10 Financial Accounting 4: Accounting issues related to labor, politics, and environments (FAR4)
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ItemDo Local Newspapers Contribute to Geographic Commonalities?( 2021)Prior research documents that firms in close geographic proximity tend to share commonalities in various outcomes and practices. Because local newspapers are important channels for discovering and sharing information about local conditions that is likely to be relevant for various firm decisions, we examine whether local newspapers contribute to geographic commonalities. We find that firms in metropolitan statistical areas (MSAs) with more local newspapers have more similar (i.e. less disperse) stock returns and stock market betas, indicating that local newspapers contribute to commonalities in overall fundamentals among co-located firms. We also find that the level of investment – a key driver of firm fundamentals - is more similar among firms in MSAs with more local newspapers, suggesting that local newspapers contribute to a shared understanding of investment opportunities available to co-located firms. The effect of local newspapers on geographic commonalities is more pronounced for newspapers with smaller circulations, which have been shown to be more dedicated to covering local news than larger newspapers. The effect is also more pronounced in communities that have adopted the inevitable disclosure doctrine, which limits labor market mobility – an alternative channel for information sharing. In addition, we find that the impact of local newspapers is most significant in promoting commonalities among local industry clusters. Using a difference-in-difference design to bolster causal inferences, we find that same-industry firms exhibit less similarities after local newspaper closures, which are exogenous shocks to local news coverage. Collectively, the results show that local media is an important driver of previously documented geographic commonalities.
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ItemShadow Union in Local Labor Markets and Capital Structure( 2021)This paper identifies an externality of a firm’s unionization that affects the capital structure decisions of non-unionized firms within a local labor market. We find that a union victory leads non-unionized firms to increase market leverage ratios by 0.9 to 1.3 percentage points. This "shadow union" effect is more pronounced when the probability of unionization rises in a larger margin and firms face higher union rents conditional on being unionized. The threat is credible enough to shape corporate financing decisions: shadow unions raise the wages of employees and increase the likelihood of subsequent union victories in the relevant labor market.
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ItemDo Local Newspapers Contribute to Geographic Commonalities?( 2021)Prior research documents that firms in close geographic proximity tend to share commonalities in various outcomes and practices. Because local newspapers are important channels for discovering and sharing information about local conditions that is likely to be relevant for various firm decisions, we examine whether local newspapers contribute to geographic commonalities. We find that firms in metropolitan statistical areas (MSAs) with more local newspapers have more similar (i.e. less disperse) stock returns and stock market betas, indicating that local newspapers contribute to commonalities in overall fundamentals among co-located firms. We also find that the level of investment – a key driver of firm fundamentals - is more similar among firms in MSAs with more local newspapers, suggesting that local newspapers contribute to a shared understanding of investment opportunities available to co-located firms. The effect of local newspapers on geographic commonalities is more pronounced for newspapers with smaller circulations, which have been shown to be more dedicated to covering local news than larger newspapers. The effect is also more pronounced in communities that have adopted the inevitable disclosure doctrine, which limits labor market mobility – an alternative channel for information sharing. In addition, we find that the impact of local newspapers is most significant in promoting commonalities among local industry clusters. Using a difference-in-difference design to bolster causal inferences, we find that same-industry firms exhibit less similarities after local newspaper closures, which are exogenous shocks to local news coverage. Collectively, the results show that local media is an important driver of previously documented geographic commonalities.
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ItemInformation Exposure and Corporate Citizenship( 2021)We explore how information exposure, specifically information transmission within organizations, facilitates companies’ roles as corporate citizens. We study whether US firms’ business networks with China and Italy become their information advantage, and examine whether firms use relevant information to mitigate the negative shocks of COVID-19. We start by validating our measurement of information exposure. Next, we find that a higher number of work-from-home (“WFH”) policies, as evidenced by a higher stay-at-home ratio, are implemented in areas with more information-exposure companies, even before local governments impose a lockdown. To further demonstrate corporate citizenship, we document firms’ positive social externalities—lower COVID-19 growth and an influence on other firms’ WFH policies—and show suggestive evidence on firms’ social motives.
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ItemThe Mix of Soft and Hard Information in ESG Reports and Impression Management( 2021)We use textual analysis to measure the mix of soft and hard information disclosures in voluntary Environmental, Social, and Governance (ESG) reports and extrapolate the impact of a proposed mandatory disclosure regime. We proxy for hard information with the use of quantitative or specific disclosures and soft information with the use of boilerplate and forward-looking language. We find that firms with poor ESG performance and other motivations for impression management disclose more soft information and less hard information. We also find soft information to be less predictive of future ESG performance than hard information. We find that firms are not successful at using soft information for impression management: soft information is not associated with enhanced stakeholder perception of ESG performance, while hard information is, as evidenced in reduced shareholder activism and increased third-party awards. Given disclosure mandates tend to constrain soft information and promote hard information, we expect a mandatory ESG disclosure regime to improve disclosure quality though have limited impact on sophisticated stakeholders.
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ItemThe Value of Mobile Labor during Immobile Times: Evidence from the COVID-19 Pandemic( 2021)We examine whether and how mobile labor influences firm resilience to the COVID exposure. Using a sample of U.S. firms for the period between January 20, 2020 and June 26, 2020, we find a robust, positive relation between labor mobility and firm resilience to the COVID exposure. Further, we find that the impact of labor mobility on firm resilience to the COVID exposure is more pronounced when employee layoff is high, asset redeployability is high, segment relatedness is high, and remote-work feasibility is high. These cross-sectional results suggest that mobile labor influences firm resilience to COVID exposure through three channels: with the COVID exposure, mobile employees can be redeployed to do additional work at a lower cost, to do alternative work more easily, and can better adapt to the new environment, which in turn helps their firms to stay resilient. Overall, our evidence points to the value of mobile labor during the COVID-19 pandemic and has implications for regulators and practitioners who have been exploring ways for firms to stay resilient during the pandemic.
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ItemFirm-Level Political Uncertainty and Mergers and Acquisitions( 2021)While several studies have examined how economy-wide political uncertainty affects firms’ economic activities, little is known about the economic consequences of firm-level political uncertainty. This study sheds light on this issue by examining whether and how acquirers’ political risk affects the outcomes of their mergers and acquisitions (M&A) based on a sample of U.S. firms. We show that firm-level political risk lowers acquirers’ M&A activities and this could be explained by acquirers’ financial constraints and the costs of delaying the M&A investment. Consistent with the notion that firms conduct M&A to hedge their risks, our results show that high political risk firms are more likely to conduct vertical M&A and to acquire target firms with lower risks. Our additional analyses show that such deals take more time to complete, are more likely to include termination fees, exhibit higher bid premiums, and are more likely to be paid by shares. Finally, we find that investors react negatively to M&A deals initiated by high political risk firms and these deals have poor long-term stock market performance, suggesting the adverse implications of political risk for M&A deals.