We investigate whether bank loan financing from 1994 to 2018 conveys valuable private information using a sample of over 10,000 bank loan announcements identified from 8-K filings. We show that the positive announcement effect is persistent and closely related to the information revealed in loan characteristics: The effect is stronger when deals have higher materiality, more favorable pricing, larger lead bank shares, and higher syndicate concentration. The effect is also stronger when lenders have higher credit quality and when credit market conditions are worse. The insignificant wealth effect documented in several early studies is potentially driven by small sample size.

We document spillover effects of government policies promoting capital investment on household financial choices and wealth accumulation. Using individual-level data on employment outcomes and household balance sheets, we find that increase in accelerated depreciation limits increases the layoff probability of routine workers and reduces their stock share of liquid wealth relative to non-routine workers. Background risk due to the policy is mitigated when workers have access to generous unemployment insurance benefits. Finally, we show that such portfolio rebalancing adversely impacts investment returns and the wealth accumulation of routine workers.

We identify a new mechanism of opportunistic insider trading linked to attention-driven mispricing. Insiders are more likely to sell their company’s stock during periods of heightened retail attention and more inclined to buy when attention diminishes. The results are particularly pronounced for lottery-type stocks and firms with substantial retail ownership. We demonstrate that our findings—which relate to indicators of mispricing, retail order imbalances, and Robinhood herding episodes—extend to seasoned equity issuances and cannot be solely explained by firm fundamentals. Attention-based insider trading is less likely to result in SEC enforcement actions and persists across different regulatory regimes.

We investigate whether firm-level political connections affect the allocation of exemptions from tariffs imposed on $US 550 billion of Chinese goods imported to the United States annually beginning in 2018. Evidence points to politicians not only rewarding supporters but also punishing opponents: Past campaign contributions to the party controlling (in opposition to) the executive branch increase (decrease) approval likelihood. Our findings point to quid pro quo arrangements between politicians and firms, as opposed to the “information” channel linking political access to regulatory outcomes.

We develop an extensive mapping of the revolving door phenomenon by examining the work experience of 420,153 individuals in top corporate positions at 12,869 firms. More than half of these firms have at least one such individual with prior experience in one of 187 executive branch agencies. We find that firms are more likely to receive procurement contracts following the appointment of a former regulator transitioning within 2 years of leaving the agency, a result consistent with the “knowledge” hypothesis. Less-complex contracts signed following the appointment of former regulators are more likely to be renegotiated, increasing costs for the government.

Using transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we find that CDB credit to strategic industries at the top of supply chains leads to lower prices, higher volume, and more product varieties and destinations for exports for firms in downstream industries. These positive spillovers stem from reduced intermediate goods prices and increased trade credit from upstream to downstream firms caused by CDB loans. Notably, this surge in import activity displaces U.S. firms within the same industry but bolsters downstream U.S. firms’ business performance and employment.

We use a novel experiment in China to examine the effects of having a quasi-official investor own a small number of shares on specific firm outcomes. We find that, relative to control firms, pilot firms experience an increase in dissenting votes from independent directors, a reduction in tunneling and earnings management activities, and an improvement in merger performance. Independent directors questioned by the quasi-official shareholder in activism events subsequently lose board seats in the director market. Overall, our results shed light on a new mechanism for enhancing the protection of minority shareholders.

We show cash windfalls affect the real economy by spurring entrepreneurship. We identify these effects using the Spanish Christmas Lottery, which provides a unique setting as prizes are geographically concentrated and distributed among thousands of households. We find higher start-up entry, job creation, and self-employment in winning regions. Consistent with a financial constraints channel, results are strongest in sectors relying on external finance and regions with limited credit access. Newly created firms are larger, more profitable, and survive longer. For existing firms, however, growth and profitability do not respond to lottery awards, but wages increase due to tighter labor markets.

Firms become more efficient at innovation activities when they face pressure to meet earnings per share (EPS) targets using stock repurchases. Using a regression-discontinuity framework, we find that incentives to engage in “EPS-motivated buybacks” are followed by more citations and higher values for firms’ new patents. We trace these effects to improved allocation of R&D resources and a greater focus on novel innovation. The positive effects are concentrated among ex ante “innovation-efficient” firms that achieve better patenting outcomes after reorganizing (but not cutting) their R&D investments. Our findings illustrate that short-term earnings pressure can act through a free cash flow channel that motivates more efficient spending.

Dynamic equilibrium models based on present value computation not only imply that returns are predictable but also generate particular short-term patterns of predictability in asset returns. I take advantage of this to construct a set of tests of equilibrium generated predictability (EGP). I apply the tests to document two puzzles: First, option-implied or realized measures of volatility ought to predict returns but do not; and second, the variance risk premium (VRP) predicts returns but only at long horizons. VRP fails the tests of EGP as the term structure of predictable variation is inconsistent with an equilibrium interpretation.

