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Teams and Bankruptcy Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-05-07 Ramin P Baghai, Rui C Silva, Luofu Ye
We study how the human capital embedded in teams is affected by, and reallocated through, corporate bankruptcies. After a bankruptcy, U.S. inventors produce fewer and less impactful patents. Moreover, teams become less stable. Consequently, compared to inventors that rely less on teamwork, the performance of team inventors deteriorates more. These findings point to the loss of team-specific human capital
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The Coholding Puzzle: New Evidence from Transaction-Level Data Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-05-06 John Gathergood, Arna Olafsson
Why do individuals pay debt interest when they could use their savings to pay down the debt? We explore why individuals “cohold” debt and savings using detailed and highly disaggregated daily-level data on household finances. We find that coholding mostly occurs in short spells within the month and the level of coholding is typically modest. Periods of coholding are not associated with shocks at the
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Digitalization and Retirement Contribution Behavior: Evidence from Administrative Data Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-05-02 Claudio Daminato, Massimo Filippini, Fabio Haufler
Retirement savings decisions are increasingly mediated by digital technologies that promise to help individuals plan adequately for their retirement. We exploit a natural experiment to show that introducing a digital pension application increases the probability of making a voluntary retirement contribution by 1.8 percentage points, from an average pretreatment contribution rate of 2.8%. Men and higher-income
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Blood Money: Selling Plasma to Avoid High-Interest Loans Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-04-29 John M Dooley, Emily A Gallagher
Little is known about the motivations and outcomes of sellers in remunerated markets for human materials. We exploit dramatic growth in the U.S. blood plasma industry to shed light on the sellers of plasma. Sellers tend to be young and liquidity-constrained with low incomes and limited access to traditional credit. Plasma centers absorb demand for nontraditional credit. After a plasma center opens
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Managing Mental Accounts: Payment Cards and Consumption Expenditures Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-04-22 Michael Gelman, Nikolai Roussanov
Does mental accounting matter for total consumption expenditures? We exploit a unique setting in which individuals exogenously receive a new payment card, without requesting one. Using random variation in the time of receipt, we show that individuals temporarily increase total consumption expenditure by making purchases with the new card without reducing spending on the others. We do not observe a
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Size Discount and Size Penalty: Trading Costs in Bond Markets Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-04-02 Gabor Pinter, Chaojun Wang, Junyuan Zou
We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for client identity (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation
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Bond Price Fragility and the Structure of the Mutual Fund Industry Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-22 Mariassunta Giannetti, Chotibhak Jotikasthira
We conjecture that mutual funds with large shares of outstanding bond issues are more inclined to internalize the negative price spillovers of fire sales and thus sell their holdings in those issues, to a lower extent, when they experience redemptions. We provide evidence consistent with this conjecture and further show that ownership concentration limits bonds’ exposures to flow-induced fire sales
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A Theory of the Term Structure of Interest Rates under Limited Household Risk Sharing Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-19 Indrajit Mitra, Yu Xu
We present a theory in which the interaction between limited sharing of idiosyncratic labor income risk and labor adjustment costs (that endogenously arise through search frictions) determines interest rate dynamics. In the general equilibrium, the interaction of these two ingredients relates bond risk premiums, cross-sectional skewness of income growth, and labor market tightness. Our model rationalizes
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Fractional Trading Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-19 Zhi Da, Vivian W Fang, Wenwei Lin
Fractional trading (FT)—the ability to trade less than a whole share—removes barriers to high-priced stocks and facilitates entry by capital-constrained retail investors. We observe a surge of tiny trades, measured using off-exchange one-share trades, among high-priced stocks compared to low-priced stocks after FT is introduced to the U.S. equity markets. These tiny trades, when coordinated during
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Unsmoothing Returns of Illiquid Funds Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-09 Spencer J Couts, Andrei S Gonçalves, Andrea Rossi
Funds investing in illiquid assets report returns with spurious autocorrelation. Consequently, investors need to unsmooth these funds’ returns when evaluating their risk exposures. We show that funds with similar investments share a common source of spurious autocorrelation not fully resolved by traditional unsmoothing methods and thereby leading to underestimation of systematic risk. Thus, we propose
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Digital Payments and Consumption: Evidence from the 2016 Demonetization in India Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-07 Sumit Agarwal, Pulak Ghosh, Jing Li, Tianyue Ruan
