Jared R. Stanfield

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.

How Does an LBO Impact the Target's Industry?

Leveraged buyouts can signal a change in an industry’s operating environment, or can be the disruption themselves. We study the follow-on merger activity, governance changes and operating improvements of LBO target rivals. We show that the market underreacts to the news of a firm’s rival being targeted in an LBO; there are significant long-run abnormal returns to industry rivals following an LBO. While rivals do engage in governance and limited performance improvements, the returns are primarily driven by increased acquisition activity. We examine whether private equity firms simply select into such industries or cause the changes and, despite finding some limited evidence of selection ability, conclude that the effects are by and large causal.

Does the Political Power of Non-Financial Stakeholders Affect Firm Values? Evidence from Labor Unions

Whereas corporate political connections are known to enhance equity values, we demonstrate that union political activity can have the opposite effect. We examine the consequences of a recent Australian state law that restricts union political activity but does not change collective bargaining rights. In the wake of this law, the equity values of affected unionized firms significantly increase, and consistent with this market reaction, these firms are able to bargain for more favorable labor contracts than their unionized peers in other states. The evidence strongly suggests that unions use political activism to extract rents from shareholders and benefit their members.Prior research has established a relationship between union bargaining power and firm value and financial decisions. However, researchers have not fully explored how unions establish this power. In this study, we find that a union’s bargaining power depends significantly on the union’s political power. We explore this connection by making use of a recent law in New South Wales, Australia that prohibits unions from making political contributions and restricts their political activities, but leaves their ability to collectively bargain unchanged. We find that the value of unionized firms in New South Wales significantly increased in the wake of this legislation and that these firms were able to negotiate more favorable labor contracts relative to their unionized peers in other states. We propose that unionized labor uses political power to increase its ability to extract rents from shareholders. ∗Both authors are with the School of Banking and Finance, Australian School of Business, University of New South Wales, Sydney NSW 2052, Australia. We would like to thank Nithilla Jeyalingam for excellent research assistance. We are grateful for helpful comments from Renée Adams, Diane Del Guercio, Joseph Fan, Neal Galpin, Sandy Klasa, Ron Masulis, Vikas Mehrotra, Lyndon Moore, Jason Zein, and seminar participants at the 2013 Frontiers in Finance Conference in Banff, the 2013 ANU RSFAS Summer Research Camp, the 2012 FIRN Annual Conference, the University of Melbourne, and the University of Queensland. Please address correspondence to Jared Stanfield.

Do insiders time management buyouts and freezeouts to buy undervalued targets

We provide evidence that managers and controlling shareholders time management buyouts (MBOs) and freezeout transactions to take advantage of industry-wide undervaluation. Portfolios of industry peers of MBO and freezeout targets show significant alphas of around 1% per month over the 12-month period following the transaction. These returns are not explained by a battery of risk factors or empirical methodologies, but exhibit significant heterogeneity across deals. Additional tests show that, on average, abnormal returns to industry peers are a reliable proxy for those to the target firm. Further, MBOs and freezeouts are announced during troughs of industry profitability.

Staying Clean: Do Non-Implicated Peer Firms Necessarily Benefit from Anti-Corruption Policies?

To understand the mechanisms through which political connections impact firm value and performance, we study how political connections affect connected firms and their peers. Following the announcement of anti-corruption investigations in China, we show that the industry peers of firms connected to investigated officials experience a decrease in value but not in performance, despite connected firms’ significant deterioration of value and performance. Interestingly, we document evidence of a transfer of reduced effective tax rates away from connected firms to firms headquartered in the same city, mitigating any negative value impacts. This evidence suggests that severing political connections can have important spillover effects on industries and cities.

Does Government Spending Crowd Out R&D Investment? Evidence from Government-Dependent Firms and Their Peers

Federal budget shocks lead government-dependent firms to expand R&D investment whereas industry-peer firms contract. The net result is a reduction in industry-level R&D investment. We offer a novel interpretation for the crowding out of peer-firm investment, namely, that peerfirm managers respond to falling relative performance by cutting R&D to manage current earnings upward. Since R&D investment affects value, we show that these differential responses manifest is differential firm value: higher federal spending is associated with higher value for government-dependent firms but lower value for industry-peer firms. Our results highlight how managerial incentives can influence the effectiveness of federal fiscal policy. JEL Classification: G31, G32, G38, H32, P16

Skill, Syndication, and Performance: Evidence from Leveraged Buyouts

This paper studies how skill and past syndicate connections impact the likelihood to syndicate and how these relations influence buyout performance. I find evidence that high-skill buyout firms, that is, those with superior past performance, are less likely to syndicate than low-skill firms. I also find that low-skill buyout firms are less likely to successfully exit an LBO without syndication, but no such effect exists for high-skill firms. This evidence is robust to potential endogeneity concerns and other alternative explanations. My results suggest low-skill firms utilizing syndication to pool skill, resources, and information to overcome firm-specific deficiencies.

CEO Option Compensation Can Be a Bad Option: Evidence from Product Market Relationships

The existing literature is ambiguous about the impact of executive option-based compensation on firm performance. We find that option-based pay significantly undercuts the firm performance in the presence of important stakeholders, namely major customers. Following import tariff cuts, which represent exogenous shocks to existing customer relationships, we show that firms with large customers reduce CEO option-based compensation. Further, we find that firm performance improves and pre-existing major customer relationships strengthen following the reduction in CEO option compensation. Overall, this study provides insights into how firms with important stakeholders can shape the costs and benefits of governance practices.