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In this article we examine whether and how changes in personal bankruptcy laws, viewed as a shock to employees’ expected personal wealth, affect corporate policies. Following a reform in personal bankruptcy laws that limits individuals’ access to bankruptcy protection, firms more affected by this regulation reform increase labor costs, reduce investment, and engage in less risk taking. The effects are stronger when employees have more bargaining power. Furthermore, firms in industries characterized by high unemployment risk reduce leverage. These results support the view that firms choose more conservative policies to mitigate employees’ expected welfare losses.

This article develops a model that can accurately forecast the volatility of Taiwan stock returns and efficiently estimate value-at-risk (VaR). Because the volatility in the Taiwan stock market has been shown to die down and shift quickly, we find that the model able to outperform others is one that allows the parameters of the volatility models to switch between regimes and conditional volatility to revert quickly to near-normal levels following extremely volatile periods. Compared with nested models, this model has the best performance in terms of the statistical fit of in-sample data and out-of-sample volatility forecasts and VaR estimates.

Previous studies document a strong organization capital effect in stock returns. We investigate whether and how research and development (R&D) activities affect this organization capital effect. We find that the organization capital effect is stronger in firms with R&D activities. The annual abnormal return of the hedge portfolio sorted by organization capital is 2.41% for R&D firms but only 0.41% for non-R&D firms. Further analyses show that the organization capital effect can be attributed to R&D characteristics rather than R&D risk factors.