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Session Overview
CFGE-1: Human Capital and Firm Value
Thursday, 22/Aug/2019:
8:30 - 10:00

Session Chair: Moqi Groen-Xu, London School of Economics
Location: D -107

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Corporate Culture as an Implicit Contract

Jessica Jeffers1, Michael Lee2

1University of Chicago, United States of America; 2Federal Reserve Bank of New York

Discussant: Ashwini Agrawal (LSE)

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.

efa2019-CFGE-1-2057-Corporate Culture as an Implicit Contract.pdf

The Effect of Financial Literacy on Financial Policies – Evidence from a Randomized Control Experiment in Mozambique

Claudia Custodio2, Diogo Mendes1, Daniel Metzger3,4

1Nova School of Business and Economics; 2Imperial College London; 3Rotterdam School of Management; 4Swedish House of Finance

Discussant: Luke Stein (Arizona State University)

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.

efa2019-CFGE-1-1788-The Effect of Financial Literacy on Financial Policies – Evidence.pdf

The Employee Clientele of Corporate Leverage: Evidence from Employee Family Labor Income Diversification

Jie He1, Tao Shu1, Huan Yang2

1University of Georgia, United States of America; 2University of Massachusetts Amherst

Discussant: Stephen G. Dimmock (Nanyang Technological University)

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.

efa2019-CFGE-1-1555-The Employee Clientele of Corporate Leverage.pdf

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