Refinancing, Profitability, and Capital Structure, with András Danis and Toni Whited, Journal of Financial Economics, 2014, Vol 114(3), pages 424-443.
We analyze global data about electricity generation and document that the risk exposure of a firm's owners and its workers depends on the way competing firms respond to productivity shocks by changing the scale of their output. 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 firms' total wage- and dividend payments. Firms with relatively flexible competitors appear to smoothen both wages and dividends, but an increase in competitor inflexibility is associated with less dividend smoothing and more wage smoothing. Our evidence supports the idea that labor productivity risk associated with competitor inflexibility should be borne by firms' shareholders, rather than by their workers.
Information Acquisition Costs and Credit Spreads, with Marcin Jaskowski
This paper investigates the impact of a structural break in information acquisition costs on 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 SEC’s EDGAR database and the SEC’s XBRL initiative to examine how bond markets respond to reductions in information acquisition costs. Our main results highlight the friction’s relevance for debt markets: Lower information acquisition costs are associated with a decline in credit spreads of 5 to 8 percent relative to their average levels. Moreover, the magnitude of the decline varies with firm size, credit ratings, and bonds’ call provisions, but not with the firms’ frequency of issuing new bonds.
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