labor unions bargaining power and corporate bond yield spreads structural credit model perspectives abstract this study investigates labor union effects on bond yield spreads from perspectives of structural credit models by employing american bond observations from 2001 to 2007 this research finds that union strength significantly and positively relates to bond yield spreads this effect is roughly equal to that of issuer rating for one standard deviation change when controlling for well known variables the empirical results also show that the positive effects become weaker when management has higher bargaining power additionally union strength volatility significantly and negatively relates to bond yield spreads and capital structure leverage the above results are robust when controlling for credit ratings collinearity concerns industry effect and tax effect

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

analysts and information gaps lessons from the ual buyout in addition to earnings forecasts and stock recommendations analysts provide potentially useful information to investors in the form of written commentary and analysis but how such fundamental research affects stock prices has been little studied i investigate the role analysts research played in the 1994 restructuring of ual corporation parent of united air lines in which employees acquired 55 percent of ual stock in exchange for 4 9 billion in wage benefit concessions focusing on the critical first two years of the buyout my analysis suggests that analysts and investors on average initially gave the company little credit for the concessions the transaction was controversial and complicated most analysts were negative or indifferent in their assessment of the deal some analysts also misinterpreted key terms of the deal ual managers responded by reporting an unconventional earnings measure that highlighted the financial concessions ual s stock price relative to the market and industry eve

union negotiations and corporate policy a study of labor concessions in the domestic steel industry during the 1980s abstract this paper studies managerial compensation financial reporting and dividend policies of the seven major domestic steel producers during requests for union concessions substantial layoffs reported losses and sacrifices by nonunion stakeholders buttressed managers case for union concessions from 1980 to 1988 sample firms reduced their work force by about 300 000 almost two thirds and annual wage payments from 16 1 to 8 6 billion reported income is lower during union negotiations controlling for cash flows as is managerial pay with average ceo salary plus bonus declining 18 dividend reductions and white collar pay cuts are substantial pervasive and clustered during union negotiations

deposit insurance and wealth effects the value of being too big to fail this paper investigates the effect on bank equity values of the comptroller of the currency s announcement that some banks were too big to fail and that for those banks total deposit insurance would be provided using an event study methodology we find positive wealth effects accruing to tbtf banks with corresponding negative effects accruing to non included banks we demonstrate that the magnitude of these effects differed with bank solvency and size we also show that the policy to which the market reacted was that suggested by the wall street journal and not that actually intended by the comptroller the role of deposit insurance has become a topic of increasing debate advocates argue that by removing the incentive to run deposit insurance protects individual financial institutions from instability in the intermediation process thereby providing stability to the financial system as a whole 1 the recent rise in bank failures and the concomitant crises in the s l industry however demonstrate that this stability is not guaranteed moreover critics note that deposit insurance may introduce incentive problems and wealth effects into the financial system both of which can impede the effective functioning of any deposit insurance system these problems have prompted concern about the structure of the current deposit insurance system and have led to numerous proposals regarding its restructuring 2 this paper investigates one aspect of this debate by analyzing the effect on bank equity values of the policy decision to insure completely some banks but not others specifically in september 1984 the comptroller of the currency testified before congress that some banks were simply too big to fail tbtf and that for those banks total deposit insurance would be provided while not explicitly naming the banks the comptroller admitted that this policy would apply to the eleven largest banks using an event study methodology we analyze

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

perceptions and the politics of finance junk bonds and the regulatory seizure of first capital life in may 1991 one month after seizing executive life california regulators seized first capital life fclic both insurers were drexel clients with large junk bond holdings and both had experienced bank runs fclic s run followed regulators televised comments that its poor condition necessitated a substantial cash infusion yet fclic s statutory capital with junk bonds real estate and mortgages marked to market was far from lowest among major insurers with california policyholders it becomes lowest if junk bonds alone are marked to market at year end 1990 ignoring larger market declines in real estate mortgages and the junk bond market s 21 return in early 1991 our findings suggest a regulatory bias against junk bonds in the political backlash against the 1980s

monte carlo methods for security pricing the monte carlo approach has proved to be a valuable and flexible computational tool in modern finance this paper discusses some of the recent applications of the monte carlo method to security pricing problems with emphasis on improvements in efficiency we first review some variance reduction methods that have proved useful in finance then we describe the use of deterministic low discrepancy sequences also known as quasi monte carlo methods for the valuation of complex derivative securities we summarize some recent applications of the monte carlo method to the estimation of partial derivatives or risk sensitivities and to the valuation of american options we conclude by mentioning other applications

