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Managing debt
\"Managing Debt takes a look at the differences between good and bad debt, discusses how to build a good credit score, and explains how to pay down debt\"-- Provided by publisher.
Book
Dynamic Inputs and Resource (Mis)Allocation
We investigate the role of dynamic production inputs and their associated adjustment costs in shaping the dispersion of static measures of capital misallocation within industries (and countries). Across nine data sets spanning 40 countries, we find that industries exhibiting greater time-series volatility of productivity have greater cross-sectional dispersion of the marginal revenue product of capital. We use a standard investment model with adjustment costs to show that variation in the volatility of productivity across these industries and economies can explain a large share (80–90 percent) of the cross-industry (and cross-country) variation in the dispersion of the marginal revenue product of capital.
Journal Article
R&D Investment, Exporting, and Productivity Dynamics
This paper estimates a dynamic structural model of a producer's decision to invest in R&D and export, allowing both choices to endogenously affect the future path of productivity. Using plant-level data for the Taiwanese electronics industry, both activities are found to have a positive effect on the plant's future productivity. This in turn drives more plants to self-select into both activities, contributing to further productivity gains. Simulations of an expansion of the export market are shown to increase both exporting and R&D investment and generate a gradual within-plant productivity improvement.
Journal Article
Market Size, Competition, and the Product Mix of Exporters
We build a theoretical model of multi-product firms that highlights how competition across market destinations affects both a firm f s exported product range and product mix. We show how tougher competition in an export market induces a firm to skew its export sales toward its best performing products. We find very strong confirmation of this competitive effect for French exporters across export market destinations. Theoretically, this within-firm change in product mix driven by the trading environment has important repercussions on firm productivity. A calibrated fit to our theoretical model reveals that these productivity effects are potentially quite large.
Journal Article
Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital?
This study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) in 2005 reduces the cost of equity capital. Using a sample of 6,456 firm-year observations of 1,084 EU firms during the 1995 to 2006 period, I find evidence that, on average, the IFRS mandate significantly reduces the cost of equity for mandatory adopters by 47 basis points. I also find that this reduction is present only in countries with strong legal enforcement, and that increased disclosure and enhanced information comparability are two mechanisms behind the cost of equity reduction. Taken together, these findings suggest that while mandatory IFRS adoption significantly lowers firms' cost of equity, the effects depend on the strength of the countries' legal enforcement.
Journal Article
Environmental Externalities and Cost of Capital
Ianalyze the impact of a firm's environmental profile on its cost of equity and debt capital. Using implied cost of capital derived from analysts' earnings estimates, I find that investors demand significantly higher expected returns on stocks excluded by environmental screens (such as hazardous chemical, substantial emissions, and climate change concerns) compared to firms without such environmental concerns. Lenders also charge a significantly higher interest rate on the bank loans issued to firms with these environmental concerns. I provide evidence that the environmental profile of a firm is not simply proxying for an omitted component of its default risk. Further, firms with these environmental concerns have lower institutional ownership and fewer banks participate in their loan syndicate than firms without such environmental concerns. These results suggest that exclusionary socially responsible investing and environmentally sensitive lending can have a material impact on the cost of equity and debt capital of affected firms.
This paper was accepted by Brad Barber, finance
.
Journal Article
INNOVATIVE CAPABILITY AND FINANCING CONSTRAINTS FOR INNOVATION: MORE MONEY, MORE INNOVATION?
This study presents a novel empirical approach to identify financing constraints for innovation based on the concept of an ideal test (Hall, 2008). Firms were offered a hypothetical payment and asked to choose between alternatives of use. If they selected additional innovation projects, they must have had some unexploited investment opportunities that were not profitable using more costly external finance. We attribute constraints for innovation not only to lacking financing, but also to firms' innovative capability. Econometric results show that financial constraints do not depend on the availability of internal funds per se but that they are driven by innovative capability.
Journal Article
What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior
The literature on managerial style posits a linear relation between a chief executive officer's (CEOs) past experiences and firm risk. We show that there is a nonmonotonic relation between the intensity of CEOs' early-life exposure to fatal disasters and corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs' disaster experience and corporate policies has real economic consequences on firm riskiness and cost of capital.
Journal Article
The Strategic Perils of Low Cost Outsourcing
The existing outsourcing literature has generally overlooked the cost differential and contract negotiations between manufacturers and suppliers (by assuming identical cost structures and adopting the Stackelberg framework). One fundamental question yet to be addressed is whether upstream suppliers' cost efficiency is always beneficial to downstream manufacturers in the presence of
competition
and
negotiations
. In other words, does low cost outsourcing always lead to a win-win outcome? To answer this question, we adopt a multiunit bilateral bargaining framework to investigate competing manufacturers' sourcing decisions. We analyze two supply chain structures:
one-to-one
channels, in which each manufacturer may outsource to an exclusive supplier; and
one-to-two
channels, in which each manufacturer may outsource to a common supplier. We show that, under both structures, low cost outsourcing may lead to a win-lose outcome in which the suppliers gain and the manufacturers lose. This happens because suppliers' cost advantage may backfire on competing manufacturers through two negative effects. First, a decrease of upstream cost
weakens
a manufacturer's bargaining position by reducing her disagreement payoff (i.e., her insourcing profit) because the competing manufacturer can obtain a low cost position through outsourcing. Second, in one-to-two channels, the common supplier's bargaining position is
strengthened
with a lower cost because his disagreement payoff increases (i.e., his profit from serving only one manufacturer increases). The endogeneity of disagreement payoffs in our model highlights the importance of modeling firm negotiations under competition. Moreover, we identify an interesting bargaining externality between competing manufacturers when they outsource to a common supplier. Because the supplier engages in two negotiations, his share of profit from the trade with one manufacturer affects the total surplus of the trade with the other manufacturer. Because of this externality, surprisingly, as a manufacturer's bargaining power decreases, her profit under outsourcing may increase and it may be more likely for her to outsource.
This paper was accepted by Yossi Aviv, operations management.
Journal Article
Trading Away Wide Brands for Cheap Brands
Firms face competing needs to expand product variety and reduce production costs. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms' ability to recapture lost markups depends on the interplay between within-firm competition and across-firm competition. Narrowing product variety eases within-firm competition but lowers market share. I provide a theory detailing the impact of trade policy on product and process innovation. Unbundling innovation provides new insights into welfare gains and innovation policy. Product innovation increases welfare beyond standard gains from trade. The relative returns to innovation policy change with trade liberalization. (JEL D24, F13, O31)
Journal Article