debt leases taxes and the endogeneity of corporate tax status we provide evidence that corporate tax status is endogenous to financing decisions which induces a spurious relation between measures of financial policy and many commonly used tax proxies using a forward looking estimate of before financing corporate marginal tax rates we document a negative relation between operating leases and tax rates and a positive relation between debt levels and tax rates this is the first unambiguous evidence supporting the hypothesis that low tax rate firms lease more and have lower debt levels than high tax rate firms many theories of capital structure imply that all else equal the incentive to use debt financing increases with a firm s marginal tax rate due to the tax deductibility of interest expense e g modigliani and miller 1963 deangelo and masulis 1980 conversely leasing models generally predict that firms with low marginal tax rates employ relatively more leases than do firms with high marginal tax rates the logic behind the leasinlg prediction is that leases allow for the transfer of tax shields from firms that cannot fully utilize the associated tax deduction lessees to firms that can lessors e g myers dill and bautista 1976 smith and wakeman 1985 ross westerfield and jaffe 1996 despite these straightforward predictions empirically testing for tax effects is difficult because a spurious relation exists between the financing decision and many commonly used tax proxies specifically both interest expense and lease payments are tax deductible thus a firm that finances its operations with debt or leases reduces its taxable income potentially lowering its expected marginal tax rate if not properly addressed this endogeneity of the tax rate can bias an experiment in favor of finding a negative

financial wealth consumption smoothing and income shocks arising from job loss one of the reasons for setting up an unemployment insurance scheme is to allow job losers to smooth consumption we test for the impact of unemployment benefits on changes in household food expenditure of individuals who have recently experienced a job loss we also study the relationship between unemployment benefits and the financial wealth of the unemployed from our empirical analysis we conclude that for households without financial wealth at the time of job loss unemployment benefits help to smooth food consumption for households running debt before job loss there is evidence that lower replacement rates lead to a postponement of debt repayment

labor unemployment risk and corporate financing decisions this paper examines the impact of labor unemployment risk on corporate financing decisions theory suggests that firms choose conservative financial policies partly as a means of mitigating worker exposure to unemployment risk using changes in state unemployment insurance benefit laws as a source of variation in the costs borne by workers during layoff spells we explore the connection between unemployment risk and the corporate financing decisions of public firms in the united states we find that increases in legally mandated unemployment benefits lead to increases in corporate leverage the impact of reduced unemployment risk on financial policy is especially strong for firms that have greater layoff separation rates labor intensity and financing constraints the estimated premium required to compensate workers for unemployment risk due to financial distress is about 57 basis points of firm value for a bbb rated firm these findings suggest that labor market frictions have a significant impact on corporate financing decisions

extended benefits and the duration of ui spells evidence from the new jersey extended benefit program abstract this paper examines the impact on the duration of unemployment insurance receipt of a politically motivated program that offered 13 weeks of extended benefits for 6 months in 1996 using state level data and individual administrative records from before during and after the program we find that it raised the fraction of claimants who exhausted their regular benefits by 1 3 percentage points had the program run long enough to affect claimants from the first day of their spell the fraction exhausting would have risen by 7 percentage points and the average recipient would have collected regular benefits for one extra week

labor protection laws and bank loan contracting abstractthis paper examines the impact of labor regulations that restrict firms flexibility to adjust labor resources on the cost of corporate bank loans using within country variation in employment protection legislation across 25 countries i find that increases in employment protection lead to higher loan spreads tighter nonprice loan contract terms and more diffuse loan ownership structure the effects of labor regulations are greater in industries with a higher rate of labor turnover and among borrowers with a higher probability of default these results suggest that rigidities imposed by labor regulations have a significant impact on firms cost of capital

lessons from the u s unemployment insurance experiments recent social experiments have evaluated two reforms of the unemployment insurance ui system reemployment bonuses and job search programs the bonus experiments show that economic incentives affect the length of ui receipt and provide weak evidence that an earlier return to work does not decrease earnings the experiments do not show the favorability of a permanent bonus program as they ignore its effect on the number of the claimants the job search experiments test several more promising reforms nearly all of the combinations of services and increased enforcement reduce ui receipt and have favorable cost benefit analyses earnings often increase though the estimates are imprecise

