Krishnamurthy Subramanian - Academia.edu (original) (raw)
Papers by Krishnamurthy Subramanian
thank Hanh Le and Chandrasekhar Mangipudi for excellent research assistance. Labor Laws and Innov... more thank Hanh Le and Chandrasekhar Mangipudi for excellent research assistance. Labor Laws and Innovation Stringent labor laws can provide firms a commitment device to not punish short-run failures and thereby spur their employees to pursue value-enhancing innovative activities. Using patents and citations as proxies for innovation, we identify this effect by exploiting the time-series variation generated by staggered country-level changes in dismissal laws. We find that within a country, innovation and economic growth are fostered by stringent laws governing dismissal of employees, especially in the more innovation-intensive sectors. Firm-level tests within the United States that exploit a discontinuity generated by the passage of the federal Worker Adjustment and Retraining Notification Act confirm the cross-country evidence.
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I theoretically and empirically show that dismissal laws laws that impose hurdles on firing of em... more I theoretically and empirically show that dismissal laws laws that impose hurdles on firing of employees spur innovation and thereby economic growth. Theoretically, dismissal laws make it costly for firms to arbitrarily discharge employees. This enables firms to commit to not punish short-run failures of employees. Because innovation is inherently risky and employment contracts are incomplete, dismissal laws enable such commitment. Specifically, absent such laws, firms cannot contractually commit so ex-ante. The commitment provided by dismissal laws encourages employees to exert greater effort in risky, but path-breaking, projects thereby fostering firm-level innovation. I provide empirical evidence supporting this thesis using the discontinuity provided by the passage of the federal Worker Adjustment and Retraining Notification Act. Using the fact that this Act only applied to firms with 100 or more employees, I undertake difference-indifference and regression discontinuity tests t...
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The Journal of Law and Economics, 2018
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SSRN Electronic Journal, 2015
We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs fac... more We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs face problems of information asymmetry because banks’ operations are opaque and bank risk can change dramatically in a short time. These CEOs may therefore change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting in which CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.
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SSRN Electronic Journal, 2012
Abstract: Venture Capitalists (VCs) differ significantly from one another with respect to the non... more Abstract: Venture Capitalists (VCs) differ significantly from one another with respect to the non-financial resources--from business expertise to the network of contacts with potential suppliers, customers, employees and IPO underwriters--they offer their portfolio firms. In ...
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SSRN Electronic Journal, 2004
I would like to thank my advisors Marianne Bertrand, Wouter Dessein, Milton Harris, Raghuram Ra... more I would like to thank my advisors Marianne Bertrand, Wouter Dessein, Milton Harris, Raghuram Rajan and especially Luigi Zingales for their encouragement, support and guidance and participants at the University of Chicago workshop on Theory of Organizations and the Corporate ...
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SSRN Electronic Journal, 2011
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SSRN Electronic Journal, 2012
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SSRN Electronic Journal, 2014
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SSRN Electronic Journal, 2013
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SSRN Electronic Journal, 2012
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SSRN Electronic Journal, 2012
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SSRN Electronic Journal, 2011
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SSRN Electronic Journal, 2011
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SSRN Electronic Journal, 2013
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Review of Financial Studies, 2009
We argue that when bankruptcy code is creditor friendly, excessive liquidations cause levered fir... more We argue that when bankruptcy code is creditor friendly, excessive liquidations cause levered firms to shun innovation, whereas by promoting continuation upon failure, a debtor-friendly code induces greater innovation. We provide empirical support for this claim by employing ...
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Review of Financial Studies, 2013
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Journal of Financial Economics, 2013
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The Journal of Law and Economics, 2013
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Derivation of E’s payoff at date 1.5 If the project fails, the payoff equals zero, which leads to... more Derivation of E’s payoff at date 1.5 If the project fails, the payoff equals zero, which leads to no motivation for F to hold up E. Now, consider the case when the project is successful. If F can successfully fire E, then F ’s outside option by producing with E ′ equals A (given competitive labor markets, F gets the entire payoff in its bargaining with E′). If F cannot fire E, then F ’s outside option equals zero. Since F can fire E successfully with probability (1 − µ) , the expected value of F ’s outside option equals (1 − µ)A. Since E cannot produce without F, E’s outside option is always zero. Using 50:50 Nash bargaining, it follows that E’s payoff at date 1.5 equals 0.5µA. Lemma The optimal project maximizes the aggregate payoff of firm and employee.
