, when we control for earnings quality and mispricing, and when we address endogeneity issues. Furthermore, we examine how the impact of stock price informativeness on labor investment efficiency depends on labor union and financial constraints. Particularly, we find stock price informativeness helps mitigating the adverse effects of labor union and financial constraints on labor investment, respectively. Collectively, our results highlight the importance of information included in stock prices for the investment in human capital. Keywords:
The Union Threat *
"... Abstract This paper studies the impact of labor unions on wage inequality, output and unemployment. To do so, it proposes a search and matching model of union formation in which unions arise endogenously through a voting process within firms. In a union firm, workers bargain their wages collectivel ..."
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Abstract This paper studies the impact of labor unions on wage inequality, output and unemployment. To do so, it proposes a search and matching model of union formation in which unions arise endogenously through a voting process within firms. In a union firm, workers bargain their wages collectively. In a nonunion firm, each worker bargains individually with the firm. Because of this wage setting asymmetry, a union lowers the profit of a firm and compresses the wage distribution of the workers. Furthermore, to prevent unionization, nonunion firms distort their hiring decisions in a way that also lowers the dispersion of wages. After being calibrated on the United States, the model shows that, even though a standard empirical estimate would predict a small impact of unions on wage inequality, removing the threat of unionization increases the variance of wages substantially. It also increases output and reduces unemployment. Completely outlawing unions increases wage inequality further while forcing all firms to be unionized lowers inequality considerably. These results suggest that, even with a small membership, unions might have a significant impact on the economy through general equilibrium mechanisms and the way they distort firms' decisions.
Financial Structure and the Hiring Decisions of Firms
"... Abstract The use of debt as a strategic mechanism to improve the bargaining position of firms with workers generates a positive relation between debt and employment growth. The strength of this relation increases with the bargaining power of workers. Using firm-level data from Compustat and an indu ..."
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Abstract The use of debt as a strategic mechanism to improve the bargaining position of firms with workers generates a positive relation between debt and employment growth. The strength of this relation increases with the bargaining power of workers. Using firm-level data from Compustat and an industry unionization index that proxies for the bargaining power of employees, we show that the relation between the growth of debt and the growth of employment increases with the bargaining power of workers.
Private Equity and Employees Private Equity and Employees
"... Abstract Using linked employer-employee data from Sweden, a dierence-in-dierence approach, and 201 private equity buyouts undertaken between 1998 and 2004, we show that unemployment risk declines and labor income increases for employees in the wake of a private equity buyout. Unemployment risk decl ..."
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Abstract Using linked employer-employee data from Sweden, a dierence-in-dierence approach, and 201 private equity buyouts undertaken between 1998 and 2004, we show that unemployment risk declines and labor income increases for employees in the wake of a private equity buyout. Unemployment risk declines despite lower employment growth for continuing establishmentsattributable to hiring freezes rather than to layosand a lack of change in rm level employment growth. A plausible explanation is relaxed nancial constraints: the eects are strongest in industries dependent on external nance for growth, for nondivisional buyouts, and for buyouts just prior to 2001.
