"How Does Labor Mobility Affect Corporate Leverage and Investment?" (March 2018)
Abstract: Using a new mobility measure instrumented by state-level shocks, I find that labor mobility negatively affects leverage and investment, but only in firms that rely on high-skill workers. I use a dynamic model that provides a novel mechanism to rationalize these findings and estimate it to quantify the importance of the effects on firms. In the model, firms make investment and financing decisions, hire labor with different levels of skill and mobility, and set wages through bargaining. Skilled workers with high mobility receive high-value outside job offers more frequently. Firms that rely on this type of labor operate with low leverage in anticipation of the outside offer shocks, in order to retain their workforce against the shocks. The differences in investment are generated both by the capital-labor complementarity and by the differences in financing policies, which affect the cost of capital. Counterfactual analyses imply that labor mobility has a sizable impact on the leverage, investment, hiring, and wages of high-skill firms, highlighting the importance of considering this channel in evaluating the impact of policies that change workers' mobility.
"Rational Stock Market Catering," with Murray Frank, (July 2016)
Abstract: Tests using American data from 1970 to 2015 support the behavioral hypothesis that firms Cater to investor whims. We show that the standard tests cannot distinguish between the behavioral interpretation, and a rational model in which the firm optimally chooses investment, equity issuance, and dividends; while investors optimally choose consumption, equity, and bank account deposits. The rational model shows the importance of two-way financial flows between investors and firms that are generally ignored in the literature. Using booms, sentiment, and behavioral mispricing measures, we construct new tests of behavioral Catering Theory. In all cases that theory is rejected.
Work in Progress:
"How Large is the Effect of Corporate Debt on Economic Growth?" with Murray Frank. [draft coming soon]
"Managerial Incentives and Firm Policies: Evidence from Structural Estimation."