In the Eye of the Storm Firms and Capital Destruction in India

This paper examines the response of firms to capital destruction, using a new measure of firm exposure to tropical storms as a negative exogenous shock on firms’ capital stock. Drawing on a panel of Indian manufacturing firms between 1995 and 2006, we establish that, depending on their strength, storms destroy up to 75.3% of the fixed assets of the median firm (in terms of its productivity and industry performance). We quantify the response of firm sales within and across industries and find effects akin to Schumpeterian creative destruction, where surviving firms build back better. Within an industry, the sales of less productive firms decrease disproportionately more, while across industries capital destruction leads to a shift in sales towards more performing industries. This build-back better effect is driven by firms active in multiple industries and, to a large extent, by shifts in the firm-level production mix within a firm’s active set of industries. Finally, while there is no evidence that firms adjust by investing in new industry lines, firms tend to abandon production in industries that exhibit lower comparative advantage.

The effects of fiscal stimulus: firm-level evidence from selective temporary consumption tax cuts

The paper investigates the effects of temporary consumption tax cuts for selected durables in Turkey in 2009 using firm-level data. Our empirical strategy exploits variation in firm exposure to the tax cuts and at the same time controls for unobserved industry- and region-specific shocks to address potential endogeneity. Using data on the change of sales of firms that benefited from this measure and of those that did not over different periods, we find positive and robust effects of consumption tax cuts on the change of firm sales. In line with theoretical predictions, we also find a reversal of these effects following the expiration of the tax cuts.

How Does Corporate Governance Influence Hedging Strategy? An Empirical Study

This paper investigates the influence of corporate governance on the choice of hedging instruments. Using a panel data of 370 firm-year observations from gold mining industry, we found that boards with a strong presence of institutional investors as directors were more likely to defend shareholders’ interests in decisions on how to hedge firm exposure. Results also indicated that firms whose managers had risk incentives induced by stock options were more likely to use insurance strategies (put options), while CEO equity ownership was positively correlated with linear hedging (forwards, spot-deferred contracts, and gold loans).

Delayed Adoption of Rules: A Relational Theory of Firm Exposure and State Cooptation

The state creates and changes rules that coerce firms, but firms can delay or decouple responses to rule changes to manage the cost of demands. Theory of compliance to the state has not yet considered the degree to which the firm can delay adoption because of low exposure to rules and state links that allow cooptation, but both of these relations between state power and firm ability to counteract it can affect the adoption decision. This makes the response to state rule changes a more strategic outcome than the theory of coercive isomorphism implies. We develop a relational theory of delayed firm compliance to a state rule change that considers firm exposure due to discrepancy from the rule and firm cooptation of the state due to state links, and we test the theory by examining the adoption of the split-share structure reform, a state-mandated corporate governance reform among listed firms in China. We find that exposure and cooptation influenced the speed of adoption and the decoupling from reform intentions. We also found that their effects on firm response to coercion weaken when the new rule becomes institutionalized. Our theory of delayed compliance is also likely to apply to coercive pressure from other powerful organizations than the state.