Transaction Sequencing and House Price Pressures. (Revise & Resubmit, Management Science)

With Plamen Nenov, Espen Moen and Artashes Karapetyan.

Abstract: We use a unique data set of individual transaction histories from Norway to show that temporary shocks to the buyer-to-seller ratio (or market tightness) caused by the transaction sequence decisions of moving homeowners – whether to buy first and then sell or vice versa – impact house prices. Using a novel shift-share IV design motivated by a simple theoretical model, we estimate that a 1 percentage point increase in the aggregate buy-first share causes house prices to increase by around 0.5 percent, time-to-sell to decrease by around 5 percent, and market tightness to increase by around 12 percent more in a local housing market that has a one standard deviation higher share of locally moving owners. Our empirical strategy allows us to estimate an elasticity of price to market tightness of around 0.1 and an elasticity of matching with respect to buyers of 0.6.

Make it or break it: Corporate Bankruptcy and Management Careers.

with Andreas Kostøl and Kasper Roszbach.

Abstract: The extent to which a corporate bankruptcy can shift the career trajectory of managers has important implications for high-skilled labor markets but has proven difficult to measure. By combining an instrumental variable approach with the random assignment of judges who differ in their propensity to liquidate firms, this paper offers novel evidence for small and medium-sized business CEOs’ careers. We show that these CEOs, when displaced in bankruptcy, are 30 pp less likely to remain in the executive labor market, experience a temporary fall in labor earnings, and a persistent, near elimination of capital income. However, displaced CEOs are quickly re-employed and move to better-paying firms, although often in lower-ranked positions. Taken together, our evidence shows that CEOs can make or break their careers due to bankruptcy events that are outside their control. We explore heterogeneity in effects and find that bankruptcy is most detrimental for longer-tenured CEOs and when a case is petitioned during times at which bankruptcy rates are low. Our findings are consistent with models of firm-specific human capital and statistical discrimination, where the labor market uses bankruptcy as a (negative) signal of managerial ability. 

Layoff Costs and Learning About Employer Financial Distress.

with Andreas Kostøl and Matthew C. Merkle.

Abstract: While many employees risk losing their job and having their career disrupted due to employers’ financial distress, it is widely recognized that many leave their employer in anticipation of layoff. In this paper, we assess how employee costs of financial distress depend on employees learning and acting on future layoff risk. To this end, we use random assignment of bankruptcy judges as an instrument for employer shutdown and administrative data on petition and quit dates to examine how earnings costs are shaped by employee reallocation. We show that shutdown causes a 24% fall in earnings over a five-year period despite one-quarter of employees having already left their firm. We document substantial heterogeneity in reallocation and earnings losses, typically displaying an inverse relationship, with higher reallocation in strong labor markets and from high-wage firms. The reallocation attenuates earnings losses by about 50%, approximately equal to the insurance from taxes and transfers. To assess the value of information, we estimate a model where risk-averse workers learn about distress, search for jobs, and access public insurance. Using the model, we calculate that employees’ willingness to pay for their current job increases by 14% when the firm is liquidated without any advance information. Our findings suggest that making firms’ financial risk information more accessible to employees can yield important benefits.