Productivity, Managers’ Social Connections and the Financial Crisis
Iftekhar Hasan, Stefano Manfredonia
Journal of Banking and Finance,
August
2022
Abstract
This paper investigates whether managers’ personal connections help corporate productivity to recover after a negative economic shock. Leveraging the heterogeneity in the severity of the financial crisis across different sectors, the paper reports that (i) the financial crisis had a negative effect on within-firm productivity, (ii) the effect was long-lasting and persistent, supporting a productivity-hysteresis hypothesis, and (iii) managers’ personal connections allowed corporations to recover from this productivity slowdown. Among the possible mechanisms, we show that connected managers operating in affected sectors foster productivity recovery through higher input cost efficiency and better access to the credit market, as well as more efficient use of labour and capital.
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The Cleansing Effect of Banking Crises
Reint E. Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi
Economic Inquiry,
No. 3,
2022
Abstract
We assess the cleansing effects of the 2008–2009 financial crisis. U.S. regions with higher levels of supervisory forbearance on distressed banks see less restructuring in the real sector: fewer establishments, firms, and jobs are lost when more distressed banks remain in business. In these regions, the banking sector has been less healthy for several years after the crisis. Regions with less forbearance experience higher productivity growth after the crisis with more firm entries, job creation, and employment, wages, patents, and output growth. Forbearance is greater for state-chartered banks and in regions with weaker banking competition and more independent banks.
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The Value of Firm Networks: A Natural Experiment on Board Connections
Ester Faia, Maximilian Mayer, Vincenzo Pezone
SAFE Working Papers,
No. 269,
2022
Abstract
We present causal evidence on the effect of boardroom networks on firm value and compensation policies. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. The complementarities with the input-output and cross-ownership networks are consistent with this channel. Using hand-collected data, we also show that network centrality has a positive effect on directors’ compensation, providing evidence of rent sharing.
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Trust, Politics and Post-IPO Performance: SOEs vs. the Private Sector
Bill Francis, Iftekhar Hasan, Xian Sun, Mingming Zhou
Economic and Political Studies,
No. 3,
2022
Abstract
This paper empirically investigates the role of social trust in the long-term performance of the initial public offerings (IPOs) in China, controlling for the formal institutional environment. We find that privately owned or smaller IPO firms experience significantly better post-IPO performance when they are incorporated in regions with more social trust. The state-owned and bigger IPO firms, on the other hand, experience better long-term post-IPO performance when they are incorporated in regions with stronger formal institutions (e.g. court enforcement and contract holding). Political pluralism turns out to benefit all IPOs in the long term. In addition, our evidence shows that stronger social trust substitutes for the quality of court enforcement but complements the role of contract holding. These results are robust after controlling for alternative definitions of ownership, outliers, non-linear effects of institutions, and the potential endogeneity of institutions in the model.
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Firm Social Networks, Trust, and Security Issuances
Ming Fang, Iftekhar Hasan, Zenu Sharma, An Yan
European Journal of Finance,
No. 4,
2022
Abstract
We observe that public firms are more likely to issue seasoned stocks rather than bonds when theirs boards are more socially-connected. These connected issuers experience better announcement-period stock returns and attract more institutional investors. This social-connection effect is stronger for firms with severe information asymmetry, higher risk of being undersubscribed, and more visible to investors. Our conjecture is this social-network effect is driven by trust in issuing firms. Given stocks are more sensitive to trust, these trusted firms are more likely to issue stocks than bonds. Trustworthiness plays an important role in firms’ security issuances in capital markets.
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Climate Change-Related Regulatory Risks and Bank Lending
Isabella Müller, Eleonora Sfrappini
ECB Working Paper,
No. 2670,
2022
Abstract
We identify the effect of climate change-related regulatory risks on credit real-location. Our evidence suggests that effects depend borrower's region. Following an increase in salience of regulatory risks, banks reallocate credit to US firms that could be negatively impacted by regulatory interventions. Conversely, in Europe, banks lend more to firms that could benefit from environmental regulation. The effect is moderated by banks' own loan portfolio composition. Banks with a portfolio tilted towards firms that could be negatively a affected by environmental policies increasingly support these firms. Overall, our results indicate that financial implications of regulation associated with climate change appear to be the main drivers of banks' behavior.
