Unionized workers are entitled to special treatment in bankruptcy court that can be detrimental to other corporate stakeholders, with unsecured creditors standing to lose the most. Using data on union elections, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions depress bondholders’ recovery values as they are assigned seats on creditors’ committees.

Recent reforms across Eastern European countries have given more flexibility and information to parties to engage in secured debt transactions. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more as a result. Those firms also invested more, hired more, and became more efficient and profitable following the changes in the contracting environment. The financial deepening we document triggered important reallocation effects: firms affected by the reforms increased their share of fixed assets and employment in the economy.

We study the capital investment, stock issuance, and cash savings behavior of non-tech manufacturers (old economy firms) during the 1990s technology bubble. Our empirical results show that high stock prices affect corporate policies because they relax financing constraints. During the tech bubble, constrained non-tech firms' investment responded strongly to “high stock prices” (specifically, the component of price that is not captured by fundamentals). They also issued stock in response to that overvaluation effect, saving part of the proceeds in their cash accounts. We find no such patterns for unconstrained non-tech firms, nor for tech firms. Our findings are not consistent with the notion that managers systematically issue overvalued stocks and invest in ways that transfer wealth from new to old shareholders. More broadly, they suggest that what appears to be overvaluation in one sector of the economy may have positive externalities for other sectors.

We study the effect of asset tangibility on corporate financing and investment decisions. Financially constrained firms benefit the most from investing in tangible assets because those assets help relax constraints, allowing for further investment. Using a dynamic model, we characterize this effect — which we call firm-level credit multiplier — and show how asset tangibility increases the sensitivity of investment to Tobin’s Q for financially constrained firms. Examining a large sample of manufacturers over the 1971–2005 period as well as simulated data, we find support for our theory’s tangibility–investment channel. We further verify that our findings are driven by firms’ debt issuance activities. Consistent with our empirical identification strategy, the firm-level credit multiplier is absent from samples of financially unconstrained firms and samples of financially constrained firms with low spare debt capacity.

This paper develops a test for herding in forecasts by professional financial analysts that is robust to (a) correlated information amongst analysts; (b) common unforecasted industry-wide earnings shocks; (c) information arrival over the forecasting cycle; (d) the possibility that the earnings that analysts forecast differ from what the econometrician observes; and (e) systematic optimism or pessimism among analysts. We find that forecasts are biased, but that analysts do not herd. Instead, analysts “anti-herd”: Analysts systematically issue biased contrarian forecasts that overshoot the publicly-available consensus forecast in the direction of their private information.

[This article uses a unique dataset to study how firms managed liquidity during the 2008—2009 financial crisis. Our analysis provides new insights on interactions between internal liquidity, external funds, and real corporate decisions, such as investment and employment. We first describe how companies used credit lines during the crisis (access, size of facilities, and drawdown activity), the characteristics of these facilities (fees, markups, maturity, and collateral), and whether managers had difficulties in renewing or initiating lines. We also describe the dynamics of credit line violations and the outcome of subsequent renegotiations. We show how companies substitute between credit lines and internal liquidity (cash and profits) when facing a severe credit shortage. Looking at real-side decisions, we find that credit lines are associated with greater spending when companies are not cash-strapped. Firms with limited access to credit lines, in contrast, appear to choose between saving and investing during the crisis. Our evidence indicates that credit lines eased the impact of the financial crisis on corporate spending.]

We study how renegotiation frictions impact distressed debt resolution and ex-ante financial contracting. We do so by exploiting an event that exogenously reduced the costs that syndicated lenders incur when renegotiating debt out of court, without affecting in-court restructuring costs (IRS Regulation TD9599). CDS contracts insure creditors against in-court bankruptcy losses and CDS spreads reflect the shadow price of bankruptcy risk. Using a triple-differences approach, we show that CDS spreads fell by record figures on the event’s announcement, with declines concentrated among distressed firms that relied most on syndicated loans. Distressed firms’ loan renegotiation rates more than doubled, as banks agreed to extend loan maturities in exchange for higher interest payments. Those firms’ access to new syndicated loans increased while associated interest markups declined.

This paper shows novel evidence on the mechanism through which financial constraints amplify fluctuations in asset prices and credit demand. It does so using contractual features of housing finance. Among agents whose housing demand is constrained by the availability of collateral, those who can borrow against a larger fraction of their housing value (achieve a higher loan-tovalue, or LTV, ratio) have more procyclical debt capacity. This procyclicality underlies the financial accelerator mechanism. Our study uses international variation in LTV ratios over three decades to test whether (a) housing prices and (b) demand for new mortgage borrowings are more sensitive to income shocks in countries where households can achieve higher LTV ratios. The results we obtain are consistent with the dynamics of a collateral-based financial accelerator in international housing markets.

Ample evidence points to a negative relation between internal funds (profitability) and the demand for external funds (debt issuance). This relation has been interpreted as evidence supporting the pecking order theory. We show, however, that the negative effect of internal funds on the demand for external financing is concentrated among firms that are least likely to face high external financing costs (firms that distribute large amounts of dividends, that are large, and whose debt is rated). For firms on the other end of the spectrum (low payout, small, and unrated), external financing is insensitive to internal funds. These cross-firm differences hold separately for debt and equity, and they are magnified in the aftermath of macroeconomic movements that tighten financing constraints. We argue that the greater complementarity between internal funds and external financing for constrained firms is a consequence of the interdependence of their financing and investment decisions.

We study pricing and non-pricing features of loan contracts to gauge how the credit market evaluates a firm’s customer-base profile and supply-chain relations. Higher customer concentration increases interest rate spreads and the number of restrictive covenants featured in newly initiated as well as renegotiated bank loans. Customer concentration also abbreviates the maturity of those loans as well as the relationship between firms and their banks. These effects are intensified by customers’ financial distress, the level of relationship-specific investments, and the use of trade credit in customer–supplier relations. Our evidence shows that a deeper exposure to a small set of large customers bears negative consequences for a firm’s relations with its creditors, revealing limits to integration along the supply chain.