Corporate Finance

Members of the NBER's Corporate Finance Program met November 8 in Stanford. Research Associates John Graham of Duke University and Paola Sapienza of Northwestern University organized the meeting. These researchers' papers were presented and discussed:

Matthew Smith, Department of Treasury; Owen M. Zidar, Princeton University and NBER; and Eric Zwick, University of Chicago and NBER

Top Wealth in America: New Estimates and Implications for Taxing the Rich

Smith, Zidar, and Zwick use administrative tax data to estimate top wealth in the United States. They build on the capitalization approach in Saez and Zucman (2016) while accounting for heterogeneity within asset classes when mapping income flows to wealth. The approach reduces bias in wealth estimates because wealth and rates of return are correlated. Overall, wealth is very concentrated: the top 1% holds as much wealth as the bottom 90%. However, the "P90-99" class holds more wealth than either group after accounting for heterogeneity. Relative to a top 0.1% wealth share of more than 20% under equal returns, the researchers estimate a top 0.1% wealth share of [15%] and find that the rise since 1980 in top wealth shares falls by [half]. Top portfolios depend less on fixed income and public equity, depend more on private equity and housing, and more closely match the composition reported in the SCF and estate tax returns. The researchers' adjustments reduce mechanical revenue estimates from a wealth tax and top capital income shares in distributional national accounts, which depend on well-measured estimates of top wealth. Though the capitalization approach has advantages over other methods of estimating top wealth, the researchers emphasize that considerable uncertainty remains inherent to the approach by showing the sensitivity of estimates to different assumptions.

Simon Jäger, MIT and NBER; Benjamin Schoefer, University of California, Berkeley; and Jörg Heining, Institut fur Abreitsmarkt und Berufsforschung

Labor in the Boardroom

Jäger, Schoefer, and Heining estimate the effects of a mandate allocating a third of corporate board seats to workers (shared governance). They study a reform in Germany that swiftly abolished this mandate for certain firms incorporated after August 1994 but locked it in for the slightly older cohorts. In sharp contrast to the canonical hold-up hypothesis - by which increasing labor's power reduces owners' capital investment - the researchers find that granting workers formal control rights raises capital formation. Shared-governance firms shifted their production process towards higher capital intensity, as the capital share increases. This effect is not driven by outsourcing labor-intensive production steps. The researchers also document a moderate compositional shift towards skilled labor. Shared governance does not raise wage premia or rent sharing, consistent with the absence of hold-up patterns. Leverage is unaffected, but firms with shared governance face lower interest rates, perhaps due to an associated collateral channel or reflecting worker preferences for safer projects. Overall, the evidence is inconsistent with hold-up mechanisms at play. Instead, shared governance may crowd in investment by facilitating cooperation, perhaps by institutionalizing communication and repeated interactions between labor and capital.

Jean-Noël Barrot, MIT; Thorsten Martin, HEC Paris; Julien Sauvagnat, Bocconi University; and Boris Vallee, Harvard University

Employment Effects of Alleviating Financing Frictions: Worker-level Evidence from a Loan Guarantee Program

Barrot, Martin, Sauvagnat, and Vallee document the impact on worker employment trajectories of a countercyclical loan guarantee program aiming at mitigating financing frictions for SMEs. The identification strategy exploits plausibly exogenous heterogeneity in policy generosity between French regions, interacted with a geographical regression discontinuity design. The researchers show that the guarantees result in a significantly higher likelihood of being employed over the seven years following the intervention, which translates into significantly higher cumulated earnings. The program benefits disproportionately high wage, male and younger workers, mostly driven by differences in retention decisions by the initial employer. The researchers estimate the gross cost to preserve a job(-year) to be around e3,200, and a negative net cost when the researchers include the savings on unemployment benefits.

