Alexander Edwards

The Role of Government in the Labor-Creditor Relationship: Evidence from the Chrysler Bankruptcy

We examine the role of government in the labor-creditor relationship using the case of the Chrysler bankruptcy. As a result of the government intervention, firms in more unionized industries experienced lower event-window abnormal bond returns, higher abnormal bond yields, and lower cumulative abnormal bond returns. The results are stronger for firms closer to distress. We also observe the effect in firms in which labor bargaining power is stronger and those with larger pension liabilities. Overall, the results underline the importance of government as a significant force in shaping the agency conflict between creditors and workers.

Product Market Peers in Lending: Information Processing Efficiencies and Proprietary Costs

This study examines how product market peers affect lending relationships. We contend that firms are more likely to borrow from a bank that has previously lent to a peer, to mitigate information asymmetry with the bank when potential information processing efficiencies are greater (i.e., information efficiency hypothesis), but there will be a decreased propensity to borrow from a shared lender when the costs of leaking proprietary information are greater (i.e., proprietary information leakage hypothesis). We find that, on average, firms avoid borrowing from banks that lend to a product market peer. We also document evidence consistent with both hypotheses in both cross-sectional and difference-in-difference research designs. In additional analysis, we examine the pricing of loans and observe loan pricing effects consistent with these two hypotheses.This study examines the effect of banks’ competitor-specific knowledge, whether a bank has lent money to a firm’s product-market competitors (i.e., rivals), on the matching of firms to lenders. We find an increased propensity of firms obtaining a loan from a bank that has also lent to firms’ rivals. We find that this relation is accentuated for firms with high levels of financial reporting opacity and attenuated for firms with high proprietary costs. These cross-sectional results are consistent with the benefits of information efficiencies being greater when borrowers’ financial reporting opacity is higher and the costs of leaking information being higher when firms have greater potential proprietary information. We also assess the economic consequences of our main findings by examining the pricing of bank loans. Consistent with lenders being able to leverage their inside knowledge of firms within the same product market and transfer the information efficiencies to borrowers, we document a reduction in the spread over LIBOR when firms borrow from banks that have previously lent to their rivals.

Does the U.S. System of Taxation on Multinationals Advantage Foreign Acquirers

Prior research has documented a substantial “lockout�? effect resulting from the current U.S. worldwide tax and financial reporting systems. We hypothesize that foreign firms are tax- favored acquirers because they can avoid the U.S. tax on repatriations. Consistent with this tax advantage, we find that U.S. domiciled M&A target firms with greater locked-out earnings are more likely to be acquired by foreign than domestic acquirers. This effect is economically significant; a standard deviation increase in our proxy for locked-out earnings is associated with a 12% relative increase in the likelihood that an acquirer is foreign. As the tax advantages for a foreign firm acquiring a U.S. target with locked-out earnings are even greater when the foreign firm operates under a territorial tax system, we also compare their home country tax system. We find that foreign acquirers of U.S. target firms with locked-out earnings are indeed more likely to be residents of countries that use territorial tax systems.

Supercharged IPOs: Rent Extraction or Signal of Future Firm Performance?

This study examines a new form of initial public offerings colloquially referred to as “Supercharged IPOs.” In a supercharged IPO, a series of transactions are performed as part of the IPO process that eventually generate new tax assets (i.e., greater future tax deductions) for the corporation. Unlike traditional IPOs, the creation of new tax assets also creates a tax liability for the pre-IPO owners. The benefits (i.e., future tax deductions) from the new tax assets are then split between the pre-IPO owners and the new IPO investors, who enter into a tax receivable agreement based on those assets. The net result of the transaction to the pre-IPO owners is the assumption of a certain tax liability in exchange for a contingent future benefit. As a result, we hypothesize, and find evidence consistent with, the decision to “supercharge” an IPO providing a signal regarding the future prospects of the firm. We document higher final offer prices and greater future financial performance for supercharged IPO firms compared to traditional IPO firms. We also examine future stock returns and do not find significant differences between traditional and supercharged IPO firms, consistent with the higher offer price for supercharged IPO firms not reversing. Our results contrast critics’ claims that tax receivable agreements allow pre-IPO owners and advisors to extract rents from new IPO investors.ABSTRACT This study examines a new form of initial public offerings, “supercharged” IPOs, where a firm-organized pre-IPO as a pass-through entity undergoes a series of transactions that steps-up th...