Abstract: This paper provides new evidence on the effect of unionization on the cost of bank loans. By using a regression discontinuity design, we establish a causal relation from new unionization to bank loan pricing. Relative to firms in which unions barely lose elections, firms in which unions barely win elections experience an increase in the spread of the newly originated loans. Further tests suggest that the effect of labor unions on loan spread is through reducing recovery rate of banks in bankruptcy rather than increasing firms’ default risk.
Journal of Corporate Finance, Vol. 43, Apr 2017, Page 407-428
*FIRS (2016), Midwest Finance Association (MFA) Annual Conference (2016), FMA (2015), the 2015 Tsinghua Finance Workshop, the Eastern Finance Association (EFA) Annual Meeting (2014)
1. Debt Structure as a Strategic Bargaining Tool [SSRN]
Abstract: In this paper, I examine the strategic role of debt structure in improving the bargaining position of a firm’s management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining because it affects the ease of renegotiating debt contracts and thus the credibility of bankruptcy threats. Using a regression discontinuity design, I show that debt structure is adjusted toward debt that is more difficult to renegotiate in response to an increase in employees’ negotiation power. Further analyses confirm that the debt structure adjustments are more likely driven by the strategic concerns of management, rather than by other explanations.
*WFA (2017), SFS Cavalcade (2017), Midwest Finance Association (MFA) Annual Conference (2017), the Washington University 13th Annual Corporate Finance Ph.D. Poster Session (Best Finance Ph.D. Award), the 2016 CSEF-EIEF-SITE Conference on Finance and Labor
Abstract: We measure U.S. publicly traded companies’ exposures to skilled labor risk, i.e., the potential failure in attracting and retaining skilled labor, by the intensity of their discussions on this issue in their 10-K filings. We show that this measure effectively captures firm risk due to the mobility of skilled labor. We find that skilled labor risk is an important determinant of corporate compensation policy. Firms facing higher skilled labor risk ex ante offer a higher level of compensation to skilled labor and also structure the compensation more towards equity-based incentive pay, consistent with the theoretical predictions. Our results also suggest that these compensation practices do help to mitigate firms’ skilled labor risk.
*WFA (2017), FIRS (2017)
3. Labor Adjustment Costs and Risk Management [SSRN]
Abstract: This paper studies the effect of labor adjustment costs on corporate risk management. Labor adjustment costs attenuate the correlation between a firm’s internal fund and its investment opportunities and therefore create more incentives for the firm to increase the ability of cash flow smoothing. We find that firms in which employees are more protected by labor market institutions use more derivative contracts for risk management. We further find that firms that rely more on skilled labor engage in more derivative hedging since labor with higher skill levels is associated with larger adjustment costs. Such an effect is attenuated when the mobility of skilled labor is restricted.
*R&R at Journal of Financial and Quantitative Analysis (JFQA)
*Midwest Finance Association (MFA) Annual Conference (2017)
Abstract: This study examines the effect of organized labor on corporate SG&A cost behavior. Organized labor could reduce the stickiness of SG&A costs through reducing a firm’s SG&A spending, or increase cost stickiness through raising labor and capital adjustment costs. Using multiple data sources, we find that a stronger power of organized labor is associated with a lower level of SG&A cost stickiness. Further analyses suggest that this relationship is consistent with labor unions’ influence on managers’ spending incentive that arises from unions’ rent seeking behavior. Our results suggest that organized labor is an important determinant of SG&A cost behavior.
*R&R at Contemporary Accounting Research (CAR)
Works in Progress
- Multiple Creditors as a Disciplinary Device: an Empirical Study (with Hongda Zhong)