We examine a link between bond exchange-traded fund (ETF) creation and redemption processes and the underlying bond market liquidity. Using daily creation and redemption data, we find that including a bond in a creation or redemption basket has a favorable impact on the bond’s liquidity for both high-yield and investment-grade markets. The improvement in liquidity persists during times of market stress with this impact being stronger for redemptions than creations. Our results suggest that ETF mispricing arbitrage explains the improvement in bond liquidity. However, we also find evidence that transaction costs and bond inventory management limit the ETF arbitrage.

We find that division managers who are connected to the CEO are substantially less likely than others to depart from the firm and are more likely to be promoted. Connected managers are protected when performance is poor, and they display no special ability to improve performance given this protection. Connections matter more in weak governance/incentive environments, and the external labor market and stock market appear skeptical of connected managers’ talents. While much of the evidence suggests inefficient favoritism, connected managers are protected more in peripheral segments, suggesting a possible efficiency benefit in helping to resolve intrafirm information problems.

This study employs variance ratios (VRs) to assess the roles of regulation and liquidity on cryptocurrency market efficiency, focusing on crypto-assets subject to varying degrees of regulation. Our findings reveal that cryptocurrencies supervised by FinCEN-licensed exchanges (IEO-L) exhibit market efficiency similar to SEC-regulated traditional stock offerings (IPOs). Conversely, noncompliant crypto-assets display higher market inefficiency. We also establish a connection between regulatory compliance and issuing entity reputation mechanisms. Our results indicate that compliance with existing regulatory norms enhances efficiency and reduces investor risks in crypto-assets. Furthermore, assets voluntarily adhering to regulatory norms can attain efficiency akin to government-regulated assets.

We demonstrate that investment income taxes incentivize capital allocation to the ecofriendly green sector away from the non-ecofriendly brown sector in a stylized economy. This tax reduces the arrival intensity of climate disasters, delivers the socially optimal allocation, and can be jointly implemented with a carbon tax, expanding policymakers’ toolkit to reduce climate disasters. Extending the model with heterogeneous investors, we show that investment income taxes can obtain support from a political majority and thereby relax political constraints faced by a carbon tax alone.

Using establishment-level data, we show that COVID-19 vaccinations boost business activity and firm performance in the United States. A 10-percent increase in vaccination rates results in a 4-percent to 6-percent increase in customer visits. We document the channels through which vaccinations increase store visits and the limits to the effect of vaccines on business activity. At the firm level, vaccinations increase sales and earnings, impact expansion decisions, and decrease probability of default, but the benefits vary across businesses. Vaccinations create private economic benefits to firms, shareholders, and employees, in addition to their intended public health benefits.

We show that firms’ left-tail risk positively predicts future returns of crash insurance. We proxy crash insurance with bear spreads, an option trading strategy that profits when extreme negative returns occur. Crash insurance for high (low) left-tail risk firms earns positive (negative) returns, suggesting that the downside protection it provides is not adequately priced. Our results are mainly explained by two types of underreaction: volatility underreaction in high left-tail risk portfolios and underreaction to the persistence of left-tail risk. Disagreement partially explains our results, but a risk-based approach does not.

This article examines how realized variances predict cryptocurrency returns in the cross section using intraday data. We find that cryptocurrencies with higher variances exhibit lower returns in subsequent weeks. Decomposing total variances into signed jump and jump-robust variances reveals that the negative predictability is attributable to positive jump and jump-robust variances. The negative pricing effect is more pronounced for smaller cryptocurrencies with lower prices, less liquidity, more retail trading activities, and more positive sentiment. Our results suggest that cryptocurrency markets are unique because retail investors and preferences for lottery-like payoffs play important roles in the partial variance effects.

We use the introduction of satellite coverage of major retailers to study the capital market implications of unequal access to big data. Satellite data enabled sophisticated investors with access to such data to formulate profitable trading strategies, especially by targeting the upcoming reports of retailers with bad news for the quarter. The introduction of satellite data led to more informed short-selling activity, less informed individual buying activity, and lower stock liquidity around the reports of retailers with satellite coverage. We conclude that unequal access to big data can increase information asymmetry among market participants without immediately enhancing price discovery.

We consider a model in which the correlation between shocks to consumption and to expected future consumption growth is nonzero and varies over time. We validate this assumption empirically using the model’s implication that time variation in consumption growth persistence (CGP) drives the correlation between stock and bond returns. Our model implies that the stock–bond correlation is also related to the predictive relation between bond yields and future stock returns. Finally, we provide suggestive evidence that asset price fluctuations are the primary driver of changes in CGP.