Working papers

Going Public and the Internal Organization of the Firm

with B. Lochner, S. Obernberger, and M. Sevilir

We examine how firms adapt their organization when they go public. To conform with the requirements of public capital markets, we expect IPO firms to become more organized, making the firm more accountable and its human capital more easily replaceable. We find that IPO firms transform into a more hierarchical organization with smaller departments. Hiring is strongest in jobs requiring knowledge in finance, accounting, and management. New hires are better educated, but less experienced than incumbents, which reflects the staffing needs of a more hierarchical organization. Employee turnover is sizeable and directly related to changes in hierarchical layers. Wage inequality increases in public firms as they become more hierarchical. Overall, going public is associated with a comprehensive transformation of the firm’s organization which becomes geared towards operating efficiently and in accordance with capital market standards.

Illiquid Equity, Labor Mobility, and Talent Allocation

Job Market Paper

Using stock market shocks to randomize the completion of a firm’s liquidity event, I provide evidence that illiquid equity constrains labor mobility and talent allocation. I find that illiquidity reduces the mobility of employees with vested equity, while employees with unvested equity remain unaffected. The lock-in effect of illiquidity for vested employees is distinct from the well-known retention effect of unvested equity. I show that, by reducing labor mobility, illiquidity interferes with the assortative re-matching of talent in the economy. Recent trends of innovative startups staying private for longer can impose an externality on the broader economy by trapping employees in sub-optimal employer matches.

Decomposing Within-Firm Wage Inequality

with C. Lin, B. Lochner, and T. Schmid

Using matched employer-employee data from Germany, we show that wage differences among employees who perform similar tasks (horizontal wage inequality, HWI) and employees who perform different tasks (vertical wage inequality, VWI) contribute equally to the overall wage inequality within firms. While VWI can be almost exclusively explained by the remuneration for employee characteristics (e.g., ability or education), these employee heterogeneities explain only about three-quarters in HWI. The remaining unexplained quarter is positively correlated with the existence of profit sharing programs, written employee assessments, written employee targets, firm profitability, and monitoring costs measured by the task complexity of an occupation and the size of an establishment or firm. These findings suggests that pay-for-performance schemes are a plausible explanation for the quarter of HWI that is not related to employee characteristics.

Customer Concentration and the Upstream Propagation of Idiosyncratic Shocks: Evidence from Labor Strikes


This paper studies the role of customer concentration in the upstream propagation of idiosyncratic firm-level shocks. I utilize major labor strikes as idiosyncratic disruptions of large firms with multiple suppliers. I find that strike-hit customers impose a substantial output loss on their suppliers. The negative effect increases with suppliers’ direct dependence on disrupted customers. Moreover, suppliers’ output loss is amplified by additional indirect links that exist if suppliers sell products to other companies whose business also depends on the large disrupted customer. Overall, these results show that customer concentration increases the vulnerability of production networks to idiosyncratic firm-level shocks.

Municipal Bankruptcy and the Economic Costs of Financial Contagion

with L. Knauer

This paper examines whether one municipality’s bankruptcy exposes other local governments to economic costs of financial contagion. To disentangle the bankruptcy’s effect from the general economic trend, we identify idiosyncratic bankruptcies using a narrative approach. We show that non-bankrupt municipalities issue less debt following the bankruptcy. To identify the economic consequences of the limited credit market access, we exploit ex-ante heterogeneity in local governments’ maturity of long-term debt. We find that high fractions of maturing debt lead to lower government spending, as well as to lower tradable employment. Overall, our results suggest that bankruptcy as resolution mechanism deteriorates the development of other municipalities that rely on debt financing.

Do Outside Directorships Influence CEO Decision Making? Evidence from Labor Strikes

with T. Schmid

CEO outside directorships are an important phenomenon; however, little is known about their influence on managerial decision making. We investigate how CEOs react after they observe, as a director of another firm, a labor strike that is plausibly exogenous to their firm. They increase cash holdings shortly afterwards, most likely due to an overreaction to the more salient strike risk. In the long run, CEOs adjust their labor negotiations. Consistent with observational learning, they offer higher wages during contract negotiations and manage to reduce strike risk. These results suggest that outside directorships can facilitate both behavioral biases and observational learning.