We study how consumer spending responds to digital payments, using the differential switch to digital payments across consumers induced by the sudden 2016 Indian Demonetization for identification. Digital payment use rose by 2.94 percentage points and monthly spending increased by 2.38% for an additional 10 percentage points in prior cash dependence. Spending remained elevated even when cash availability
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Equity Return Expectations and Portfolios: Evidence from Large Asset Managers Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-05 Magnus Dahlquist, Markus Ibert
Collecting large asset managers’ capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers’ equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset
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A Dynamic Theory of Lending Standards1 Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-03-02 Michael J Fishman, Jonathan A Parker, Ludwig Straub
We analyze a dynamic credit market where banks choose lending standards, modeled as costly effort to screen out bad borrowers. Tighter standards worsen the borrower pool, increasing banks’ incentives to employ tight standards in the future. This dynamic complementarity in lending standards can amplify and prolong downturns, decreasing lending and increasing credit spreads. Because lending standards
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Which Subjective Expectations Explain Asset Prices? Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-02-29 Ricardo De la O, Sean Myers
We present a method for determining whether errors in expectations explain asset pricing puzzles without imposing assumptions about the error mechanism. Using accounting identities and survey forecasts, we find that errors in expected long-term inflation explain price variation, return predictability, and the rejection of the expectations hypothesis for aggregate stock and bond markets. Errors in short-term
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Missing Data in Asset Pricing Panels Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-01-28 Joachim Freyberger, Bjoern Hoeppner, Andreas Neuhierl, Michael Weber
We propose a simple and computationally attractive method to deal with missing data in in cross-sectional asset pricing using conditional mean imputations and weighted least squares, cast in a generalized method of moments (GMM) framework. This method allows us to use all observations with observed returns; it results in valid inference; and it can be applied in nonlinear and high-dimensional settings
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Corporate Climate Risk: Measurements and Responses Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-01-17 Qing Li, Hongyu Shan, Yuehua Tang, Vincent Yao
This paper conducts a textual analysis of earnings call transcripts to quantify climate risk exposure at the firm level. We construct dictionaries that measure physical and transition climate risks separately and identify firms that proactively respond to climate risks. Our validation analysis shows that our measures capture firm-level variations in respective climate risk exposure. Firms facing high
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The Effect of Carbon Pricing on Firm Emissions: Evidence from the Swedish CO2 Tax Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-01-17 Gustav Martinsson, László Sajtos, Per Strömberg, Christian Thomann
Sweden was one of the first countries to introduce a carbon tax back in 1991. We assemble a unique data set tracking CO2 emissions from Swedish manufacturing firms over 26 years to estimate the impact of carbon pricing on firm-level emission intensities. We estimate an emission-to-pricing elasticity of around two, with substantial heterogeneity across subsectors and firms, where higher abatement costs
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Using Social Media to Identify the Effects of Congressional Viewpoints on Asset Prices Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-01-17 Francesco Bianchi, Roberto Gómez-Cram, Howard Kung
We use a high-frequency identification approach to document that individual politicians affect asset prices. We exploit the regular flow of viewpoints contained in Congress members’ tweets. Supportive (critical) tweets increase (decrease) the stock prices of the targeted firm and the corresponding industry in minutes around the tweet. The bulk of the stock price effects is concentrated in the tweets
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Credit Freezes, Equilibrium Multiplicity, and Optimal Bailouts in Financial Networks Rev. Financ. Stud. (IF 8.414) Pub Date : 2024-01-05 Matthew O Jackson, Agathe Pernoud
We analyze how interdependencies in financial networks can lead to self-fulfilling insolvencies and multiple possible equilibrium outcomes. Multiplicity arises if a certain type of dependency cycle exists in the network. We show that finding the cheapest bailout policy that prevents self-fulfilling insolvencies is computationally hard, but that the optimal policy has intuitive features in some typical
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Systemic Risk and Monetary Policy: The Haircut Gap Channel of the Lender of Last Resort Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-25 Martina Jasova, Luc Laeven, Caterina Mendicino, José-Luis Peydró, Dominik Supera
We show that lender of last resort (LOLR) policy exacerbates bank interconnectedness. Using novel micro-level data, we analyze LOLR's haircut gaps: the differences between the private market and central bank haircuts. LOLR policy incentivizes banks to increase pledging and holdings of higher haircut-gap bonds, especially those issued by domestic and systemically important banks. Effects only apply
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Are Analyst “Top Picks” Informative? Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-23 Justin Birru, Sinan Gokkaya, Xi Liu, René Stulz
