We show that state right-to-work (RTW) laws significantly encourage corporate innovations in terms of patent grant and citation count. Consistent with the conjecture that the RTW-treated firms conduct more innovations due to their decreased financial distress risk, we find that the RTW adoption also significantly decreases treated firms' financial distress risk ex post, and its treatment effect on innovation outputs is stronger for treated firms that are ex ante more likely to experience financial distress. Further analysis indicates that treated firms intensify research and development expenditures and, likely due to their improved innovations, enhance their competitiveness in product markets.

This research exploits Australia's ratification of the Kyoto Protocol, which mandates the country to reduce carbon emissions, thereby exposing Australian firms to increased carbon risk, as a quasi-natural experiment to examine the causal effect of carbon risk on firm capital structure. We find that the Kyoto Protocol ratification leads to a decrease in financial leverage of heavy carbon emitting firms and such a decrease is more pronounced for financially constrained firms. Further analysis indicates that increased carbon risk leads to higher financial distress risk, which motivates firms to decrease financial leverage.

We examine the role of carbon risk in dividend policy, and how its effect varies between imputation (paying franked dividends) and classical (paying unfranked dividends) tax environments in the unique experimental setting in Australia. We find that the probability of paying dividend and dividend payout ratio is lower for firms in the highest-emitting industries (polluters) relative to non-polluters, subsequent to ratification of the Kyoto Protocol. While the post-Kyoto reduction in the likelihood of paying dividend is not significantly different, the reduction in payout ratio is smaller in the imputation environment than classical tax system, highlighting the significance of imputation tax environment only on the impact of carbon risk on dividend payout rather than decision to pay. We further document that the post-Kyoto reduction in dividend payout of polluters is driven by their relative increase in earnings uncertainty. The evidence suggests a causal influence of carbon risk on firm dividend policy.

Does proprietary knowledge protection (PKP) spur or hinder the product-market performance of new firms? Exploiting the staggered adoptions of the inevitable disclosure doctrine by U.S. State Courts, which enhance PKP, we show that treated firms increase industry-adjusted sales growth by 2% compared to control firms. The effect is concentrated among small and young firms and increases with the scope of proprietary knowledge and rivals’ access to external finance. PKP encourages firms to develop new products and stimulates initial public offering activity. Our results suggest that PKP alleviates predation risk associated with “deep-pocket” rivals by allowing firms to maintain competitive advantages.

We find that U.S. corporations increase their cash holdings in response to higher economic policy uncertainty. The increase in cash holdings is not attributed to a reduction in firm investments. This increase is more pronounced for financially constrained firms or those with larger exposure to policy uncertainty. Holding more cash in the presence of policy uncertainty alleviates the negative impact of policy uncertainty on capital investment and firm innovation outputs. Our findings demonstrate that cash holdings represent an important channel in mitigating the negative effect of policy uncertainty on firm real economic activities.

Using state-level data from the United States covering the period 1980 to 2020, we explore the effect of right-to-work (RTW) laws on venture capital (VC) investment. Employing a difference-in-differences strategy, we find that the passage of right-to-work laws increases venture capital investment. The results are robust to omitted variable bias, reverse causality and unobservable local economic conditions. We find that the positive effect of RTW laws on VC investments remains significant in states that are highly unionized and technological. • Right to work laws encourage Venture Capital Investment. • Uses state-level data from the United States covering the period 1980 to 2020. • Employs a difference-in-differences strategy. • The passage of right-to-work law increases Venture Capital investment by 80%.