We examine whether mandatory disclosure of participant-directed defined-contribution plans reveals value-relevant information embedded in employees' retirement allocations. Using comprehensive Form 5500 data from 2003 to 2023, we study changes in employees' holdings of employer stock in DC plans and test whether these aggregated allocation decisions contain information about contemporaneous firm performance not fully reflected in analyst expectations. We find that increases in employee ownership predict positive earnings surprises. We further show that this information is incorporated into prices in two stages: first around earnings announcements and then around Form 11-K disclosures that reveal aggregated plan holdings to investors. The relation is stronger when external information frictions are high and disappears in sponsor-directed plans. Overall, the evidence identifies this disclosure as an important involuntary disclosure channel through which aggregated employee information enters earnings expectations and stock prices.

We find that firms report significantly higher cash holdings in the 4th fiscal quarter, followed by subsequent reversal. Such a phenomenon cannot be explained by traditional determinants of cash holdings, calendar year-end effect, and the choice of fiscal year-end quarter. We identify real, financial, and timing apparatuses that firms employ to maneuver such cash hike within a fiscal year. Furthermore, the 4th-quarter cash hike appears to be more pronounced for informationally opaque firms requiring frequent access to external capital markets and for firms with reduced external monitoring and lower financial constraints. Our results suggest that within-year cash holding dynamics is important in fully assessing the liquidity and credit-risk situations of firms.

This paper presents evidence that labor-saving technologies positively impact a firm's financial leverage. The results are robust with two different measures of labor-saving innovations: automation and process innovations. The effects are more pronounced in firms facing greater labor input rigidity, such as firms with higher labor intensity, share of minimum wage workers, and union coverage. Our analysis suggests that labor-saving innovations reduce wage rigidity, allowing firms to increase financial leverage.

ABSTRACTAn employee's annual earnings fall by 13% in the first full calendar year after her firm's bankruptcy, and the present value of lost earnings from bankruptcy to six years following bankruptcy is 87% of pre‐bankruptcy annual earnings. More worker earnings are lost in thin labor markets and among small firms. Ex ante compensating wage differentials for this “bankruptcy risk” are up to 2% of firm value for a firm whose credit rating falls from AA to BBB, comparable in magnitude to debt tax benefits. Thus, wage premia for expected costs of bankruptcy are sufficiently large to be an important consideration in capital structure decisions.

This paper studies the differential impacts of the 2008 financial crisis on the financing policies and real activities of firms with flexible labor contracts and those with binding labor contracts. We find that flexible-contract firms significantly reduced their labor costs during the crisis, while binding contract firms lacked such flexibility. Compared to flexible-contract firms, binding-contract firms experienced a larger drop in bond prices and were less likely to issue new bonds. Moreover, binding-contract firms reduced investments, bank borrowing and equity financing significantly more. Our analysis provides new causal evidence on how labor-market frictions affect firms’ financing in economic downturns.

We find that non-practicing entities (NPEs) exhibit a unique legal strategy of sequential rounds: (1) subject to the same patent, NPE plaintiffs file approximately seven follow-on lawsuits after the initial lawsuit; and (2) when a firm is sued by NPEs, the likelihood of its technology peers being sued increases by 14 % in the subsequent year. Defendants' technology peers experience significant market value losses around the lawsuit filing date. Moreover, defendants' technology peers respond to NPE litigation risk by increasing R&D investments to develop workaround technologies. However, the increase in R&D incrementally generates fewer patent citations or patents with lower values. Thus, our results highlight broader wealth effects and corresponding real effects of NPEinitiated litigation on defendants' technology peers. These results provide sharp contrasts to the insignificant wealth and real impacts on defendants' technology peers if litigations are initiated by practicing entities (PEs). The new evidence informs the current regulatory and policy debates pertaining to NPEs.

We show that superstitions—beliefs without scientific grounding—impact the investment and risk-taking of Chinese firms. We focus on widely held beliefs in bad luck during one’s “zodiac year,” which occurs on a 12-year cycle around a person’s birth year, to study superstitions and risk taking. We first show a direct correspondence between zodiac year and risk taking via survey data: respondents are two percentage points more likely to favor no-risk investments if queried during their zodiac year. Turning to corporate decision making, we find that return volatility declines in the chairman’s zodiac year, suggesting a reduction in risk taking overall. Focusing on specific types of risk taking, investment in R&D and corporate acquisitions both decline during the chairman’s zodiac year; returns around acquisition announcements are also lower, suggesting real allocative consequences of zodiac year beliefs. This paper was accepted by Gustavo Manso, finance. Funding: W. Huang thanks the Major Project of National Social Science Foundation of China [Grant 17ZDA090] and the “National Program for Special Support of Eminent Professions” for financial support. Y. Pan thanks the National Natural Science Foundation of China [Grant 71790601] for financial support. Y. Wang thanks the National Natural Science Foundation of China [Grant 72172090] for financial support. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4594 .

This paper provides a systematic analysis of how hometown ties, the most common and distinct bases for interpersonal ties to build upon in China, could influence corporate governance in Chinese corporations by focusing on its impact on CEO dismissals and corporate social responsibility. We find that hometown ties between CEOs and board chairs reduce the likelihood of CEO dismissals and that the negative relationship between firm performance and CEO dismissals is weaker for hometown-connected CEOs in locally administered state-owned enterprises, for inside CEOs, for firms located outside board chairs' hometowns, and for firms operating in regions with low social trust. Moreover, we find consistent evidence that hometown ties affect Chinese firms' engagement in corporate social responsibility. Our study highlights the important role of hometown ties in Chinese relationship-based corporate governance. It also advances a normative ethical assessment of hometown-based favoritism by highlighting its distinct dynamics and impacts on focal actors and the third parties in specific contexts of actions.

