Mergers and Managers: Manager-Specific Wage Premiums and Rent Extraction in M&As (Job Market Paper) with Daniel le Maire
Abstract: This paper studies how the market for corporate control disciplines managers who pay high wages. We construct a manager-firm-worker matched panel data set covering the population of Denmark from 1995 to 2011 and develop a framework to measure manager styles in wage-setting by tracking workers and managers across different firms over time. We find that individual managers do matter for wages, and variation in manager fixed effects can explain a significant part of wage differences between firms. Using a comprehensive sample of over 3000 M&As, we show that mergers target high-paying managers and reduce wage premiums but not employment at target firms, and that the effect is stronger in less competitive industries. Establishments with high wage premiums due to generous managers are more likely to be acquired, and experience higher manager turnover and larger wage declines after acquisition. Lower wages have little effect on firms’ productivity, and therefore represent a transfer from workers to shareholders. We show that increased market power in product markets or labor markets cannot account entirely for these facts. The reduction in wages accounts for about half the shareholder gains in all M&As, suggesting that rent extraction might be a major motive for merger transactions.
How Does Liquidity Constraint Affect Employment and Wages? Evidence from Danish Mortgage Reform with Daniel le Maire
Abstract: This paper studies the effects of liquidity constraints on employment and earnings by exploiting a mortgage reform in Denmark in 1992, which for the first time allowed homeowners to borrow against housing equity for non-housing purposes. We find that liquidity-constrained homeowners extracted housing equity, increased debt levels and experienced higher earnings growth after the reform. In contrast, the reform had little impact on employment and earnings of homeowners with high liquid asset holdings. Consistent with models of job search with risk aversion, the option to borrow against housing equity allows individuals to seek jobs that have higher earnings growth but higher unemployment risks. This effect is larger for low-income and older individuals. The results imply that relaxing liquidity constraints can increase output, and policies restricting mortgage refinancing during economic distress may backfire in recessions.
Corporate R&D Spillovers and Investment in the Innovation Network
Abstract: In this paper, I build a measure of technological distance between firms using the citation-based innovation network, which incorporates knowledgespillovers from upstream technological fields to downstream technological fields. I then use this measure to estimate the impact of technology spillovers using panel data on U.S. firms. I find that spillovers from firms innovating in upstream fields are quantitatively as important as spillovers from firms innovating in same fields. Consistent with the idea that firms innovate more when there is more past upstream innovation to build on, firms’ R&D investments respond positively to R&D investments of firms in upstream fields, but not to R&D investments of firms in downstream fields or in the same fields. Smaller firms on average operate in more upstream technological fields and generate more spillovers and higher social returns, which is contrary to the findings of previous research.
Complementarity and Advantage in Competing Auctions of Skills with John Kennes and Daniel le Maire
Abstract: We develop the competing auction model of McAfee (1993) to study labor sorting and on-the-job search. We prove that the wage function is monotonic in firm type under general conditions. Allowing for the possibility that higher-type workers do not have a global absolute advantage in production in all jobs, we define and derive conditions to ensure either positive or negative assortative matching. We also derive theoretical results that show how the pattern of sorting and absolute advantage can be identified from data on wages and worker-to-firm transitions. Numerical simulations relate the implications of the model to the implications of fixed effect regressions and give further insights into the performance of our estimation procedure. Finally, we evaluate evidence for Denmark using our methods and show that workers are highly sorted and higher type workers are less productive than lower type workers while employed in lower type jobs.
Research in Progress
Funding Source Matters: Government vs. Industry Grants to University R&D with Tania Babina and Sabrina Howell
Abstract: U.S. federal government funding of university research has declined in the past decade, while industry funding has increased commensurately. The different incentives of private and public funders may impact the type, quality and spillover benefits of research. This paper asks whether shifting from federal to industry funding affects university research and innovation outcomes. Using a panel dataset covering 26 universities and more than 400,000 researchers, we identify causal impacts of funding sources by instrumenting for funding sources using aggregate funding shocks to federal assistance programs. We find that a negative shock to federal funding induces switching to private funding sources, and vice versa. Researchers who switch from federal to private funding receive more patents, but the patents are lower quality. In ongoing work, we link data on publications, startups, and student placements to investigate how funding sources affect both basic research and commercial innovations in the short and longer run.