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ItemRefinancing Constraints and Labor Hiring: The Role of Financial Reporting Quality( 2017-08-31)Recent studies highlight the adverse effect of financing frictions on corporate employment. In this paper, we hypothesize and find that high quality financial reporting mitigates the negative effect of refinancing constraints on firms’ labor hiring, where refinancing constraints are identified by significant levels of maturing long-term debt. We further find that financial reporting quality facilitates firms’ hiring activities by mitigating the adverse effect of refinancing constraints on new debt issuance. In addition, we show that the mitigating role of financial reporting quality in the negative relation between refinancing constraints and corporate employment decisions is more pronounced for financially constrained firms and for labor-intense firms. Overall, our study contributes new evidence on the role of high quality financial reporting in facilitating firms’ abilities to maintain and expand their labor forces, particularly when facing significant refinancing constraints.
ItemLabor Unions and Firm Performance: The Case of Major Customers( 2017-08-31)This study investigates the relation between supplier unionization and sales to major customers. We argue that major customers shift purchases away from suppliers that unionize to avoid potential supply chain disruptions and present findings consistent with this argument. Our results are robust to endogeneity concerns from difference-in-differences and regression discontinuity research designs. Further, higher switching costs mitigate the decline in sales to major customers. Finally, we document that subsequent to unionization, major customers begin purchasing from additional suppliers and consequently suppliers’ customer concentration declines. These findings suggest that employees’ efforts to unionize can adversely affect their firm’s relationships with their major customers.
ItemSignaling through Dynamic Thresholds in Financial Covenants( 2017-08-28)Among private loan contracts with covenants originated during 1996-2012, 35% have financial covenant thresholds that automatically increase according to a predetermined schedule. Firms that accept these dynamic thresholds receive a lower interest spread and improve their creditworthiness relative to matched control firms. However, in the event of a covenant violation, these firms are less likely to receive a waiver, more likely to pay higher waiver fees, experience greater investment cuts, and are more likely to switch lead lenders than control firms. Overall, our findings suggest that signaling through dynamic thresholds in covenants is credible but costly to borrowers.
ItemProtecting the Giant Pandas: Newspaper Censorship of Negative News( 2017-08-24)We investigate newspaper censorship of firm-level negative news using a rare setting in which many companies were involved in similar tunneling scandals. We find that the Chinese censorship authorities restrict the dissemination of tunneling news on state-owned enterprises, firms with greater numbers of employees, and large taxpayers. An examination of the difference in censorship behaviors between the central and provincial authorities reveal three incentives that direct the censorship practices: strong local protectionism, cross-provincial competition, and the concern for the relative positions in the political power system. Finally, we show that the tunneling news that is reported leads to negative market reactions and greater trading volumes, indicating that the news that survives the censorship has information content.