Following the Global Settlement, analysts extensively use a top pick designation allowing for greater granularity of information among buy recommended stocks, but conflicts of interest can potentially influence this designation. Examining a novel sample of top picks, we find that a calendar-time portfolio of top picks generates an abnormal performance of 17.6% per year. Top picks have greater investment
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Climate Change and Adaptation in Global Supply-Chain Networks Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-09 Nora M C Pankratz, Christoph M Schiller
This paper examines how physical climate exposure affects firm performance and global supply chains. We document that heat at supplier locations reduces the operating income of suppliers and their customers. Further, customers respond to perceived changes in suppliers’ exposure: when suppliers’ realized exposure exceeds ex ante expectations, customers are 7% more likely to terminate supplier relationships
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Short Campaigns by Hedge Funds Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-08 Ian Appel, Vyacheslav Fos
The number of short campaigns by hedge funds has dramatically increased over the last two decades. Nearly 80% of campaigns are undertaken by activist hedge funds, particularly those that employ hostile tactics in their long campaigns. Short campaigns are associated with negative abnormal returns of -7%, with aggregate valuation effects similar in magnitude to the gains from long activism campaigns
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Noise in Expectations: Evidence from Analyst Forecasts Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-07 Tim de Silva, David Thesmar
Analyst forecasts outperform econometric forecasts in the short run but underperform in the long run. We decompose these differences in forecasting accuracy into analysts’ information advantage, forecast bias, and forecast noise. We find that noise and bias strongly increase with forecast horizon, while analysts’ information advantage decays rapidly. A noise increase with horizon generates a mechanical
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Banking on Carbon: Corporate Lending and Cap-and-Trade Policy Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-06 Ivan T Ivanov, Mathias S Kruttli, Sumudu W Watugala
We estimate the effect of carbon pricing policy on bank credit to greenhousegas-emitting firms. Our analyses exploit the geographic restrictions inherent in California’s cap-and-trade bill and a discontinuity in the embedded free permit threshold of the federal Waxman-Markey cap-and-trade bill. Affected high emission firms face shorter loan maturities, lower access to permanent forms of bank financing
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Selective Default Expectations Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-04 Olivier Accominotti, Thilo N H Albers, Kim Oosterlinck
This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market segmentation. We show that, when secondary debt markets are segmented, a large selective default probability can
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The Psychological Externalities of Investing: Evidence from Stock Returns and Crime Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-12-01 John R Huck
This paper investigates the psychological effects from stock market returns. Using an FBI database of over 55 million daily reported crime incidents across the United States, crime is proposed as a measure of psychological well-being. The evidence suggests that stock returns affect the well-being of not only investors but also noninvestors. Specifically, a contemporaneous negative (positive) relationship
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Disclosure of Bank-Specific Information and the Stability of Financial Systems Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-30 Liang Dai, Dan Luo, Ming Yang
We find that disclosing bank-specific information reallocates systemic risk, but whether it mitigates systemic bank runs depends on the nature of information disclosed. Disclosure reveals banks’ resilience to adverse shocks and shifts systemic risk from weak to strong banks. Yet, only disclosure of banks’ exposure to systemic risk can mitigate systemic bank runs because it shifts systemic risk from
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Health Care Costs and Corporate Investment Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-27 Joy Tianjiao Tong
Health care costs for U.S. employers have tripled over the past 20 years. Using firm-specific health expense data, I show that firms negatively adjust capital expenditures and R&D expenses in response to increases in health care costs. The effects are more pronounced for firms that are financially constrained, employ more high-skilled workers, and have less bargaining power relative to insurers. Furthermore
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Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-22 Atul Gupta, Sabrina T Howell, Constantine Yannelis, Abhinav Gupta
Amid an aging population and a growing role for private equity (PE) in the care of older adults, this paper studies how PE ownership affects U.S. nursing homes using patient-level Medicare data. We show that PE ownership leads to a patient population with lower health risk. However, after instrumenting for the patient-nursing home match, we find that PE ownership increases mortality by 11%. Declines
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Pay, Stay, or Delay? How to Settle a Run Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-22 Rafael Matta, Enrico Perotti
The classic view assumes banks prioritize immediate repayment by selling assets until default. We endogenize run frequency and study how general settlement rules trade off liquidity provision net of fire sale losses against induced run incentives. Panic runs are eliminated when all illiquid assets are sold under orderly resolution, but liquidity provision in a run is minimal. When suspension after
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Learning in Financial Markets: Implications for Debt-Equity Conflicts Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-21 Jesse Davis, Naveen Gondhi
