Because bankruptcy is costly for employees, theoretical studies argue that firms with higher leverage have to pay their employees higher wages. In this paper we empirically test this prediction. We find that firm leverage is positively related to the wages of employees, both in the United States and in the Netherlands. In the United States, the positive relation between wages and leverage is strongest in the 21st century, which is a period that also shows a positive relation between wages and unemployment rates. We conclude that the human capital costs of bankruptcy are an important disadvantage of debt.

Current attempts to reform financial markets presume that shareholder empowerment benefits shareholders. We investigate the wealth effects associated with the Securities and Exchange Commission’s rule to facilitate director nominations by shareholders. Our results are not in line with shareholder empowerment creating value: The average daily abnormal returns surrounding events that increase (decrease) the probability of the proposal’s passage are significantly negative (positive). Furthermore, given an increase in the probability of the proposal’s passage, firms whose shareholders are more likely to use the rule to nominate directors experience more negative abnormal returns.

We document that return anomalies related to management discretions are mitigated for firms followed by more experienced analysts. Nonetheless, only experience directly covering the firm matters while experience covering other firms is not associated with greater price efficiency. Focusing on the accrual anomaly, we then examine research and monitoring as possible channels through which experience mitigates mispricing. For firms followed by more experienced analysts, we find that forecast revisions and stock prices respond more positively to the accrual component of earnings. We further find that accrual quality is higher in firms followed by more experienced analysts, which holds after using both propensity score matching and exogenous events of brokerage closures and mergers to control for endogeneity. Collectively, our results are consistent with monitoring being the primary mechanism by which experienced analysts reduce accrual mispricing.