Browsing by Subject "Bankruptcy"
Now showing 1 - 3 of 3
- Results Per Page
- Sort Options
Item Essays on Market Incompleteness(2015-07) Zouain Pedroni, MarceloThis thesis studies incomplete market economies. First from a normative perspective in Chapter 1, then from a positive one in Chapter 2. Chapter 1 studies optimal taxation in an environment where heterogeneous households face uninsurable idiosyncratic risk. To do this, we formulate a Ramsey problem in a standard infinite horizon incomplete markets model. We solve numerically for the optimal path of proportional capital and labor income taxes, (possibly negative) lump-sum transfers, and government debt. The solution maximizes welfare along the transition between an initial steady state, calibrated to replicate key features of the US economy, and an endogenously determined final steady state. We find that in the optimal (utilitarian) policy: (i) capital income taxes are front-loaded hitting the imposed upper bound of 100 percent for 33 years before decreasing to 45 percent in the long-run; (ii) labor income taxes are reduced to less than half of their initial level, from 28 percent to about 13 percent in the long-run; and (iii) the government accumulates assets over time reducing the debt-to-output ratio from 63 percent to -17 percent in the long-run. Relative to keeping fiscal instruments at their initial levels, this leads to an average welfare gain equivalent to a permanent 4.9 percent increase in consumption. Even though non-distortive lump-sum taxes are available, the optimal plan has positive capital and labor taxes. Such taxes reduce the proportions of uncertain and unequal labor and capital incomes in total income, increasing welfare by providing insurance and redistribution. We are able to quantify these welfare effects. We also show that calculating the entire transition path (as opposed to considering steady states only) is quantitatively important. Implementing the policy that maximizes welfare in steady state leads to a welfare loss of 6.4 percent once transitory effects are accounted for. The main determinants of credit limits are the rules that govern the ability of households to default on their loans and the risks that they are exposed to. Chapter 2 investigates the quantitative relevance of these determinants using a version of the incomplete markets life cycle model in which agents are allowed to default on their debt holdings by declaring bankruptcy. I document that credit limits are positively correlated with households' income levels. I then show that the introduction of profile heterogeneity in the households' income processes increases the correlation between income and credit limits. This fact is consistent with the theoretical results established in a simple example. I also show that proportional income punishments or a threshold level of income, such that agents are only allowed to declare bankruptcy only for income levels bellow that threshold, can also be used to generate such a positive correlation. Finally, the main calibration results suggest an important qualification about heterogeneous income profile models: the lower levels of uncertainty implied by these models lead to a severe underestimation of the number of bankruptcy filings.Item Three Essays on Corporate Finance and Labor(2017-06) Qiu, YueMy dissertation investigates the interaction between corporate finance and labor market. It contains three chapters. Chapter 1 studies the strategic role of debt structure in improving the bargaining position of a firm's management relative to its non-financial stakeholders. Debt structure is essential for strategic bargaining because it affects the ease of renegotiating debt contracts and thus the credibility of bankruptcy threats. Debt structure is shown to be adjusted as a response to an increase in non-financial stakeholders' negotiation power. Using NLRB labor union election as a laboratory setting and employing a regression discontinuity design, we find that passing a labor union election leads to an increase in the ratio of public debt to total assets and a decrease in the ratio of bank debt to total assets in the following three years after elections, whereas there is no significant change in the level of total debt. The syndication size of newly issued bank loans increases while creditor ownership concentration decreases once the vote share for unions passes the winning threshold. Further analyses confirm that the debt structure adjustments after union certification are more likely driven by the strategic concerns of management rather than more constrained access to bank loans. Finally, we also show that the degree of wage concessions is strongly related to a firm's debt structure using the airline industry as an empirical setting. Chapter 2 is co-authored with Tracy Yue Wang. In this study, we measure firms' exposures to skilled labor risk by the intensity of such discussions in their 10-Ks. We find that this measure effectively captures firm risk due to the mobility of skilled labor. We then examine the impact of skilled labor risk on firms' compensation policies. To overcome the reverse causality potentially present in the equilibrium relation between skilled labor risk and compensation policies, we use housing market factors that affect home owners' mobility as instruments for local firms' skilled labor risk, based on the insight that talents are likely homeowners. Consistent with theories on optimal compensation design in the presence of mobile talents, our results suggest that firms facing higher skilled labor risk use substantially more incentive pay for both top executives and employees below the top rank. Those firms also ex ante offer a higher level of pay to skilled labor. Finally, we find that firms facing higher skilled labor risk invest more in strengthening employee relations, but such investment tend to be concentrated in compensation and benefits related dimensions. Overall, our study suggests that the mobility of skilled labor is an important determinant of corporate compensation policies, affecting the split of surplus between firms' owners and employees. Chapter 3 studies the effect of labor adjustment costs on corporate risk management. Labor adjustment costs attenuate the correlation between a firm's internal fund and its investment opportunities and create more incentives for the firm to smooth cash flows. We find that firms in which employees are more protected by labor market institutions use more derivative contracts for risk management. We further find that firms that rely more on skilled labor engage in more derivative hedging since labor with higher skill is associated with larger adjustment costs. Such an effect is attenuated when the mobility of skilled labor is restricted.Item Topics in macroeconomics.(2010-11) Short, Jacob M.This dissertation consists of two essays. In the first essay we use the occupation, incorporation and bankruptcy decisions of entrepreneurs to learn about the extent of the risks faced by entrepreneurs and the available insurance against them. Entrepreneurship is risky; entrepreneurs forgo wages and invest their time and resources into a business with large potential gains, but uninsurable risks. It is vital to know the extent of these risks, and the insurance available against them, in order to assess corporate tax and personal bankruptcy reforms. We document that incorporated entrepreneurs operate larger businesses, accumulate more wealth, and are on average more productive than unincorporated entrepreneurs. We embed the U.S. bankruptcy and incorporation legal systems in a quantitative macroeconomic theory of occupation, incorporation, and default choices that accounts for the cross-sectional facts. In the model, as in the U.S., incorporation provides insurance via limited liability beyond personal bankruptcy exemptions, at the expense of administrative burdens and an endogenous interest rate premium. Our model suggests that capital embodied shocks are important entrepreneurial risks. A calibrated economy in which each unit of installed capital entails a small probability (1.0%) of a catastrophic shock (full destruction of capital) is able to account for the data along multiple untargeted dimensions. In the second essay we analyze the savings behavior of developing economies. Developing countries experiencing rapid TFP growth tend to run current account surpluses. This finding is puzzling in the context of the neoclassical growth model, which predicts that these countries should be net borrowers (Gourinchas and Jeanne, 2009). We account for this puzzle by introducing a non-tradable sector to an otherwise standard growth model. We propose that complementarity between tradable and non-tradable goods is key. With an initially underdeveloped non-tradable sector, a representative household is willing to trade a portion of current tradable output in exchange for tradable goods in the future when its production of non-tradable goods increases. A drawback of the simplest version of the model is that faster growing countries experience a reduction in the relative price of non-tradable goods.