the use of accounting flexibility to reduce labor renegotiation costs and manage earnings abstract we investigate the determinants of discretionary sfas 106 choices of non regulated firms we find that more unionized firms are more likely to use immediate recognition consistent with incentives to reduce labor renegotiation costs immediate recognition is more prevalent among post adoption plan modifiers particularly if their transition obligation is large consistent with incentives to increase future reported earnings immediate recognition together with post adoption benefit plan reduction frees future income from the transition obligation amortization expense and adds a positive component as negative prior service costs are amortized immediate recognition is less prevalent among firms with higher potential debt contracting costs

pension plan accounting estimates and the freezing of defined benefit pension plans abstract this study provides evidence that when hard freezing their defined benefit pension plans employers select downward biased accounting assumptions to exaggerate the economic burden of their benefit plans downward biased expected rates of return and discount rates allow managers to increase reported pension expenses and for discount rates allow managers to increase reported pension liabilities we find that prior to the sarbanes oxley act both rates are downward biased when firms freeze their plans whereas after sox the bias is lower this finding is consistent with managers opportunistically biasing pension estimates to obtain labor concessions during periods of reduced regulatory scrutiny

the impact of labor unions on investment cash flow sensitivity abstract this paper empirically examines how labor unions affect investment cash flow sensitivity using samples from the us covering the period of 1984 2009 we find a significant positive union effect using a q model of investment the capital expenditures of firms are 1 71 times more sensitive to internal cash flows when unionization rates increase one standard deviation from the mean this effect holds when we control for other proxies of financial constraints in addition unionized firms are associated with lower cash cash flow sensitivity which suggests that the higher investment cash flow sensitivity in unionized firms is primarily driven by the incentive of these firms to reduce liquidity and enhance bargaining power against the union we also show that the above union effects become more pronounced during labor contract negotiation years

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

fighting corruption to precommit or not we consider a differential game with a corrupt government and civil society as its players we characterize open loop and feedback nash equilibria and find that whereas it is in the best interest of the government not to commit to a repression policy civil society is better off precommitting to fight corruption

determinants of target capital structure the case of dual debt and equity issues abstract we examine whether market and operating performance affect corporate financing behavior because they are related to target leverage our focus on firms that issue both debt and equity enhances our ability to draw inferences consistent with dynamic trade off theories dual issuers offset the deviation from the target resulting from accumulation of earnings and losses our results also imply that high market to book firms have low target debt ratios on the other hand consistent with market timing high stock returns increase the probability of equity issuance but have no effect on target leverage

fast delta computations in the swap rate market model abstract we develop an efficient algorithm to implement the adjoint method that computes sensitivities of an interest rate derivative to different underlying rates in the co terminal swap rate market model the order of computation per step of the new method is shown to be proportional to the number of rates times the number of factors which is the same as the order in the libor market model

the impact of labour unions on external auditor selection and audit scope evidence from the korean market abstractwe examine whether labour unions influence external auditor selection and audit scope as a major user group of financial information labour unions likely demand financial information of high quality and thus high quality audits as a union s request for wage increases is likely strong when a firm is performing well management facing wage negotiations with the labour union has incentives to manipulate earnings downward and may therefore prefer auditors who allow more discretion using union data unique to korea during 2005 2008 we find that firms with a stronger labour union tend to choose higher quality auditors i e big n or industry specialist auditors we also find that unionization is negatively positively associated with positive negative abnormal audit fees and audit hours and the effects are more pronounced when the union is stronger and more active given that departures from normal audit fees and audit hours in either direction arguably impair audit quality this finding is con

dynamic rent seeking games the present paper analyses rent seeking games in which competitors for a rent can act and react finitely or infinitely often it argues for an infinite move model as the most appropriate specification of a model of rent seeking dynamic equilibrium analysis of this game suggests that wasteful expenditures in rent seeking competitions are lower than previously studied static simultaneous move games predict journal of economic literature classification numbers d72 c73

