Working Papers

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Under Review

Contrary to popular opinion, one-third of mass layoffs announced by S&P 500 firms do not result in downsizing, yet the market fails to identify this anomaly in the short-run. Therefore, I construct a real-time layoff index to predict the probability of downsizing following an announcement and show that an investment strategy, long in the bottom half of the index (Downsizing), generates an annual four-factor alpha of 6.96%. Downsizers create value in the long-run because they successfully reduce costs, increase liquidity, and improve performance. Importantly, Downsizers also ensure that managers commit to downsizing by raising additional debt prior to the announcement. 

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Under Review

Do firms respond to labor mobility shocks? We construct an overlapping generations model where policies restricting labor mobility present firms with an important trade-off. Firms leverage their monopsony power to reduce late-career wages while early-career workers demand a wage premium to join the restricted sector. In response to higher labor turnover costs, firms alter their optimal capital-labor ratio. We confirm these predictions in the data by exploiting the statewide adoption of the inevitable disclosure doctrine (IDD), a law intended to protect trade secrets by restricting labor mobility. Post-IDD, early-career workers receive higher starting wages, late-career workers experience slower wage growth, firms raise investment by 3.5 %, and their capital-labor ratio by 5.5 %. Our results suggest that firms respond meaningfully to labor mobility shocks by replacing labor with capital. 

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Does credit rating quality affect corporate innovation? Using exogenous variation in rating quality that arises from competition among rating agencies, we show that firms with inflated ratings issue more patents, but their patent quality, as measured by scientific and economic value, declines. We provide evidence to show that managers engage in value-reducing patenting activity to exploit a compensation structure that rewards them for the number, but not the quality, of new patents. Our results are stronger in non-technology industries, which suggests that managers strategically exploit innovation when firms do not rely on patenting for value creation.

(Draft available upon request)

Is learning from rival firms valuable? We exploit a data set of plausibly exogenous cybersecurity data breaches to show that learning from an industry breach creates value. This result is driven by peer firms who have access not only to considerable resources but also have a strong incentive to take advantage of a weakened rival. To understand whether firms commit to learning, we test an "incentive" and an "investment" channel. We find that peer firms commit to learning after an industry breach by adjusting their CEO's pay structure to ensure commitment, reduce cash holding to lower the risk of a future attack, and invest in intangible capital. Overall, our results suggest that learning from peers is valuable as long as firms credibly commit to the learning process.

Work in progress


       [Paper] - [Appendix] - [Online Appendix]

Journal of Money, Credit, and Banking   53(8), 1969-1997      

We investigate the impact of mass layoff announcements on industry rivals and find that investors perceive layoff announcements as news about industry prospects. When a layoff announcement conveys good (bad) news for the announcer, rivals on average witness a 0.51% increase (0.65% decrease) in cumulative abnormal stock returns. To explain this industry effect, we test a 'growth opportunities' channel, where rivals with greater growth opportunities are affected most by changing industry prospects, and find that these firms experience the strongest contagion effect. Alternative industry classifications and a placebo test confirm that our results are not driven by confounding factors.