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Labor and Finance

Paper Session

Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM

Sheraton Grand Chicago, Chicago Ballroom IX
Hosted By: American Finance Association
  • Chair: Ashwini Agrawal, London School of Economics and Political Science

Collateral Values and Corporate Employment

Nuri Ersahin
,
University of Illinois-Urbana-Champaign
Rustom M. Irani
,
University of Illinois-Urbana-Champaign

Abstract


We analyze how local financial shocks influence employment outcomes within firms and how these effects show up in the aggregate. Our empirical strategy uses variation in real estate price growth, real estate holdings, and establishment-level employment from the U.S. Census Bureau. We estimate that employment expenditures increase by $0.10 per $1 increase in real estate collateral values among U.S. publicly-traded firms. Within-firm increases in employment occur at establishments away from the location of real estate holdings leading to regional employment spillovers. Our findings indicate that the geography of firms’ establishments is an important channel through which local financial shocks spread across U.S. regions.

Will I Get Paid? Employee Stock Options and Mergers and Acquisitions

Ilona Babenko
,
Arizona State University
Fangfang Du
,
Arizona State University
Yuri Tserlukevich
,
Arizona State University

Abstract

We analyze how rank-and-file employee compensation contracts of target firms affect the negotiations of merger terms and merger outcomes. Using unique data from merger agreements, we document that in 79.9% of all deals at least some of the target's employee stock options are canceled by the acquirer. Employees lose approximately half of their option value in the average M&A deal. By exploiting the exogenous variation in option grants, we find that the offer price premium is larger when the target firm has many employee options. Further, the bidders that cancel stock options earn on average 1.6% higher announcement return. We find some evidence of strategic targeting of firms with options. Our results are consistent with the bidders trading off the costs of compensation liabilities against the resistance of employees.

Firing the Wrong Workers: Financing Constraints and Labor Misallocation

Andrea Caggese
,
Pompeu Fabra University
Vicente Cunat
,
London School of Economics and Political Science
Daniel Metzger
,
Stockholm School of Economics

Abstract

This paper studies the effect of firms’ financing constraints on the decision of which workers are fired. Firms need to consider wages and productivity (current and expected) as well as firing and hiring costs when firing a worker. Financing constraints distort this inter-temporal trade-off leading firms to sub-optimal firing decisions. In particular, financially constrained firms may fire the wrong type of workers (e.g., workers with steeper productivity profiles or lower firing costs) relative to unconstrained firms. We show empirical evidence of this distortion using matched employer-employee data from the whole active population of Sweden between 1990 and 2010. Financing constraints are identified using a regression discontinuity approach on the determination of a public discrete credit rating and a within firm-year estimator. Negative firm shocks are identified using firm-specific trade patterns and exchange rate fluctuations. Our empirical results reveal an important new misallocation effect of financial frictions that operates within firms across different types of workers.
Discussant(s)
Felipe Severino
,
Dartmouth College
Kenneth Ahern
,
University of Southern California
Xavier Giroud
,
Massachusetts Institute of Technology
JEL Classifications
  • G3 - Corporate Finance and Governance