In business research, firm size is both ubiquitous and readily measured. Complexity, another firm-related construct, is also relevant, but difficult to measure and not well-defined. As a result, complexity is less frequently incorporated in empirical designs. We argue that most extant measures of complexity are one-dimensional, have limited availability, and/or are frequently misspecified. Using both machine learning and an application-specific lexicon, we develop a text solution that uses widely available data and provides an omnibus measure of complexity. Our proposed measure, used in tandem with 10-K file size, provides a useful proxy that dominates traditional measures.

We document and explain the sharp performance deterioration of smart beta indexes after the corresponding exchange-traded funds (ETFs) are launched for investment. While smart beta is purported to deliver excess returns through factor exposures, the market-adjusted return of smart beta indexes drops from about 3% “on paper” before ETF listings to about −0.50% to −1% after ETF listings. This performance decline cannot be explained by variation in factor premia, strategic timing, or diminishing returns to scale. Instead, we find strong evidence of data mining in the construction of smart beta indexes, which helps ETFs attract flows, as investors respond positively to backtests.

Retail order imbalance positively predicts returns, but on average retail investor trades lose money. Why? Order imbalance tests equal-weighted stocks, but retail purchases concentrate on attention-grabbing stocks that subsequently underperform. Long–short strategies based on extreme quintiles of retail order imbalance earn dismal annualized returns of −14.8% among stocks with heavy retail trading but earn 6.6% among other stocks. Our results reconcile the literatures on the performance of retail investors, the predictive content of retail order imbalance, and attention-induced trading and returns. Smaller retail trades concentrate more on attention-grabbing stocks and perform worse.

We use a random forest model to classify firms’ financial constraints using only financial variables. Our methodology expands the range of classified firms compared to text-based measures while maintaining similar levels of informativeness. We construct two versions of our constraint measures, one using many firm characteristics and the other using a small set of more primitive characteristics. Using our measures, we find that institutional investors hold a lower percentage of shares in equity-focused constrained firms, while retail investors show a preference for them. Equity issuance and investment of constrained firms also increases during periods of high investor sentiment.

Banks’ information technology (IT) capabilities affect their ability to serve customers during the COVID-19 pandemic, which generates an unexpected and unprecedented shock that shifts banking services from in-person to digital. Amid mobility restrictions, banks with better IT experience larger reductions in physical branch visits and larger increases in website traffic, implying a larger shift to digital banking. Stronger IT banks are able to originate more Paycheck Protection Program loans to small business borrowers, especially in areas with more severe COVID-19 outbreaks, higher internet use, and higher bank competition. Those banks also attract more deposit flows and receive better mobile customer reviews during the pandemic.

Using a novel data set of over 3,500 public and private firms, we construct the network of executive and director connections prior to the 1929 financial market crash. We find that more connected firms have 17% higher 10-year survival rates. Consistent with a working capital channel, the results are strongest for small, private, cash-poor firms, and firms located in counties with high bank suspension rates. Moreover, connections to cash-rich firms that increase accounts receivable matter the most. Our results suggest that network connections can play a stabilizing role during a financial crisis by easing the flow of capital to constrained firms.

We study how U.S. manufacturing firms’ investment responds to tariff reductions in supplier industries. Our estimates, based on tariff reductions following multinational trade agreements, suggest that a hypothetical 10% reduction of all upstream tariffs would increase downstream investment by 4% to 6%. This estimate is not explained by decreasing uncertainty and stems from tariff reductions for homogeneous and low-R&D inputs, consistent with the investment response resulting from cost reductions rather than superior foreign technology embodied in imported inputs. Evidence from an instrumental variable estimation using the sudden increase in Chinese import penetration suggests that import competition also increases downstream investment.

We find that male participants in Harvard Business School’s New Venture Competition who were randomly exposed to more venture capital (VC) investors on their panel were substantially more likely to start a VC-backed startup post-graduation, indicating that access to investors impacts fundraising independent of the quality of ideas. However, female participants experience no benefit from exposure to male or female venture capitalists (VCs), which appears related to a reduced propensity to reach out to VCs to whom they were exposed. Our results therefore also demonstrate gender-based differences in the degree to which increased exposure to investors can address networking frictions in venture capital.

Using random H-1B visa lotteries as a natural experiment, we find that firms respond to shortages of high-skilled workers by acquiring firms that employ such workers. The effect is stronger among firms with high human capital and more senior workforces, firms facing tight labor markets and legal barriers to poaching workers, and firms lacking foreign affiliates. The acquired workers are highly educated, sharing skills and occupations similar to those of the acquirer’s existing workers. Our findings suggest skilled labor is an important driver of acquisitions and acquiring is an effective means of obtaining skilled labor.

Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of the experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and correlated earnings surprises, confirming that earnings autocorrelation is not a necessary condition for PEAD. Instead, it acts as an accelerator: PEAD is stronger when earnings surprises are correlated. We further show that market prices underadjust to fundamental value changes, and that trading strategies can profitably exploit the PEAD.

A eurozone exit or breakup exposes bondholders to currency redenomination risk. I quantify redenomination risk since the sovereign debt crisis: It contributes substantially to credit spreads around changes in government in France and Italy. Bond prices suggest that markets have priced a potential Italian exit as isolated, and a French one as a breakup. Unlike conventional default risk, redenomination risk can be negative depending on the strength of the national “shadow” currency. Countries with strong shadow currencies earn breakup-insurance premia from the eurozone analog of “exorbitant privilege.” Yield effects are quantitatively large for implied exit probabilities as low as 1%.

Do asset managers engage in friendly investing to obtain privileged investment information? We test this hypothesis in the context of mutual fund connections to financial groups. Using brokers as the source of connections, we find that funds overweight the stock of connected financial groups and side with management in contested votes. We also find that fund performance improves with the extent of friendly investing. The improvement stems from trading the stock of companies that borrow from connected financial groups. Brokerage commissions do not drive the results. Our findings suggest that funds can obtain valuable information by acting as friendly shareholders.

In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating performance. This negative effect of board–CEO trust is more pronounced among acquiring companies prone to agency problems. Our results suggest that, in the institutional setting of corporate boards, high trust can be too much of a good thing.

Consolidation in the U.S. banking industry has led to larger banks. I find that low-income households face reduced access to credit when local banks are large. This result appears to stem from large banks’ comparative disadvantage using soft information, which is particularly important for lending to low-income households. In contrast, the size of local banks has little or no effect on high-income households. Consistent with low-income parents’ credit constraints limiting investment in their children’s human capital, areas with larger banks exhibit a greater sensitivity of educational attainment to parental income, and less intergenerational economic mobility.

In a general equilibrium framework, we show that banks may “buy” political influence at a discount: They offer disproportionately small campaign contributions compared to the influence they exert, thus generating abnormal returns. We distinguish between the direct effect of contributions which, as a cost, reduce bank returns, and the indirect effect of contributions which boost returns via inducing bank-favoring policies. Therefore, abnormal returns may or may not increase with the amount of contributions, depending on which effect dominates: Stricter capital requirements decrease contributions and abnormal returns. When politicians attach more weight to households’ welfare, contributions increase and abnormal returns decrease.