compensating differentials for cyclical and noncyclical unemployment the interaction between investors and employees risk aversion this paper integrates the labor and assets markets equilibria to determine and evaluate the wage differentials generated for cyclical and noncyclical risks of unemployment the relative wage differential is a linear function of unemployment risk measured by the covariance of an index of employment with the rate of change in aggregate output seniority and the hoarding of skilled labor are characteristics of minimum cost contracts because employees with more human capital prefer safer jobs empirical results suggest that a 14 41 wage differential can be explained by interindustry differences in unemployment risks

labor unemployment insurance and earnings management abstract we provide new evidence that firms appear to manage long run earnings upward in order to manage rank and file employees perceptions of employment security in particular we exploit exogenous state level changes in unemployment insurance benefits and test for partial unwinding of prior upward earnings management when benefits increase consistent with the hypothesis we find a significant reduction in abnormal accruals increased recognition of special items and write downs and greater likelihood of net income reducing restatements following an increase in state level unemployment benefits a number of cross sectional results are also consistent with the hypothesis

firm specific human capital a skill weights approach the theory of human capital is agnostic on what constitutes firm specific skills the theory specifies that specific skills contribute to productivity only at the current firm a broader approach lets all skills be general but firms use them with different weights attached for example computer programming economics and accounting are general skills but there may be only one firm that wants workers trained in all three one implication is that wage profiles and the split of human capital costs depend on thickness of the market another is that firms pay for what appears to be general training

human capital bankruptcy and capital structure we derive a firm s optimal capital structure and managerial compensation contract when employees are averse to bearing their own human capital risk while equity holders can diversify this risk away in the presence of corporate taxes our model delivers optimal debt levels consistent with those observed in practice it also makes a number of predictions for the cross sectional distribution of firm leverage consistent with existing empirical evidence it implies persistent idiosyncratic dierences in leverage across firms an important new empirical prediction of the model is that ceteris paribus firms with more leverage should pay higher wages

the impact of the potential duration of unemployment benefits on the duration of unemployment abstract this paper examines the impact of the potential duration of unemployment insurance ui benefits on unemployment in the united states first we use a large sample of household heads to examine differences in the unemployment spell distributions of ui recipients and nonrecipients sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for ui recipients around the time of benefits exhaustion such increases are not apparent at similar points of spell duration for nonrecipients second our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of ui recipients by 0 16 to 0 20 weeks

labour unions and leverage evidence from firm level union data using firm level labour union data from japan this paper investigates the effect of labour unions on firm leverage we find that as union coverage increases both the level of and extent of change

the effect of capital structure on a firm s liquidation decision abstract a firm s liquidation can impose costs on its customers workers and suppliers an agency relationship between these individuals and the firm exists in that the liquidation decision controlled by the firm as the agent affects other individuals the customers workers and suppliers as principals the analysis in this paper suggests that capital structure can control the incentive conflict problem of this relationship by serving as a pre positioning or bonding mechanism appropriate selection of capital structure assures that incentives are aligned so that the firm implements the ex ante value maximizing liquidation policy

employee well being firm leverage and bankruptcy risk employees of liquidating firms are likely to lose income and non pecuniary benefits of working for the firm which makes bankruptcy costly for employees this paper examines whether firms take these costs into account when deciding on the optimal amount of leverage we find that firms with leading track records in employee well being significantly reduce the probability of bankruptcy by operating with lower debt ratios moreover we observe that firms with better employee track records have better credit ratings even when we control for differences in firm leverage

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

are firms underleveraged an examination of the effect of leverage on default probabilities a commonly held view in corporate finance is that firms are less leveraged than they should be given the potentially large tax benefits of debt in this paper i study the effect of firms leverage on default probabilities as represented by the firms ratings using an instrumental variable approach i find that the leverage s effect on ratings is three times stronger than it is if the endogeneity of leverage is ignored this stronger effect results in a higher impact of leverage on the ex ante costs of financial distress which can offset the current estimates of the tax benefits of debt

compensating wage differentials and the duration of wage loss a formal model of occupational choice is developed that shows the extent to which the compensation for increased duration exceeds that for increased risk using the panel study of income dynamics linked to industry data on injuries and unemployment we find nearly all the compensating wage differential for losses due to workplace injuries is for increases in the duration of loss and similarly for losses due to cyclical unemployment the compensating differentials for risk of injury are larger for union than for nonunion workers while those for cyclical unemployment are smaller for union workers

