Santiago Bazdresch

Labor Hiring, Investment, and Stock Return Predictability in the Cross Section

We study the impact of labor market frictions on asset prices. In the cross section of US firms, a 10 percentage point increase in the firm’s hiring rate is associated with a 1.5 percentage point decrease in the firm’s annual risk premium. We propose an investment-based model with stochastic labor adjustment costs to explain this finding. Firms with high hiring rates are expanding firms that incur high adjustment costs. If the economy experiences a shock that lowers adjustment costs, these firms benefit the most. The corresponding increase in firm value operates as a hedge against these shocks, explaining the lower risk premium of these firms in equilibrium.

Contagion of International Financial Crises: The Case of Mexico

Mexico was the epicenter of the 1994–1995 Tequila crisis in which many new features of emerging markets’ crises made their appearance. In particular, the issue of whether contagion was present caught the attention of several authors (For example, Valdes (1997), Sachs, Tornell and Velasco (1996) and Calvo and Reinhart (1996)). Since then, the Asian, Russian and Brazilian crises have motivated numerous papers that suggest that writing about contagion might also be contagious.

Estimating and Testing Dynamic Corporate Finance Models

We assess the finite sample performance of simulation estimators that are used to estimate the parameters of dynamic corporate finance models. We formulate an external validity specification test and propose a new set of statistical benchmarks that can be used to estimate and evaluate these models. These benchmarks are based on model policy functions. Our Monte Carlo simulations show that the estimators are largely unbiased with low root mean squared errors. When computed with an optimal weight matrix, the specification tests associated with the estimators are close to correctly sized. These tests have excellent power to detect misspecification. Received August 19, 2016; editorial decision May 30, 2017 by Editor Stijn Van Nieuwerburgh.

Product Differentiation and Systematic Risk: Theory and Empirical Evidence

Firms producing differentiated products have high margins and therefore low risk. As a result firms invest more into developing differentiated products when they perceive risk is high. Higher risk also implies higher product skewness towards more differentiated products and therefore higher average markups. The model predicts endogenous systematic and idiosyncratic riskiness as well as endogenous intensity of competition: firms in high risk industries reduce their riskiness by competing less than firms in low risk industries. Empirical evidence on product differentiation, R\&D expenses, B/M ratios, and market

Finance and Employment Formalization: Evidence from Mexico's Income-Expenditure Surveys, 2000-2010

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Can Equity Issuance Costs Explain the Low Leverage of High Growth Firms

is consistent with the model.

El Comportamiento del Tipo de Cambio en México y el Régimen de Libre Flotación: 1996-2001

We study the relationship between financial slack and employment formalization by exploiting heterogeneity in industry-level financial dependence in the spirit of Rajan and Zingales (1998). We use this heterogeneity along with time-series variation in aggregate credit to determine industry level financial slack and test which of two simple models of formality and finance is supported by data from Mexico. In contrast to similar studies our results suggest that more financial slack in an industry results in lower formality in that industry. This result is consistent with a theory where formal employees and/or informal firms are the capital constrained agents effected by the policy. Instead of promoting formalization our results are consistent with the notion that financial slack lets employees become informal independents and/or lets informal firms grow. Estimating the effects conditioning by age or schooling gives results that are also consistent with this notion.

Finance and Employment

This paper shows documents the fact that high growth firms maintain low debt levels. It then shows a dynamic model of financing and investment with costs of equity issuance rationalizes these findings. In the model firms keep debt at a level that lets them finance their investment purely from retained earnings.