practical policy iteration generic methods for obtaining rapid and tight bounds for bermudan exotic derivatives using monte carlo simulation abstract we introduce a set of improvements which allow the calculation of very tight lower bounds for bermudan derivatives using monte carlo simulation these tight lower bounds can be computed quickly and with minimal hand crafting our focus is on accelerating policy iteration to the point where it can be used in similar computation times to the basic least squares approach but in doing so introduce a number of improvements which can be applied to both the least squares approach and the calculation of upper bounds using the andersen broadie method the enhancements to the least squares method improve both accuracy and efficiency results are provided for the displaced diffusion libor market model demonstrating that our practical policy iteration algorithm can be used to obtain tight lower bounds for cancellable cms steepener snowball and vanilla swaps in similar times to the basic least squares method

relational contracts and the value of relationships this article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known i consider a principal agent setting where the principal has persistent private information about her outside option i show that if the principal has the bargaining power she wants to understate her outside option to provide strong incentives and then renege on promised payments while if the uninformed agent has the bargaining power the principal wants to overstate her outside option to capture more surplus i characterize how information is revealed how the relationship evolves and how this depends on bargaining power jel c78 d82 d83 d86

the effect of labor unions on ceo compensation we find evidence that labor unions affect chief executive officer ceo compensation first we find that firms with strong unions pay their ceos less the negative effect is robust to various tests for endogeneity including cross sectional variations and a regression discontinuity design second we find that ceo compensation is curbed before union contract negotiations especially when the compensation is discretionary and the unions have a strong bargaining position third we report that curbing ceo compensation mitigates the chance of a labor strike thus providing a rationale for firms to pay ceos less when facing strong unions

ceo compensation in financially distressed firms an empirical analysis this paper studies senior management compensation policy in 77 publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987 almost one third of all ceos are replaced and those who keep their jobs often experience large salary and bonus reductions newly appointed ceos with ties to previous management are typically paid 35 less than the ceos they replace in contrast outside replacement ceos are typically paid 36 more than their predecessors and are often compensated with stock options on average ceo wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts however managers compensation is sometimes explicitly tied to the value of creditors claims

the allowance for uncollectible accounts conservatism and earnings management we study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart bad debt expense we find that the allowance is conservative and that it has become more conservative over time conservatism may however facilitate earnings management we find that firms manage bad debt expense downward and even record income increasing bad debt expense to meet or beat analysts earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense further we find that firms manage bad debt expense downward by drawing down previously recorded over accruals of bad debt expense that have accumulated on the balance sheet an implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings

labor protection and leverage this paper exploits inter temporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms capital structure decisions over the 1985 2007 period we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage we interpret this finding to suggest that employment protection increases operating leverage crowding out financial leverage this result is robust across measures of employment protection and leverage and does not appear to be due to pre treatment differences between treated and control firms omitted variables unobserved changes in regional economic conditions and reverse causality heterogeneous treatment effects are consistent with our economic intuition we find that the negative effect is more pronounced in firms that are subject to frequent hiring and firing

the economic consequences of labor unionization evidence from stock price crash risk this study investigates the impact of labor unionization on stock price crash risk we find that labor unionization is negatively associated with stock price crash risk such negative relation is more pronounced when firms can intimate more credible evidence on unfavorable prospects and when firms face more powerful labor unions our findings are consistent with the notion that firms take strategic actions to reduce the bargaining advantages enjoyed by labor unions and that labor unions force firms to take less risky investments and discontinue underperformed projects more timely which leads to lower stock price crash risk

cultivating trust norms institutions and the implications of scale we study the co evolution of honesty norms and institutions new trading opportunities require institutional changes to be realised since the initial vulnerability of institutions to opportunistic behaviour leads to the deterioration of norms we show how an escape from opportunism requires that institutional improvements outpace norm deterioration a key prediction emerges larger economies are more likely to evolve to steady states with strong honesty norms but need not have better institutions this prediction is tested using a cross section of countries population has a significant positive relationship with trust even when controlling for standard trust determinants and institutional quality

through the contested terrain implementation of downsizing announcements by large u s firms 1984 to 2005 since the 1980s leading u s firms have announced massive downsizing plans in the name of maximizing shareholder value but some observers are skeptical about how serious firms are in implementing

randomized quasi monte carlo methods in pricing securities abstract today quasi monte carlo methods are used successfully in computational finance and economics as an alternative to the monte carlo method one drawback of these methods however is the lack of a practical way of error estimation to address this issue several researchers introduced the so called randomized quasi monte carlo methods in the last decade in this paper we will present a survey of randomized quasi monte carlo methods and compare their efficiencies with the efficiency of the monte carlo method in pricing certain securities we will also investigate the effects of box muller and inverse transformation techniques when they are applied to low discrepancy sequences