Ankit Kalda, Indiana University; Marco Di Maggio, Harvard University and NBER; and Vincent Yao, Georgia State University

Second Chance: Life Without Student Debt (NBER Working Paper 25810)

Kalda, Di Maggio, and Yao exploit the plausibly-random debt discharge, due to the inability of National Collegiate to prove chain of title, to examine the effect of student debt relief on individual credit and labor market outcomes. They find that borrowers experiencing the debt relief shock reduce their indebtedness by 15%, and are 11% less likely to default on other accounts. After the discharge, the borrowers' geographical mobility increases, as well as, their probability to change jobs and ultimately their income increases by about $3000 over a three year period. These findings speak to the benefits of loan forgiveness to reduce the consequences of debt overhang.

Holger Mueller, New York University and NBER, and Constantine Yannelis, University of Chicago and NBER

Reducing Barriers to Enrollment in Federal Student Loan Repayment Plans: Evidence from the Navient Field Experiment

To reduce student loan delinquencies and defaults, the federal government provides income-driven repayment (IDR) plans in which monthly student loan payments depend on the borrower's income. Mueller and Yannelis report evidence from a randomized field experiment conducted by a major student loan servicer, Navient, in which treated borrowers received pre-populated IDR applications for electronic signature. As a result, IDR enrollment increased by 34 percentage points relative to borrowers in the control group. Using the treatment assignment as an instrument for IDR enrollment, the researchers furthermore present LATE estimates of the effect of IDR enrollment on new delinquencies, monthly payments, and consumer spending. The estimates imply a drop in monthly payments of $355 and a reduction in new delinquencies of seven percentage points. At the same time, monthly credit card balances increase by $343, suggesting that some of the freed-up liquidity is used for consumer spending. The results provide the first field-experimental evaluation of a US government program designed to address the soaring debt burdens of US households.

Erica Jiang, University of Texas at Austin; Gregor Matvos, Northwestern University and NBER; Tomasz Piskorski, Columbia University and NBER; and Amit Seru, Stanford University and NBER

Banking without Deposits: Evidence from Shadow Bank Call Reports

Winston Wei Dou and Lucian A. Taylor, University of Pennsylvania; Wei Wang, Queens University; and Wenyu Wang, Indiana University

Dissecting Bankruptcy Frictions

How efficient is corporate bankruptcy in the US? Two economic frictions, asymmetric information and conflicts of interest among creditors, can cause several inefficiencies: excess liquidation, excess continuation, and excess delay. Dou, Taylor, Wang, and Wang quantify these inefficiencies and their underlying causes using a structural estimation approach. They find that the bankruptcy process is quite inefficient, mainly due to excess delay. Eliminating information asymmetries would increase average total payouts by 11%, and eliminating conflicts of interest would increase them by an additional 29%. Without these frictions, an extra 46% of cases would be resolved before going to court, and the remaining court cases would be 64% shorter. With less delay, the direct and indirect costs of bankruptcy would be much lower. In contrast, the researchers find that inefficiencies from excess liquidation and excess continuation are quite small.

Erica Jiang, University of Texas at Austin; Gregor Matvos, Northwestern University and NBER; Tomasz Piskorski, Columbia University and NBER; and Amit Seru, Stanford University and NBER

Banking without Deposits: Evidence from Shadow Bank Call Reports

Francesco D'Acunto, Boston College; Ulrike Malmendier, University of California, Berkeley and NBER; and Michael Weber, University of Chicago and NBER

Gender Roles Distort Women's Economic Outlook

Gender roles place women and men into different environments in their daily lives, where they observe different economic signals and make different experiences. D’Acunto, Malmendier, and Weber show that these differences in everyday exposure distort women's perceptions of key economic variables, also in areas that do not hold any gender connotation. Their analysis uses novel data of a representative US sample that combines detailed information about the distribution of shopping duties in couples, their corresponding exposure to price signals, and their individual economic expectations. Complying with traditional gender roles, women do most of the grocery shopping, which exposes them to high and volatile changes in grocery prices. This exposure increases women's perception of current inflation and their expectation of future inflation, relative to men. The distortion spills over to beliefs about house prices and the stock market, as well as perceptions of their own financial situation and the economy overall, which can have detrimental consequences for women's economic choices and outcomes, including gender inequality in the accumulation of wealth.

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