The Journal of Finance

Do Creditor Rights Increase Employment Risk? Evidence from Loan Covenants

Published: 08/04/2016   |   DOI: 10.1111/jofi.12435

ANTONIO FALATO, NELLIE LIANG

Using a regression discontinuity design, we provide evidence that there are sharp and substantial employment cuts following loan covenant violations, when creditors gain rights to accelerate, restructure, or terminate a loan. The cuts are larger at firms with higher financing frictions and with weaker employee bargaining power, and during industry and macroeconomic downturns, when employees have fewer job opportunities. Union elections that create new labor bargaining units lead to higher loan spreads, consistent with creditors requiring compensation when employees gain bargaining power. Overall, binding financial contracts have a large impact on employees and are an amplification mechanism of economic downturns.

The Evolution of a Financial Crisis: Collapse of the Asset‐Backed Commercial Paper Market

Published: 01/30/2013   |   DOI: 10.1111/jofi.12023

DANIEL COVITZ, NELLIE LIANG, GUSTAVO A. SUAREZ

This paper documents “runs” on asset‐backed commercial paper (ABCP) programs in 2007. We find that one‐third of programs experienced a run within weeks of the onset of the ABCP crisis and that runs, as well as yields and maturities for new issues, were related to program‐level and macro‐financial risks. These findings are consistent with the asymmetric information framework used to explain banking panics, have implications for commercial paper investors’ degree of risk intolerance, and inform empirical predictions of recent papers on dynamic coordination failures.

Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut

Published: 08/14/2007   |   DOI: 10.1111/j.1540-6261.2007.01261.x

JEFFREY R. BROWN, NELLIE LIANG, SCOTT WEISBENNER

We test whether executive stock ownership affects firm payouts using the 2003 dividend tax cut to identify an exogenous change in the after‐tax value of dividends. We find that executives with higher ownership were more likely to increase dividends after the tax cut in 2003, whereas no relation is found in periods when the dividend tax rate was higher. Relative to previous years, firms that initiated dividends in 2003 were more likely to reduce repurchases. The stock price reaction to the tax cut suggests that the substitution of dividends for repurchases may have been anticipated, consistent with agency conflicts.