Corporate Finance: Investment Behavior
Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM
- Chair: Andrea Eisfeldt, University of California-Los Angeles
Adapting to Radical Change: The Benefits of Short-horizon Investors
AbstractWe show that following large permanent negative shocks, firms with more short-term institutional investors suffer smaller drops in sales, investment and employment and have better long-term performance than similar firms affected by the shocks. To do so, these firms increase advertising, differentiate their products from those of the competitors, conduct more diversifying acquisitions, and have higher executive turnover in the aftermath of the shocks. Our findings suggest that firms with more short-term investors put stronger effort in adapting their business to the new competitive environment. Endogeneity of institutional ownership and other selection problems do not appear to drive our findings.
Skilled Labor Supply and Corporate Investment: Evidence From the H-1B Visa Program
AbstractI study how a firm’s ability to hire skilled workers affects corporate investment. To this end, I exploit the 2003 reduction in the legislative cap for the H-1B visa program, which U.S. firms use to recruit foreign skilled (college-educated) workers. I find that the reduction in the cap caused a significant decrease in the investment rate of firms that were ex-ante more reliant on H-1B workers as a source of skilled labor. The effect persists for several years past the 2003 cap drop, and is more pronounced for firms hiring workers in "industrial" occupations related to science and engineering compared with firms hiring workers in "knowledge" occupations related to information technology and professional services. The effect is also more pronounced for firms that are not easily able to access substitute sources of skilled labor. My research shows that constraints on access to human capital, much like constraints on access to financial capital, can hinder corporate investment.
Bank Risk-taking and the Real Economy: Evidence From the Housing Boom and its Aftermath
AbstractThis paper studies bank lending behavior during the U.S. housing boom and its effect on mortgage defaults, unemployment and consumption during the ensuing housing bust. During the boom, publicly-traded banks increased mortgage lending activity and relaxed mortgage lending standards relative to privately-held banks. In the ensuing bust, mortgages originated by publicly-traded banks were more likely to default or be foreclosed. In the aggregate, counties with greater exposure to publicly-traded banks before the boom experienced greater declines in house prices and higher mortgage default and foreclosure rates in the bust. These counties also experienced a larger increase in unemployment and a larger drop in durable consumption. These findings are robust to matching public and private lenders on size and to controlling for local time-varying shocks and numerous observable county characteristics. While there are a number of interpretations of these findings, we present evidence that stock market pressure to maximize short-term earnings may be part of the reason why publicly-traded banks were more aggressive mortgage lenders during the boom. Banks engage in more aggressive mortgage lending if, among other measures of short-term focus, they are run by CEOs that emphasize short-term earnings when discussing performance and if they have more institutional shareholders that trade shares actively. Our findings provide a microfoundation for the supply-side view of the U.S. mortgage credit expansion based on the short-term earnings focus of some depository institutions.
- G3 - Corporate Finance and Governance