the dynamics of lobbying a differential game this paper presents a dynamic model on lobbying the interactions between two competing lobbies who attempt to influence regulations and legislation are modelled as a differential game we consider for this game first a time consistent and then a subgame perfect equilibrium in linear markov strategies the subgame perfect equilibrium lowers considerably lobbying activity and expenses this provides a partial explanation of the puzzle that rent seeking expenses are often small compared with the prize sought

debt and creative destruction why could subsidizing corporate debt be optimal the existing theoretical literature provides little justification for a corporate debt subsidy we illustrate the welfare benefit of this subsidy and study how the social costs and benefits change with the duration of industry distress in our model two firms engage in socially wasteful competition for survival in a declining industry firms differ on two dimensions exogenous productivity and endogenously chosen amount of debt financing resulting in a two dimensional war of attrition debt financing increases incentives to exit which although costly for the firm is socially beneficial these benefits decline as industry distress shortens our normative model sheds light on why the debt tax subsidy still persists around the world analogously the model can also rationalize a seemingly ad hoc feature of the u s tax system which subsidizes the conflict of interest between debt and equity regarding firm liquidation this paper was accepted by amit seru finance

habitual and occasional lobbyers in the u s steel industry an em algorithm pooling approach bernard yeung using u s steel firm data we find that lobbying for import protection appears to be habit forming to identify heterogeneity in lobbying behavior among firms we use an expectation maximization algorithm to sort our firms into groups with different propensities to lobby and estimate the determinants of lobbying in each group a two pool model emerges occasional lobbyers lobbying depends on their market performance and habitual lobbyers lobbying only depends on past lobbying the latter tends to be larger steel firms whose business is more focused in steel our evidence is consistent with dynamic economies of scale in protection seeking breeding protection dependent firms jel f13 1 introduction rent seeking activities plausibly have dynamic economies to scale past rent seeking experience should reduce the cost of further rent seeking and increase its return thus rent seekers may over time become more prone to further rent seeking and even become dependent on it given the large welfare losses theoretically associated with rent seeking e g bhagwati 1982 1988 and magee et al 1989 a better understanding of actual rent seeking behavior is required in particular empirical verification of the self sustaining nature of rent seeking is of fundamental importance lobbying for protection from import competition is a form of rent seeking this article uses data on lobbying for protection by firms in the steel industry in the 1970s and 1980s to show that a habit forming effect does exist in a preliminary investigation we pool all firm level data and find that past lobbying increases the current tendency to lobby however not all firms have the same propensity to lobby to allow heterogeneity among firms dependence on past lobbying we apply an expectation maximization em algorithm approach dempster et al 1977 to a lagged dummy model heckman 1982a 1982b this lets our firms sort themselves into groups according to the determinants of their lobbying activity our statistical results suggest that an acceptable division of our data is a division into two groups occasional lobbyers whose lobbying depends on the firm s market performance and habitual lobbyers whose lobbying is essentially unrelated to the firm s business situation and depends mainly on past lobbying firms that never lobby for protection end up in the first group greater firm size and greater focus in steel production are associated with increased lobbying in both groups but the influence is stronger for occasional lobbyers past sales growth and spending on modern equipment are associated with curtailed lobbying by occasional rent seekers but are unrelated to lobbying by habitual rent seekers changes in cash flow have no influence in either generally habitual lobbyers are larger firms whose business is more concentrated on steel they are naturally more inclined than occasional lobbyers to initiate lobbying however their lobbying appears to have become a habit divorced from their market pe rformance these results are consistent with the presence of economies of scale in rent seeking and with rent seeking being habit forming e g magee et al 1989 in the next section we describe the intensive lobbying for protection in the u s steel industry in the 1970s and 1980s we justify our contentions that lobbying for protection by steel firms in the sample period may be habit forming and that different groups of firms should have dissimilar propensities to lobby for protection in section iii we explain the em algorithm approach we explain the data in the fourth section and report our results in section v section vi concludes ii habitual and occasional lobbying in the u s steel industry in the united states domestic firms under import competition pressure often complain to the government about unfair foreign practice