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On the Employment Consequences of Automation and Offshoring: A Labor Market Sorting View
Ester Faia, Sébastien Laffitte, Maximilian Mayer, Gianmarco Ottaviano
Lili Yan Ing, Gene M. Grossman (eds), Robots and AI: A New Economic Era. Routledge: London,
2022
Abstract
We argue that automation may make workers and firms more selective in matching their specialized skills and tasks. We call this phenomenon “core-biased technological change”, and wonder whether something similar could be relevant also for offshoring. Looking for evidence in occupational data for European industries, we find that automation increases workers’ and firms’ selectivity as captured by longer unemployment duration, less skill-task mismatch, and more concentration of specialized knowledge in specific tasks. This does not happen in the case of offshoring, though offshoring reinforces the effects of automation. We show that a labor market model with two-sided heterogeneity and search frictions can rationalize these empirical findings if automation strengthens while offshoring weakens the assortativity between workers’ skills and firms’ tasks in the production process, and automation and offshoring complement each other. Under these conditions, automation decreases employment and increases wage inequality whereas offshoring has opposite effects.
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Commitment or Constraint? The Effect of Loan Covenants on Merger and Acquisition Activity
Gene Ambrocio, Gonul Colak, Iftekhar Hasan
Finance Research Letters,
June
2022
Abstract
We investigate how loan covenants associated with potential target firms affect takeover deals. We propose two possible channels. Under a discipline channel, the target firm becomes an attractive candidate for takeovers and merger deals are facilitated. Under a constraint channel, covenants hinder merger activity. We find support for the latter channel. Takeover likelihood is lower, deal failures are more common, the likelihood of price renegotiation is higher, and acquisition premium is lower when the target is bound by covenants. Covenant tightness exacerbates this effect.
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Offshoring, Domestic Employment and Production. Evidence from the German International Sourcing Survey
Wolfhard Kaus, Markus Zimmermann
IWH Discussion Papers,
No. 14,
2022
Abstract
This paper analyses the effect of offshoring (i.e., the relocation of activities previously performed in-house to foreign countries) on various firm outcomes (domestic employment, production, and productivity). It uses data from the International Sourcing Survey (ISS) 2017 for Germany, linked to other firm level data such as business register and ITGS data. First, we find that offshoring is a rare event: In the sample of firms with 50 or more persons employed, only about 3% of manufacturing firms and 1% of business service firms have performed offshoring in the period 2014-2016. Second, difference-in-differences propensity score matching estimates reveal a negative effect of offshoring on domestic employment and production. Most of this negative effect is not because the offshoring firms shrink, but rather because they don’t grow as fast as the non-offshoring firms. We further decompose the underlying employment dynamics by using direct survey evidence on how many jobs the firms destroyed/created due to offshoring. Moreover, we do not find an effect on labour productivity, since the negative effect on domestic employment and production are more or less of the same size. Third, the German data confirm previous findings for Denmark that offshoring is associated with an increase in the share of ‘produced goods imports’, i.e. offshoring firms increase their imports for the same goods they continue to produce domestically. In contrast, it is not the case that offshoring firms increase the share of intermediate goods imports (a commonly used proxy for offshoring), as defined by the BEC Rev. 5 classification.
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The Impact of Overconfident Customers on Supplier Firm Risks
Yiwei Fang, Iftekhar Hasan, Chih-Yung Lin, Jiong Sun
Journal of Economic Behavior and Organization,
May
2022
Abstract
Research has shown that firms with overconfident chief executive officers (CEOs) tend to overinvest and are exposed to high risks due to unrealistically optimistic estimates of their firms’ future performance. This study finds evidence that overconfident CEOs also affect suppliers’ risk taking. Specifically, serving overconfident customers can lead to high supplier risks, measured by stock volatility, idiosyncratic risk, and market risk. The effects are pronounced when customers aggressively invest in research and development (R&D). Our results are robust after addressing self-selection bias and using different CEO overconfidence measures. We also document some real effects of customer CEO overconfidence on suppliers.
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