nep-cfn New Economics Papers
on Corporate Finance
Issue of 2016‒08‒14
six papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy By Hau, Harald; Huang, Yi; Wang, Gewei
  2. Do Private Equity Funds Manipulate Reported Returns? By Gregory W. Brown; Oleg R. Gredil; Steven N. Kaplan
  3. The FinTech Opportunity By Thomas Philippon
  4. The Labor Market Effects of Credit Market Information By Marieke Bos; Emily Breza; Andres Liberman
  5. Employment Protection and Investment Opportunities By Claudio F. Loderer; Urs Waelchli; Jonas Zeller
  6. On Persistence of Uncertainty Shocks By Sergey Egiev

  1. By: Hau, Harald; Huang, Yi; Wang, Gewei
    Abstract: The large regional variation of minimum wage changes in 2002-08 implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital in low-wage firms, reduce employment growth, but also accelerate total factor productivity growth--particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in governance or management practice, but is difficult to reconcile with the idea that competitive pressure is a substitute for governance quality.
    Keywords: Firm productivity; management quality; minimum wage policy
    JEL: D24 G31 J24 J31 O14
    Date: 2016–08
  2. By: Gregory W. Brown; Oleg R. Gredil; Steven N. Kaplan
    Abstract: Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported return manipulation. We find evidence that some under-performing managers boost reported returns during times when fundraising takes place. However, those managers are unlikely to raise a next fund, suggesting that investors see through much of the manipulation. In contrast, we find that top-performing funds likely understate their valuations.
    JEL: G23 G24 G30
    Date: 2016–08
  3. By: Thomas Philippon
    Abstract: This paper assesses the potential impact of FinTech on the finance industry, focusing on financial stability and access to services. I document first that financial services remain surprisingly expensive, which explains the emergence of new entrants. I then argue that the current regulatory approach is subject to significant political economy and coordination costs, and therefore unlikely to deliver much structural change. FinTech, on the other hand, can bring deep changes but is likely to create significant regulatory challenges.
    JEL: G2 G38 L1 L4 O3
    Date: 2016–08
  4. By: Marieke Bos; Emily Breza; Andres Liberman
    Abstract: Credit information affects the allocation of consumer credit, but its effects on other markets that are relevant for academic and policy analysis are unknown. This paper measures the effect of negative credit information on the employment and earnings of Swedish individuals at the margins of the formal credit and labor markets. We exploit a policy change that generates quasi-exogenous variation in the retention time of past delinquencies on credit reports and estimate that one additional year of negative credit information causes a reduction in wage earnings of $1,000. In comparison, the decrease in credit is only one-fourth as large. Negative credit information also causes an increase in self-employment and a decrease in mobility. We exploit differences in the information available to employers and banks to show suggestive evidence that this cost of default is borne inefficiently by the relatively more creditworthy individuals among previous defaulters.
    JEL: D12 D14 G21 G23 J20
    Date: 2016–07
  5. By: Claudio F. Loderer (University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI); Swiss Finance Institute); Urs Waelchli (Rochester-Bern Executive Programs; University of Rochester - Simon Business School); Jonas Zeller (University of Berne – Institute for Financial Management)
    Abstract: Even though firms’ innovation efforts dwindle in reaction to weaker employment protection legislation (EPL), we show that the value of their investment opportunities actually increases. The reason is that weaker EPL discourages innovation efforts only in firms with little comparative advantage at innovation. At the same time, however, weaker EPL increases the financial and operating flexibility of firms. This flexibility gain can explain why Tobin’s q increases in reaction to weaker EPL.
    Keywords: employment protection, innovation, investment opportunities, financial flexibility, operating flexibility
    JEL: G30 L20
  6. By: Sergey Egiev (National Research University Higher School of Economics)
    Abstract: I study real e ects of uncertainty shocks. Using time-varying volatility of the forecast error, I construct a two-part uncertainty metric that consists of persistent and volatile, burstlike components. These indices are used to study empirically several predictions of uncertainty models: that uncertainty shocks have real e ects, that these e ects realize in a downturn/overshoot pattern and that persistence of uncertainty shocks decreases this pattern's frequency and increases its amplitude. Using the constructed metric in a simple VAR framework I show that real e ects are there, that shock to the volatile uncertainty causes signi cant downturn/overshoot pattern, and that shock to the persistent component causes severe and prolonged damage.
    Keywords: uncertainty, business-cycles, real business cycles
    JEL: C53 E32 G12 G35 L25
    Date: 2016

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