Political Uncertainty and Bank Loan Contracts: Does Government Quality Matter?
Iftekhar Hasan, Ying-Chen Huang, Yin-Siang Huang, Chih-Yung Lin
Journal of Financial Services Research,
December
2021
Abstract
We investigate the relation between political uncertainty and bank loan spreads using a sample of loan contracts for the G20 firms during the period from 1982 to 2015. We find that banks charge firms higher loan spreads and require more covenants during election years when domestic political risks are elevated. Greater differences in the support ratios of opinion polls on candidates lead to the lower cost of bank loans. This political effect also lessens when the government quality of the borrower’s country is better than that of the lender’s country. Better quality government can lower the political risk component of bank loan spreads.
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Partisan Professionals: Evidence from Credit Rating Analysts
Elisabeth Kempf, Margarita Tsoutsoura
Journal of Finance,
Nr. 6,
2021
Abstract
Partisan perception affects the actions of professionals in the financial sector. Linking credit rating analysts to party affiliations from voter records, we show that analysts not affiliated with the U.S. president's party downward-adjust corporate credit ratings more frequently. Since we compare analysts with different party affiliations covering the same firm in the same quarter, differences in firm fundamentals cannot explain the results. We also find a sharp divergence in the rating actions of Democratic and Republican analysts around the 2016 presidential election. Our results show that analysts' partisan perception has price effects and may influence firms' investment policies.
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The Impact of Political Uncertainty on Institutional Ownership
Bill Francis, Iftekhar Hasan, Yun Zhu
Journal of Financial Stability,
December
2021
Abstract
This paper provides original evidence from institutional investors that political uncertainty greatly affects investment behavior. Using institutional holdings of common stock, we find that institutions significantly reduce their holdings by 0.8–2.3% points during presidential election years. Such effect holds for gubernatorial elections with cross-state-border difference-in-difference analysis and for tests using a political uncertainty index. The effect is the opposite for American Depository Receipts (ADRs). In addition, we find that institutions benefit financially from the observed strategy, and such strategy is in line with predicted outcomes of presidential election polls.
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O Brother, Where Start Thou? Sibling Spillovers on College and Major Choice in Four Countries
Adam Altmejd, Andrés Barrios-Fernández, Marin Drlje, Joshua Goodman, Michael Hurwitz, Dejan Kovač, Christine Mulhern, Christopher Neilson, Jonathan Smith
Quarterly Journal of Economics,
Nr. 3,
2021
Abstract
Family and social networks are widely believed to influence important life decisions, but causal identification of those effects is notoriously challenging. Using data from Chile, Croatia, Sweden, and the United States, we study within-family spillovers in college and major choice across a variety of national contexts. Exploiting college-specific admissions thresholds that directly affect older but not younger siblings’ college options, we show that in all four countries a meaningful portion of younger siblings follow their older sibling to the same college or college-major combination. Older siblings are followed regardless of whether their target and counterfactual options have large, small, or even negative differences in quality. Spillover effects disappear, however, if the older sibling drops out of college, suggesting that older siblings’ college experiences matter. That siblings influence important human capital investment decisions across such varied contexts suggests that our findings are not an artifact of particular institutional detail but a more generalizable description of human behavior. Causal links between the postsecondary paths of close peers may partly explain persistent college enrollment inequalities between social groups, and this suggests that interventions to improve college access may have multiplier effects.
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Labor in the Boardroom
Jörg Heining, Simon Jäger, Benjamin Schoefer
Quarterly Journal of Economics,
Nr. 2,
2021
Abstract
We estimate the wage effects of shared governance, or codetermination, in the form of a mandate of one-third of corporate board seats going to worker representatives. We study a reform in Germany that abruptly abolished this mandate for stock corporations incorporated after August 1994, while it locked the mandate for the slightly older cohorts. Our research design compares firm cohorts incorporated before the reform and after; in a robustness check we draw on the analogous difference in unaffected firm types (LLCs). We find no effects of board-level codetermination on wages and the wage structure, even in firms with particularly flexible wages. The degree of rent sharing and the labor share are also unaffected. We reject that disinvestment could have offset wage effects through the canonical hold-up channel, as shared governance, if anything, increases capital formation.
