Research

Corporate Lobbying and Returns to Non-Lobbying Industry Competitors (revised October 2023)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3297712 

This paper shows that corporate lobbying generates within-industry effects. Firms that do not lobby experience negative stock returns around the passage of new federal bills and resolutions that attract more lobbying from their competitors. To show that the value losses are related to lobbying, I use plausibly exogenous variation in lobbying intensity generated by lawsuits against lobbyists hired to represent the lobbying firms. The aggregate losses per one piece of legislation are up to $4.9B. They are larger in concentrated industries, and with more product differentiation between lobbying and non-lobbying firms. The non-lobbying firms account for over 65% of the number of publicly listed firms, and they are typically smaller and have fewer resources than their lobbying rivals. I show that these differences manifest in two entry barriers to lobbying in form of: (i) economic and voting power of firms in electoral areas of bill sponsors; and (ii) capture of trade associations by members that also lobby individually.

NEW: Do Trade Associations Matter to Corporate Strategies? with Gerard Hoberg

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4575314 

This paper uses textual analysis and plausibly exogenous instruments based on geographic networks to assess the role of trade associations in forming corporate strategies. Companies are most likely to join trade associations when innovative opportunities have declined, and they are older and larger. Joining associations helps members to increase profits and markups, improve risk management, find acquisition partners and improve efficiency. To assess mechanisms regarding higher profits, we consider high dimensional analysis of geographic market exclusivity using firm-pairs and hundreds of strategic decisions to operate in specific markets. We find that members of associations jointly avoid entering geographic markets when peers have already entered. Overall we find strong support for the conclusion that associations bring positive and mutually beneficial gains to their members and their industries, and some evidence of an externality in the form of anti-competitive market-exclusion strategies.

Corporate Litigation, Governance, and the Role of Law Firms with Allen Ferrell, Alberto Manconi, Will Powley, and Luc Renneboog (R&R, Journal of Accounting Research)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3931487

Corporations pay out large settlements to their shareholders and other plaintiffs as compensation for corporate governance failures. Hired to achieve and improve settlements, plaintiff law firms can play a central role in litigation outcomes. We provide the first systematic evidence of their performance. In our novel comprehensive dataset, top plaintiff law firms (“stars”) capture 48% larger settlements. Defendant corporations’ litigation insurance coverage is also 39% larger, suggesting assortative matching of stars with lawsuits that have ex-ante large expected payoffs. Stars’ visibility and information advantage vis-à-vis less sophisticated plaintiffs help sustain their market share.

Underwriting Competition and Bargaining Power in the Corporate Bond Market with Alberto Manconi, and Luc Renneboog 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3098005

We study the impact of underwriter competition on corporate bond contracts. We develop a new measure of underwriter power and a novel empirical approach, based on the underwriter’s comparative ability to place bonds. When an issuer has few "outside options" to take his bond to the market, the underwriter enjoys a stronger bargaining power over the issuer. The key feature of our approach is that underwriter power varies within a given underwriter at a given point in time across different issuers, allowing us to separate the effects of power from those of reputation and certification with a fixed effects strategy. Using our measure, we document that powerful underwriters are able to extract rents at the expense of bond issuers, in the form of higher fees, issuance yield spreads, and underpricing. Issuers facing underwriters with the highest bargaining power have a $1.5 million higher issuance cost, or about 16% relative to the average issue. A number of checks rule out alternative explanations based on certification, loyalty, and omitted issuer and/or issue characteristics. Our findings suggest that lack of underwriter competition results in material costs for corporate bond issuers.