Working Papers
The Labor Market Effects of Marijuana Legalization on Firms' Cost of Equity, with Scott Guernsey and Cheng Yan.
We investigate the impact of medical marijuana legalization (MML) on firms' cost of equity (COE). Exploiting the staggered implementation of MML across U.S. states and accounting for potential biases in difference-in-differences estimators with two-way fixed effects, we find that firms experience a significant decline in their COE following MML. Drawing from theoretical models linking asset prices to labor market frictions, we hypothesize that this effect is driven by MML easing labor search frictions and increasing worker supply. Corroborating the theory's predictions, the impact of MML is stronger for firms with greater growth potential and those that employ more skilled workers. Providing more direct evidence of this channel, we document an increase in the migration rates of inventors and highly skilled and educated workers to states post-legalization, which is also associated with improved innovation productivity. Increased home prices and homeownership rates after MML are further consistent with an increase in labor supply demanding more local housing.
Thirty Years of Change: The Evolution of Classified Boards, with Scott Guernsey, Feng Guo, and Tingting Liu.
We create a novel classified (staggered) board database covering all U.S. public firms from 1991 to 2020 and document significant differences in classified board usage over a firm’s life cycle depending on the decade the firm is aging or the year it goes public. While classified boards were rarely removed in the 1990s, firms that aged or went public during the following decades were more likely to declassify as they matured. Increased institutional ownership and scrutiny on governance appear to have contributed to this more dynamic adjustment over time, which recent theory predicts and our valuation analyses corroborate is value-maximizing.
This dataset contains the staggered board status for almost 14,000 firms (over 138,000 firm-year observations) beginning in 1991.
Unveiling the Role of Director-Specific Quality in Creating Firm Value, with Dipesh Bhattarai and Tracie Woidtke.
We create a new measure called director-specific quality (DSQ) that isolates director attributes that are transferable across firms and time and show that DSQ accounts for a significant fraction of the variation in firm value. Directors with higher DSQ also receive greater voter support, and investors respond more (less) favorably when they are appointed (die). Firms with higher board-level DSQ demonstrate improved decision making related to mergers and acquisitions, CEO compensation, innovation, and cash management. During the COVID-19 pandemic, they also experienced relatively higher stock returns. Our results suggest directors have unique value-relevant transferable attributes, and who firms hire matter.
Media Coverage
Do Individual Directors Matter?, November 17, 2022, Columbia Law School Blue Sky Blog.
Growing Pains: The Effect of Labor Mobility on Corporate Investment over the Business Cycle, with John (Jianqiu) Bai and Ashleigh Eldemire.
We show that firms located in states with greater labor mobility, captured by variation in state courts’ enforcement of covenants not to compete, increase investment more during economic expansions, which results in higher sales growth rates, profits, and valuations. These results suggest that restrictions on labor mobility are an important friction that dampens growth during expansions.
Data: State-Level Covenants-not-to-Compete Enforcement Index
This dataset extends the state-level CNC enforcement index from Garmaise (JLEO, 2011) and Ertimur, Rawson, Rogers, and Warren (JAR, 2018) through 2018.
Regional Clusters and Product Market Outcomes During Turbulent Times, with Sandy Klasa and Hernan Ortiz-Molina.
We examine whether a firm’s location within a dense regional cluster of interconnected businesses affects its competitive success during periods of turbulence in product markets. Over the Great Recession and the subsequent recovery, firms in denser regional clusters experienced larger market share growth than their rivals in less dense clusters, especially in more competitive industries. They also faced lower uncertainty and achieved superior performance by investing more in physical assets, organizational and knowledge capital, and customer relationships. Ultimately, their greater resiliency and agility led to significant increases in their valuations, highlighting the importance of competitive advantages associated with regional agglomeration.
