Knowledge that Transforms

This paper examines the effect of going public on firm-level employment. To establish a causal effect, we employ a novel data set of private firms to investigate employment growth in IPO firms relative to a group of firms that file for an IPO but subsequently withdraw their offering. We find that employment increases significantly after going public, and the increase is more pronounced in industries with requirements for highly skilled labor and greater dependence on external finance. Improved ability to undertake acquisitions and a strategic shift toward commercialization, rather than agency problems, explain employment growth. Overall, these results highlight the importance of going public for firms’ employment policies.

Better access to debt markets mitigates the effects of uncertainty on corporate policies. We establish this result using the staggered introduction of anti-recharacterization laws in US states. These laws enhanced firms’ ability to borrow by strengthening creditors’ rights to repossess collateral pledged in special purpose vehicles. After the passage of the laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, and investment in intangible assets. Our findings suggest that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms’ precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.

We exploit a natural experiment in which two very similar investment subsidies were implemented in the same country, two years apart: once during a period of economic stability, and once during a period of very high uncertainty. Using rich administrative data, we find that, under low uncertainty, tax incentives have strong positive effects on average investment. Under high uncertainty, however, the story is different: there is vast heterogeneity in responses, with the firms that are sheltered from elevated uncertainty responding strongly to the policy, and the firms that are exposed to high uncertainty driving a drop in responses. This implies that periods of stability offer an important policy opportunity to encourage investment, and the impact of stimulus in crises depends on the distribution of firms in their exposure to uncertainty.

Intermediary and downside risk asset pricing theories lay the foundations for spanning the multi-asset return space by a small number of risk factors. Recent studies show strong empirical support for such factors across major asset classes. We revisit these results and show that robust evidence for common factor pricing remains elusive. Importantly, the proposed risk factors do not seem to provide incremental information to the traditional market factor. We argue that most of the economic and statistical challenges are not specific to these analyses and, with the aid of a placebo test, offer general recommendations for improving empirical practice, thus adding to the prescriptions in Lewellen et al. (2010).

This study tests whether cooperation between securities regulators influences global market integration. I measure cooperation using arrangements between securities regulators that enable enhanced cross-border enforcement, better regulatory decisions, and reduced compliance obligations for cross-border activities. These arrangements-formed at different times for different country pairs-are associated with an 11% increase in cross-border investment. I find similar increases using other proxies for market integration. Cross-border investment and market integration thus depend, in part, on regulators working together to extend legal and institutional capacities across borders. This reframes our understanding of the role of institutions in global capital markets.

Which financial frictions drive firms’ financing constraints? We structurally estimate dynamic firm financing models embedding many financial frictions, on panels of public firms and private firms. We focus on limited enforcement, moral hazard, and trade-off models and assess which models rationalize best observed corporate policies across various samples. Our tests, based on empirical policy function benchmarks, favor trade-off models for larger public firms, limited commitment models for smaller public firms, and moral hazard models for Private firms. Our estimates suggest significant financing constraints due to agency frictions and highlight the importance of identifying their sources for firm valuation.

We draw on new data and theory to examine how private market contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom, 1991), few impact funds tie compensation directly to impact, and most retain traditional financial incentives. However, funds contract directly on impact in other ways and adjust aspects of the contracts such as governance. In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals.

We follow a representative panel of millions of consumers in the United States from 2007 to 2017 and document new facts on the long-term effects of the Great Recession. There were about six million foreclosures over this period. Only a quarter of foreclosed households regained homeownership, taking an average four years to do so. This persistent loss of homeownership accounts for most of the decline in the U.S. homeownership rate. Despite massive stimulus and debt relief policies, house prices, consumption, and unemployment remained below precrisis levels in about half of the zip codes in the United States Regions that recovered to precrisis levels took on average four to five years. Regional variation in the extent and speed of recovery is strongly and persistently associated with frictions affecting the pass-through of lower interest rates and debt relief to households.

On October 26, 2008, Porsche announced a largely unexpected domination plan for Volkswagen. The resulting short squeeze in Volkswagen’s stock briefly made it the most valuable listed company in the world. We argue that this was a manipulation designed to save Porsche from insolvency and the German laws against this kind of abuse were not effectively enforced. Using hand-collected data we provide the first rigorous academic study of the Porsche-VW squeeze and show that it significantly impeded market efficiency. Preventing manipulation is important because without efficient securities markets, the EU’s major project of the Capital Markets Union cannot be successful.

Why is high-growth entrepreneurship scarce in developing countries? Does this scarcity reflect firm capabilities constraints? We explore these questions using as a laboratory an accelerator in Colombia that selects participants using scores from randomly assigned judges and offers them training, advice, and visibility but no cash. Exploiting exogenous differences in judges’ scoring generosity, we show that alleviating constraints to firm capabilities unlocks innovative entrepreneurs’ potential but does not transform subpar ideas into high-growth firms. The results demonstrate that some high-potential entrepreneurs in developing economies face firm capabilities constraints and accelerators can help identify these entrepreneurs and boost their growth.