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CFGE-1: Human Capital and Firm Value
Corporate Culture as an Implicit Contract
1University of Chicago, United States of America; 2Federal Reserve Bank of New York
This paper empirically studies the role of culture as an implicit contract, using connections among coworkers as a measure of employee culture. We show that firm internal connectivity based on LinkedIn network data is strongly correlated with external ratings of employee relations and satisfaction. We then test the hypothesis that culture plays a role in implicit contracts by comparing firms' dependence on explicit contracts to retain human capital. State-level legal changes to employment agreements significantly impact weakly connected firms, but not strongly connected firms. Our results suggest that this dimension of employee culture indeed reduces the firm's dependence on explicit contracts to retain human capital.
The Effect of Financial Literacy on Financial Policies – Evidence from a Randomized Control Experiment in Mozambique
1Nova School of Business and Economics; 2Imperial College London; 3Rotterdam School of Management; 4Swedish House of Finance
A randomized controlled trial (RCT) with medium and large companies in Mozambique identiﬁes a positive treatment eﬀect of an executive education programme in ﬁnance for top managers on ﬁnancial policies and ﬁrm performance. Using survey data as well as ﬁnancial accounting data, we ﬁnd that managers adjust ﬁrm ﬁnancial policies in response to the treatment. The largest treatment eﬀects are for short term ﬁnancial policies related to working capital, which generates a positive impact on cash ﬂows due to reduction in account receivables and inventories but no observed change in account payables. We also ﬁnd a smaller but signiﬁcant positive impact on long term investment. We ﬁnd these policy changes to improve ﬁrm performance. Our results suggest that relatively small and low-cost interventions such as a short executive education programme in ﬁnance improves ﬁnancial practices and can ultimately aﬀect economic development.
The Employee Clientele of Corporate Leverage: Evidence from Employee Family Labor Income Diversification
1University of Georgia, United States of America; 2University of Massachusetts Amherst
We study the equilibrium matching between capital structure and employee job risk aversion (the “clientele effect”) by examining individual workers’ family labor income diversification. Consistent with theories, we find a robust, positive relation between a firm’s debt usage and its employees’ family labor income diversification. This relation is stronger for firms with higher labor intensity and those in financial distress. For identification, we exploit the quasi-natural experiment of California Paid Family Leave Legislation, which exogenously increases Californian employees’ family income diversification. Further, we find that higher-leverage firms recruit employees with greater labor income diversification.
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