moral hazard vs liquidity and optimal unemployment insurance this paper presents new evidence on why unemployment insurance ui benefits affect search behavior and develops a simple method of calculating the welfare gains from ui using this evidence i show that 60 percent of the increase in unemployment durations caused by ui benefits is due to a liquidity effect rather than distortions on marginal incentives to search moral hazard by combining two empirical strategies first i find that increases in benefits have much larger effects on durations for liquidity constrained households second lump sum severance payments increase durations substantially among constrained households i derive a formula for the optimal benefit level that depends only on the reduced form liquidity and moral hazard elasticities the formula implies that the optimal ui benefit level exceeds 50 percent of the wage the exact identification approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives

unemployment insurance takeup rates and the after tax value of benefits the recent decline in the unemployment insurance ui takeup rate has puzzled researchers using administrative data with accurate information on the potential level and duration of benefits we examine whether a separating employee receives ui we find a strong positive effect of the benefit level on takeup and smaller effects of the potential duration and the tax treatment of benefits simulations indicate that the recent inclusion of ui in the income tax base can account for most of the previously unexplained decline in ui receipt

structural funds and the evaluation of community economic development initiatives in the uk a critical perspective armstrong h and wells p 2006 structural funds and the evaluation of community economic development initiatives in the uk a critical perspective regional studies 40 259 272 since their inception within uk structural funds programmes in the 1990s community economic development ced initiatives have experienced a rapid expansion evaluation methods have struggled to adapt to what was a radically new type of policy this paper charts the rise of ced in the uk s objective 1 and 2 programmes and it examines the main problems posed by ced for structural funds monitoring and evaluation whilst progress in adapting the monitoring and evaluation methods to ced has been good a number of key challenges remain to be faced by the eventual ex post evaluations of the 2000 06 programmes and for the 2007 13 programming period the key challenges are identified and possible ways forward are discussed community economic development structural funds evaluation uk programmes armstrong h et wells p 2006 les

firm specific human capital amd optimal capital structure the authors consider the moral hazard in managers undersupplying imperfectly marketable firm specific human capital firms may cope by granting long term wage contracts that protect managers against employment termination although ex ante efficient these contracts may be ex post inefficient when managerial ability is discovered to be low precommitted firms must honor these contracts unless there is ownership transfer that permits their legal invalidation bankruptcy is one such transfer mechanism since managers anticipate the contractual consequence of bankruptcy leverage worsens moral hazard this cost provides a counterbalance to the debt tax shield and leads to an optimal capital structure copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

subjective and projected returns to education abstract there is significant heterogeneity over high school students in the wage and employment rate returns to education i evaluate this heterogeneity using subjective returns derived from a data set of high school juniors and seniors in washington state variation over observables in projected returns estimated using observed data is uncorrelated with variation in subjective returns elicited by directly asking students about their beliefs these results mean that returns estimated using observed data are likely a very weak proxy for student beliefs

as certain as debt and taxes estimating the tax sensitivity of leverage from state tax changes abstract using staggered corporate income tax changes across u s states we show that taxes have a first order effect on capital structure firms increase leverage by around 40 basis points for every percentage point tax increase consistent with dynamic tradeoff theory the effect is asymmetric leverage does not respond to tax cuts this is true even within firm tax increases that are later reversed nonetheless lead to permanent leverage increases the treatment effects are heterogeneous and confirm the tax channel tax sensitivity is greater among profitable and investment grade firms which respectively have a greater marginal tax benefit and lower marginal cost of issuing debt

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

unemployment insurance benefit levels and consumption changes abstract we use a canadian survey of the unemployed to examine how household expenditures after a job loss respond to the level of income replacement provided by ui we isolate a liquidity constraint or transitory income effect from the permanent income shock of job loss and from the costs of working we find significant effects of varying the replacement ratio among the third of the sample who did not have assets at the job loss we conclude that the consumption smoothing benefit of ui is concentrated wholly on a sub group of the unemployed

limited participation and consumption saving puzzles a simple explanation and the role of insurance in this paper we show that the existence of a large negative wealth shock and insufficient insurance against such a shock could explain both the limited stock market participation puzzle and the low consumption high savings puzzle we then conduct an empirical analysis on the relation between household portfolio choices and access to private insurance and various types of government safety nets the empirical results demonstrate that a lack of insurance against large negative wealth shocks is positively correlated with lower participation rates and higher saving rates overall the evidence suggests an important role of insurance in household investment and savings decisions