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thank Hanh Le and Chandrasekhar Mangipudi for excellent research assistance. Labor Laws and Innov... more thank Hanh Le and Chandrasekhar Mangipudi for excellent research assistance. Labor Laws and Innovation Stringent labor laws can provide firms a commitment device to not punish short-run failures and thereby spur their employees to pursue value-enhancing innovative activities. Using patents and citations as proxies for innovation, we identify this effect by exploiting the time-series variation generated by staggered country-level changes in dismissal laws. We find that within a country, innovation and economic growth are fostered by stringent laws governing dismissal of employees, especially in the more innovation-intensive sectors. Firm-level tests within the United States that exploit a discontinuity generated by the passage of the federal Worker Adjustment and Retraining Notification Act confirm the cross-country evidence.
Bookmarks Related papers MentionsView impact
I theoretically and empirically show that dismissal laws laws that impose hurdles on firing of em... more I theoretically and empirically show that dismissal laws laws that impose hurdles on firing of employees spur innovation and thereby economic growth. Theoretically, dismissal laws make it costly for firms to arbitrarily discharge employees. This enables firms to commit to not punish short-run failures of employees. Because innovation is inherently risky and employment contracts are incomplete, dismissal laws enable such commitment. Specifically, absent such laws, firms cannot contractually commit so ex-ante. The commitment provided by dismissal laws encourages employees to exert greater effort in risky, but path-breaking, projects thereby fostering firm-level innovation. I provide empirical evidence supporting this thesis using the discontinuity provided by the passage of the federal Worker Adjustment and Retraining Notification Act. Using the fact that this Act only applied to firms with 100 or more employees, I undertake difference-indifference and regression discontinuity tests t...
Bookmarks Related papers MentionsView impact
The Journal of Law and Economics, 2018
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2015
We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs fac... more We examine the effects of chief executive officer (CEO) turnover in banks. Incoming bank CEOs face problems of information asymmetry because banks’ operations are opaque and bank risk can change dramatically in a short time. These CEOs may therefore change bank policies to manage their personal risks. Since CEO turnover is usually endogenous, we utilize a setting in which CEO turnover is based solely on retirement age and is thus exogenous to bank performance. Consistent with our thesis, incoming CEOs increase provisioning for future delinquencies and shrink lending. Bank stock prices decline following these changes. Politically motivated lending or ever-greening cannot explain our results.
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2012
Abstract: Venture Capitalists (VCs) differ significantly from one another with respect to the non... more Abstract: Venture Capitalists (VCs) differ significantly from one another with respect to the non-financial resources--from business expertise to the network of contacts with potential suppliers, customers, employees and IPO underwriters--they offer their portfolio firms. In ...
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2004
I would like to thank my advisors Marianne Bertrand, Wouter Dessein, Milton Harris, Raghuram Ra... more I would like to thank my advisors Marianne Bertrand, Wouter Dessein, Milton Harris, Raghuram Rajan and especially Luigi Zingales for their encouragement, support and guidance and participants at the University of Chicago workshop on Theory of Organizations and the Corporate ...
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2011
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SSRN Electronic Journal, 2012
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SSRN Electronic Journal, 2014
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SSRN Electronic Journal, 2013
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SSRN Electronic Journal, 2012
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SSRN Electronic Journal, 2012
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SSRN Electronic Journal, 2011
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SSRN Electronic Journal, 2011
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SSRN Electronic Journal, 2013
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Review of Financial Studies, 2009
We argue that when bankruptcy code is creditor friendly, excessive liquidations cause levered fir... more We argue that when bankruptcy code is creditor friendly, excessive liquidations cause levered firms to shun innovation, whereas by promoting continuation upon failure, a debtor-friendly code induces greater innovation. We provide empirical support for this claim by employing ...
Bookmarks Related papers MentionsView impact
Review of Financial Studies, 2013
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Journal of Financial Economics, 2013
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The Journal of Law and Economics, 2013
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Derivation of E’s payoff at date 1.5 If the project fails, the payoff equals zero, which leads to... more Derivation of E’s payoff at date 1.5 If the project fails, the payoff equals zero, which leads to no motivation for F to hold up E. Now, consider the case when the project is successful. If F can successfully fire E, then F ’s outside option by producing with E ′ equals A (given competitive labor markets, F gets the entire payoff in its bargaining with E′). If F cannot fire E, then F ’s outside option equals zero. Since F can fire E successfully with probability (1 − µ) , the expected value of F ’s outside option equals (1 − µ)A. Since E cannot produce without F, E’s outside option is always zero. Using 50:50 Nash bargaining, it follows that E’s payoff at date 1.5 equals 0.5µA. Lemma The optimal project maximizes the aggregate payoff of firm and employee.
Bookmarks Related papers MentionsView impact