Does the threat of takeover affect default risk?

We examine the impact of the threat of takeovers on default risk. Using a sample of 50,189 firm-year observations for US firms over the period 1990–2015, we find that the threat of takeovers has a negative relation with default risk. We use difference-in-difference analysis to address potential endogeneity concerns and propensity score matching to control for self-selection bias. The results are robust to alternative measures of default risk and exclusion of the dot com and financial crisis periods. Our results also hold after controlling for Governance Index and Entrenchment Index. We identify improvement in performance and earnings quality in response to the threat of takeovers as channels underlying our main result. The effect of the threat of takeovers on default risk is more pronounced for firms with opaque information environment and low institutional ownership. Our findings provide important insights for the market for corporate control as a disciplining mechanism in reducing default risk.     

Understanding the variation in estimates of off-farm labour supply elasticities: A meta-analysis

The design of rural development policies and government programmes in support of farm operations and farm households relies on precise estimates of off-farm labour supply elasticities. However, the wide variation in estimates dilutes their power to predict the magnitude of these targeted interventions. We perform a meta-analysis of estimates of off-farm labour supply elasticity to identify systematic factors that influence these estimates. A sample of 137 elasticities is obtained from 43 studies which use data ranging from 1960 to 2012. We examine theoretical assumptions, data availability and empirical specifications, and other study-specific characteristics. Controlling for potential publication bias, we estimate that the elasticity is approximately 0.64 to 0.77. Results of the analysis show that estimates are affected by modelling choices controlling for self-selection and life-cycle elements. However, we found no compelling evidence that study-specific characteristics of off-farm labour supply functions, including various measurements of labour supply, explain variation in the elasticities.