Refinancing, Profitability, and Capital Structure, with AndrŠs Danis and Toni Whited, Journal of Financial Economics, 2014, Vol 114(3), pages 424-443.
European Finance Association (2016), Western Finance Association (2016), SFS Cavalcade (2016)
We analyze global data about electricity generation and document that the risk exposure of a firmís owners and its workers depends on competitorsí ability or willingness to change their output in response to productivity shocks. Competitor inflexibility appears to be a risk factor: the sales of firms with more inflexible competitors respond more strongly to aggregate sales shocks. As a consequence, competitor inflexibility also affects the stability of firmsí payments to shareholders and workers. Firms with relatively flexible competitors appear to smoothen both wages and payouts to shareholders, but an increase in competitor inflexibility is associated with less payout-smoothing and more wage-smoothing. Our evidence supports the idea that labor productivity risk associated with competitor inflexibility should be borne by firmsí shareholders, rather than by their workers.
Information Acquisition Costs and Credit Spreads, with Marcin Jaskowski
FMA Annual Meeting (2016), French Finance Association (2016)
This paper investigates the relevance of information acquisition costs for corporate bond spreads. Information acquisition costs are an important market friction that affects how much information will be acquired by investors, their subsequent portfolio allocations, and consequently, market prices. We exploit the staggered introduction of SECís EDGAR database and the SECís XBRL initiative to examine how bond markets respond to reductions in information acquisition costs. Our main results highlight that these costs matter: lower information acquisition costs are associated with a decline in credit spreads of 5 to 8 percent relative to their average levels. The magnitude of this decline varies with bond features related to information sensitivity. Moreover, we provide evidence that is consistent with the notion that liquidity plays an important part in the documented decline in credit spreads.
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