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Does Capital Account Liberalization Affect Income Inequality?
Xiang Li, Dan Su
Oxford Bulletin of Economics and Statistics,
Nr. 2,
2021
Abstract
By adopting an identification strategy of difference‐in‐difference estimation combined with propensity score matching between liberalized and closed countries, this paper provides robust evidence that opening the capital account is associated with an increase in income inequality in developing countries. Specifically, capital account liberalization, in the long run, is associated with a reduction in the income share of the poorest half by 2.66–3.79% points and an increase in that of the richest 10% by 5.19–8.76% points. Moreover, directions and categories of capital account liberalization matter. The relationship is more pronounced when liberalizing inward and equity capital flows.
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Who Benefits from Mandatory CSR? Evidence from the Indian Companies Act 2013
Jitendra Aswani, N. K. Chidambaran, Iftekhar Hasan
Emerging Markets Review,
March
2021
Abstract
We examine the value impact of mandatory Corporate Social Responsibility (CSR) spending required by the Indian Companies Act of 2013 for large and profitable Indian firms. We find that the external mandate is value decreasing, even after controlling for prior voluntary CSR activity by firms affected by the mandate. We also find that there is systematic crosssectional variation across firms. Firms that are profitable and firms in the Fast Moving Consumer Goods sector that voluntarily engaged in CSR, benefit from CSR. Industrial firms and firms with high capital expenditures are negatively impacted by the mandate. We conclude that a one-size-fits-all approach to CSR is sub-optimal and value decreasing.
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Income Inequality and Minority Labor Market Dynamics: Medium Term Effects from the Great Recession
Salvador Contreras, Amit Ghosh, Iftekhar Hasan
Economics Letters,
February
2021
Abstract
Using a difference-in-differences framework we evaluate the effect that exposure to a bank failure in the Great Recession period had on income inequality. We find that it led to a 1% higher Gini, relative rise of 38 cents for high earners, and 7% decline for lowest earners in treated MSAs. Moreover, we show that blacks saw a decline of 10.2%, Hispanics 9.8%, and whites 5.1% in income. Low income blacks and Hispanics drove much of the effect on inequality.
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Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries
Ufuk Akcigit, Harun Alp, Michael Peters
American Economic Review,
Nr. 1,
2021
Abstract
Delegating managerial tasks is essential for firm growth. Most firms in developing countries, however, do not hire outside managers but instead rely on family members. In this paper, we ask if this lack of managerial delegation can explain why firms in poor countries are small and whether it has important aggregate consequences. We construct a model of firm growth where entrepreneurs have a fixed time endowment to run their daily operations. As firms grow large, the need to hire outside managers increases. Firms’ willingness to expand therefore depends on the ease with which delegation can take place. We calibrate the model to plant-level data from the U.S. and India. We identify the key parameters of our theory by targeting the experimental evidence on the effect of managerial practices on firm performance from Bloom et al. (2013). We find that inefficiencies in the delegation environment account for 11% of the income per capita difference between the U.S. and India. They also contribute to the small size of Indian producers, but would cause substantially more harm for U.S. firms. The reason is that U.S. firms are larger on average and managerial delegation is especially valuable for large firms, thus making delegation efficiency and other factors affecting firm growth complements.
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Why Life Insurers are Key to Economic Dynamism in Germany
Reint E. Gropp, William McShane
IWH Online,
Nr. 6,
2020
Abstract
Young entrepreneurial firms are of critical importance for innovation. But to bring their new ideas to the market, these startups depend on investors who understand and are willing to accept the risk associated with a new firm. Perhaps the key reason as to why the US has succeeded in producing nearly all the most successful new firms of the 21st century is the economy’s ability to supply vast sums of capital to promising startups. The volume of venture capital (VC) invested in the US is more than 60 times that of Germany. In this policy note, we argue that differences in the regulatory and structural context of institutional investors, in particular life insurance companies, is a central driver of the relative lack of VC - and thereby successful startups - in Germany.
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