This paper presents evidence that the exposure to automation technologies has a positive impact on a firm’s financial leverage. The effects are more pronounced in firms with greater labor costs, routine task intensity, firing costs, and union coverage. The results are robust when we instrument a firm’s exposure to automation technologies using the robotics adoption in European countries. Our analysis suggests that the exposure to automation technologies creates a replacement threat that weakens workers’ bargaining power, compressing their wage premiums for bearing financial distress risk and reducing wage rigidity, both of which allow firms to increase financial leverage.

53 p. ; Includes bibliographical references (pp. 32-39). ; April 25, 2019; Authors are grateful to George Batta, Eric Helland, Eric Hughson, Oana Tocoian, Angela Vossmeyer, and participants at the CMC Summer Research Workshop for helpful comment.

We examine the organizational choice and innovative activity of technology conglomerates—firms that explore different technology fields with heated inventive activity. We develop a measure of firm-to-economy technological proximity to capture the extent of a firm’s technology conglomeration. We show that technology conglomerates are more likely to form alliances and that these alliances lead to higher patent output. In terms of underlying mechanisms, we show that after alliance formation, there are significant knowledge pooling and cross-fertilization between technology conglomerates and their alliance partners. Moreover, technology conglomerates produce more patents that are novel and/or with greater impact. Our findings suggest that both synergy and tolerance for failure are important motives for technology conglomerates to use alliances to accelerate corporate innovation. This paper was accepted by Gustavo Manso, finance.

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. Received September 19, 2016; editorial decision September 19, 2017 by Editor David Denis. Authors have furnished an Internet Appendix, which is available on the Oxford University PressWeb site next to the link to the final published paper online.

This paper examines how credit risk spillovers affect corporate financial flexibility. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers—credit risk contagion (CRC), where one firm's default increases the distress likelihood of another; and product market rivalry (PMR), where the same default strengthens the position of a competitor. We show that firms facing greater CRC have weaker subsequent operating performance and must contend with less favorable bank loan terms. Meanwhile, they accumulate more cash by issuing equity, selling assets, and reducing investment and payout. In contrast, PMR generally has opposite, albeit weaker, effects. Our findings suggest that credit risk spillovers, especially CRC, play an important role in corporate liquidity management.

A firm’s patent-to-market (PTM) ratio refers to the percentage of a firm’s market value that is attributable to its patent market value. A hedging portfolio based on PTM ratio generates a monthly return of 71 basis points. The CAPM cannot be rejected for firms with low PTM ratios, but is rejected for firms with high PTM ratios. PTM ratio is a priced factor distinct from known factors in the cross-section of stock returns. PTM ratio is positively associated with future profitability. Our analysis suggests that real option is the channel through which PTM ratio predicts future stock returns.

Rising intangible assets on corporate balance sheets around the world could limit borrowing capacity and consequently hinder growth if firms must preserve cash and forgo investment opportunities. We show that financial development lowers the sensitivity of cash holdings to tangible assets and promotes firm growth. We also find that sectors with a smaller proportion of tangible assets grow faster in countries with more developed financial markets. Our analysis reveals an important asset tangibility channel through which financial development facilitates firm growth.

This paper investigates the impact of a firm's annual report readability and ambiguous tone on its borrowing costs. We find that firms with larger 10-K file sizes and a higher proportion of uncertain and weak modal words in 10-Ks have stricter loan contract terms and greater future stock price crash risk. Our results suggest that the readability and tone ambiguity of a firm's financial disclosures are related to managerial information hoarding. Shareholders of firms with less readable and more ambiguous annual reports not only suffer from less transparent information disclosure but also bear the increased cost of external financing.

We investigate how lending relationships attenuate the conflict of interest between creditors and shareholders that arises from chief executive officer (CEO) compensation contracts. We find that lending relationships mitigate the influence of CEO risk‐taking incentives on loan spreads, especially for informationally opaque firms. In addition, lending relationships attenuate the impact of CEO risk‐taking incentives on maturity and collateral requirements. This article highlights the importance of bank monitoring through lending relationships to mitigate managerial risk‐shifting activities that arise from equity incentives.

The conceptual framework of political effectiveness, political stability and political adaptability has revealed the nature of corporate governance in multiple dimensions within a broader and evolving institutional context. Compared with organisational embedment, the Chinese Communist Partys ideological penetration has a more far-reaching effect on corporate governance. The concept of political adaptability demonstrates the role of corporate governance as developmental integrator in the context of the party-state–society synergy. The Chinese model of corporate governance involves elite-guided forced saving through which economic growth can be technically spurred by a technocratic system in an instrumental manner. To improve the effectiveness of corporate governance, policy design should therefore focus on keeping a dynamic balance between exercising state ownership rights to reduce agency costs and …

This paper finds significant predictability in stock returns across technology-linked firms. Using patent-holding information to identify firms’ technological linkage, we show that a long–short equity trading strategy sorted on lagged returns of technology-linked firms yields monthly alphas of around 105 basis points. The findings are robust to a number of specifications and are not driven by industry predictability, customer-supplier relationships, and strategic alliances. We provide supportive evidence that investors’ limited attention to technological linkages contributes to the return predictability across technology-linked firms. Our study uncovers technological relatedness as an important information linkage between firms.