UBC Theses and Dissertations
Essays in corporate finance, labour economics, and political economy Xu, Sheng-Jun
This thesis presents a collection of essays on the intersection of finance, labour, and political economy. In Chapter 2, I exploit the 2003 reduction in the legislative cap for the H-1B visa program to show that a firm’s ability to hire skilled workers affects corporate investment. U.S. firms use the H-1B program to recruit foreign skilled (college-educated) workers, and I find that the reduction in the cap caused a significant decrease in investment for firms that were more reliant on H-1B workers as a source of skilled labour. The effect persists for several years, and is more pronounced for firms hiring workers in “industrial” occupations compared with firms hiring workers in “knowledge” occupations. The remaining essays examine how political incentives affect the policies of U.S. public-sector defined benefit pension plans. In Chapter 3, I present novel empirical evidence that “pension deficits”—the difference between liability accrual rates and asset accumulation rates—are systematically higher in gubernatorial election years. This electoral cycle pattern is explained by systematic dips in governmental contributions, and plans that exhibit larger electoral cycles tend to experience deteriorating funding levels and lower economic growth. Falsification tests, including analysis of private-sector DB pension plans and unexpected Governor transitions, indicate that non-political factors are unlikely to explain the documented electoral cycles. In Chapter 4, I present a theoretical model detailing how electoral incentives induce incumbent politicians to borrow from public pension plans in a short-sighted manner at the expense of taxpayers. Using a career concerns model framework, I show this conflict is rooted in (1) moral hazard stemming from protections that insulate employees from the costs of unfunded pension liabilities, and (2) information asymmetry stemming from the opacity of public pension plans. The model generates predictions consistent with empirical findings from Chapter 3. Specifically, electoral cycles in pension deficits are more pronounced for states that place the burden of funding unfunded pension liabilities on taxpayers, and for states with less transparent public pension systems. Furthermore, pension deficits are larger during elections that are more closely contested and during gubernatorial terms in which the incumbent remains eligible to run for re-election.
Item Citations and Data
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