This study examines whether labor unemployment risk affects the choice of debt source. Specifically, we examine whether US unemployment insurance (UI) benefits, which reduce unemployment risk, lead to a heavy reliance on bank debt. Through difference-in-difference analysis, we find that firms in states with generous UI benefits tend to rely more on bank debt, supporting the monitoring avoidance channel. This finding is robust to a battery of robustness tests. We also find that the positive relationship between UI benefits and bank debt ratio is more pronounced in firms from highly unionized states, labor-intensive firms, and firms with higher asset substitution risk. Finally, we find that debt maturity (security) decreases (increases) when UI benefits increase.

In this paper we examine whether state and foreign ownership affect the shape of the value-net working capital (NWC) curve. Using a multinational sample of privatized firms from 54 countries, we provide documentation indicating that the value-NWC curve is U-shaped. We show that shareholders value less (more) increasing NWC in government-controlled (foreign-controlled) firms with a low level of NWC when compared to their non-government-controlled (non-foreign-controlled) peers. These findings are robust to the use of alternative ownership and NWC proxies and when we address endogeneity issues. Furthermore, we find that the negative (positive) relation between state (foreign) ownership and the value of NWC is stronger in firms that are less financially constrained (from countries with strong governance institutions), especially at a low level of NWC. Collectively, our results highlight the importance of ownership type for the value of investment in NWC.

We examine whether employee welfare practices are associated with future stock price crash risk. Two competing hypotheses were tested: the stakeholder theory hypothesis & the agency theory hypothesis. According to the stakeholder hypothesis, if strong commitment to employee well-being genuinely aims at strengthening the firm's reputation in the market, enhancing the shareholders' engagement, avoiding costly strikes, and boosting the employees' productivity, higher level of employee welfare would be expected to mitigate stock crash risks. On the contrary, the agency theory predicts that, if managers attempt to use generous employee welfare plans to reduce the likelihood that the employees blow the whistle on the management wrongdoings, better employee welfare would likely be associated with higher crash risk. We find robust evidence supporting the agency theory thesis: high levels of employee welfare standards contribute to stock price crash risk. This finding is consistent with the view that employee welfare plans form a powerful strategy that can help managers in their bad-news-hoarding activities (withholding bad news from investors). Moreover, earnings management and the likelihood of whistleblowing appear to be the channels through which employee welfare impacts stock price crash risk. Our evidence further shows that the positive relation between employee welfare and crash risk is stronger for labor intensive firms and industries, in more regulated labor markets, and in less competitive product markets. Furthermore, this positive relationship is more pronounced in poorly governed firms and in countries with poor investors' protection and lower disclosure requirements.

In this paper, we examine whether managers use information included in stock prices when making labor investment decisions. Specifically, we examine whether stock price informativeness affects labor investment efficiency. We find that a higher probability of informed trading (PIN) is associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. This finding is robust to using alternative proxies for stock price informativeness and labor investment efficiency, when we control for earnings quality and mispricing, and when we address endogeneity issues. Furthermore, we report evidence suggesting that the positive impact of stock price on labor investment efficiency is more (less) pronounced in firms from highly unionized industries and firms facing higher financial constraints (firms from industries that rely more on skilled labor).

In this paper, we examine the relation between government ownership and stock price informativeness around the world. Using a sample of privatized firms from 41 countries between 1980 and 2012, we find strong and robust evidence that state ownership is associated with lower firm-level stock price variation, i.e., stock price informativeness. Furthermore, we find that the relation between state ownership and stock price informativeness depends on political institutions. In particular, the adverse effects of state ownership on stock price informativeness are more pronounced in countries with lower political rights (i.e., lower political constraints on the government).

In this study, we examine the impact of board reforms on the choice between bank and public debt. Using a large sample of firm-year observations from 29 countries and a difference-in-difference setting, we find that major board reforms lead to a decrease in bank debt ratio, particularly in companies where bank debt is used for monitoring purposes, suggesting that bank debt and board reforms are substitutes for monitoring managers' actions. We also find that board reforms' adoption is associated with a facilitated access to alternative financing sources with better terms than bank debt. In an additional analysis, we show that the decrease in bank debt ratio is stronger for firms with higher information opacity and those in countries with strong institutional environment. More importantly, we provide evidence that the decrease in bank debt post-reform increases firm value, indicating that the substitution between bank monitoring and board monitoring is a value-enhancing decision. Taken collectively, we conclude that the need for bank monitoring is endogenously determined by the strength of alternative governance mechanisms (i.e. board governance).

The corporate governance literature has shown that self-interested controlling owners tend to divert corporate resources for private benefits at the expense of other shareholders. Such behavior leads the controlling owners to prefer long maturity debt to short maturity debt, to avoid frequent monitoring by lenders, which creates conflict between controlling and minority shareholders over the maturity structure of debt. In this paper, we examine whether the presence of multiple large shareholders (MLS), beyond the controlling owner, helps to mitigate this conflict. Using a large data set of French publicly traded firms during the period 1998–2013, we find strong evidence that firms with MLS exhibit shorter debt maturity. This result suggests that MLS curb the extraction of private benefits by the controlling owner and reduce her preference for less monitoring through the use of longer maturity debt. The findings are robust to a number of checks, including addressing endogeneity concerns and using alternative sample compositions and alternative regression frameworks.