Essays in Household and Corporate Finance

Ring, Marius Alexander Kalleberg

doi:https://doi.org/10.21985/n2-y63y-wd20

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Essays in Household and Corporate Finance

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This dissertation addresses questions in the fields of household finance and corporate finance. In Chapter 1, I use a quasi-experiment in Norway to examine how households respond to capital taxation. The introduction of a new wealth assessment methodology in 2010 led to geographic discontinuities in household exposure to wealth taxes, along both the extensive and intensive margins. I exploit this novel variation using rich administrative data and a Boundary Discontinuity approach. In contrast to existing work, I find that exposure to wealth taxes has a positive effect on saving as well as a positive effect on labor earnings. For each additional NOK subject to a 1 percent wealth tax, households increase their yearly financial saving by 0.04 NOK. This increase in saving is largely financed by increased labor earnings. My results imply that income effects may dominate substitution effects in household responses to (net-of-tax) rate-of-return shocks, which has important implications for both optimal capital taxation and monetary policy. In Chapter 2, I provide evidence that shocks to the wealth of business owners during the Financial Crisis had large effects on their firms' financing, employment and investments. I utilize Norwegian ownership registers to link investors to both private and public firms. By observing investors' exact holdings of listed stocks, I am able to quantify idiosyncratic shocks to their wealth during the Financial Crisis of 2008–09. I then trace out the effects to the private firms they own and the workers they employ through ownership and employer-employee registers. I find that private firms whose owners suffered large wealth losses during 2008–09 were less likely to receive more equity financing, and experienced large reductions in employment growth and investments. These investment and employment effects are primarily driven by young firms, who, relative to mature firms, obtain considerably less bank financing following an owner wealth shock. Utilizing the employment registers, I decompose employment growth into separations and new hires, and find that the effect primarily manifested itself through a reduction in hiring, and conditional on hiring new workers, young firms were significantly less likely to hire college educated workers. My results show that the procyclicality of entrepreneurial wealth is an important amplifier of adverse economic shocks, and that stock market crashes affect the real economy.

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