Abstract:

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Organization capital (OC) constitutes a firm’s unique, hard-to-mimic, hard-to-transfer culture, internal knowledge and language, policies and procedures, growth opportunities and information technology, brand name and any other aspects that are not directly related to the production process. In order to disentangle value enhancement from agency costs inherent in the OC, we calibrate systematic risk premiums from the loss of managerial OC rents by decomposing OC into: (1) portable economic rents in the form of disclosed executive compensation and (2) a strategic component comprised of undisclosed, non-portable OC rents mixed with agency costs. Shareholders in firms with high strategic component (not the portable component) earn an annual systematic risk premium of 4.6%. Disclosures revealing the breakdown between OC and agency costs in the strategic component (earnings surprises, managerial obfuscation and stock mispricing) as well as corporate governance eliminate this risk premium by revealing the OC rents in strategic component and increasing OC portability. Link to paper

Abstract:

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Does relationship bank oversight reduce firm default risk and improve firm operational efficiency? I find that a new loan from a relationship bank reduces the default probability and increases the efficiency of a borrowing firm, benefiting both banks and borrowers. Moreover, inefficient and less creditworthy firms experience the highest reductions in their default risks and improvements in their efficiencies in the years following new relationship bank loans. Further, these benefits are disrupted when the relationship bank is acquired. Link to paper

Abstract:

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Fintech firms mobilize information technology to provide intermediation services using a broker methodology, whereas dealer banks intermediate using leveraged balance sheets. The integration of Fintech into banking (either holistically or via mergers) may reduce the unit cost of intermediation by shifting the production function from dealer to broker. A "Fintech score" is derived using nonlinear and machine learning algorithms that show on-balance sheet lending for low Fintech score dealer banks versus securitization, brokered deposits, and non-interest income for high score, broker banks. Using Data Envelopment and Stochastic Cost Frontier Analyses, we find that banks with higher Fintech scores are more operationally efficient. Link to paper on SSRN

Abstract:

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In this paper, we document that the stock market’s perception of employee satisfaction varies with the concentration of job tasks in an industry a firm operates. While investing in employee satisfaction is costly for any company, we argue that in industries with low manual job task ratio, where employee productivity is difficult to measure, increases in employee satisfaction is perceived as a sign of the positive economic environment and future performance. On the other hand, in industries with high manual job task ratios, where employee productivity is easier to quantify, employee satisfaction is perceived as excess expenditure by investors because close monitoring of employee productivity is a viable and less costly option for those firms. In line with our expectations, we find evidence that, long-short portfolios sorted on changes in employee satisfaction generate between 0.77%-1.09% monthly abnormal returns only in industries with low ratio of manual job tasks while we do not find statistically significant abnormal stock returns for firms in industries with high ratio of manual job tasks. We argue that this suggests the potential rise of a new form of Taylorism.