Financial markets reveal information that firm managers can utilize when making equity value-enhancing investment decisions. However, for firms with risky debt, such investments are not necessarily socially efficient. Despite this friction, we show that learning from prices improves investment efficiency. This effect is asymmetric, however, as investors learn less about projects that decrease the riskiness
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Stress Testing and Bank Lending Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-16 Joel Shapiro, Jing Zeng
Stress tests convey information about the strictness of future tests, creating incentives for banks to alter their future lending behavior. Regulators recognize and use this influence: they may conduct softer stress tests to encourage lending or tougher stress tests to reduce risk-taking. This information management can lead to inefficiencies when (a) the test loses credibility or (b) the test becomes
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Market Discipline in the Direct Lending Space Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-11-06 Tetiana Davydiuk, Tatyana Marchuk, Samuel Rosen
Using the exclusion of business development companies (BDCs) from stock indexes, this paper studies the effectiveness of market discipline in the direct lending space. Amid share sell-offs by institutional investors, a drop in BDCs' valuations limits their ability to raise new equity capital. Following this funding shock, BDCs do not adjust their capital structure. At the same time, they are reducing
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Pay-As-You-Go Insurance: Experimental Evidence on Consumer Demand and Behavior Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-10-19 Raymond Kluender
Pay-as-you-go contracts reduce minimum purchase requirements, which may increase market participation. This paper randomizes the introduction and price(s) of a novel pay-as-you-go contract to the California auto insurance market, where 17% of drivers are uninsured. The pay-as-you-go contract increases take-up by 10.8 p.p. (89%) and days with coverage by 4.6 days over the 3-month experiment (27%). Demand
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Exchange Rate Dynamics and Monetary Spillovers with Imperfect Financial Markets Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-10-13 Ozge Akinci, Albert Queralto
We develop a quantitative model with imperfections in domestic and international financial markets that generates strong effects of U.S. monetary policy on emerging markets (EMs). Financial imperfections prevent arbitrage both between local EM lending and borrowing rates, and between local-currency and dollar borrowing rates. An adverse feedback effect between financial health and external conditions
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Gender Bias in Promotions: Evidence from Financial Institutions Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-10-12 Ruidi Huang, Erik J Mayer, Darius Miller
We test for gender bias in promotions at financial institutions using two central predictions of Becker’s (1957, 1993) model: firms with bias will (1) raise the promotion bar for marginally promoted female workers, and (2) incur costs from forgoing efficient employment practices. We find support for both of these predictions using a new nationwide panel of mortgage loan officers and their managers
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The Cost of Bank Regulatory Capital Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-10-07 Matthew C Plosser, João A C Santos
Basel I introduced capital requirements for undrawn commitments, but only for revolvers with an original maturity greater than one year. We use this regulatory discontinuity to estimate the impact of capital regulation on the cost and composition of credit. Following Basel I, short-term commitment fees declined relative to long-term commitments and issuance of short-term facilities increased. Our results
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Desperate House Sellers: Distress among Developers Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-09-29 Eileen van Straelen
I identify the effect of financial constraints on product prices using granular data on home-builder housing developments from the 2006–2009 housing crisis. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. When builders cut prices, they sell homes faster and builders cut prices more in areas in which price cuts produce larger
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Macroprudential Policy, Mortgage Cycles, and Distributional Effects: Evidence from the United Kingdom Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-09-20 José-Luis Peydró, Francesc Rodriguez-Tous, Jagdish Tripathy, Arzu Uluc
We analyze the distributional effects of macroprudential policy on mortgage cycles by exploiting the U.K. mortgage register and a 2014 15% limit imposed on lenders' high loan-to-income (LTI) mortgages. Constrained lenders issue fewer and more expensive high-LTI mortgages, with stronger effects on low-income borrowers. Unconstrained lenders strongly substitute high-LTI loans in local areas with higher
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The Market Inside the Market: Odd-Lot Quotes Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-09-19 Robert P Bartlett, Justin McCrary, Maureen O’Hara
We show current market practices relating to odd-lot quotes create a large “inside” market where better prices routinely exist relative to the National Best Bid or Offer. We show that odd-lot quotes play a price discovery role, and these quotes provide valuable information to traders with access to proprietary data feeds. Using a XGBoost machine learning algorithm that uses odd-lot data to predict
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The Effect of Political Frictions on the Pricing and Supply of Insurance Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-09-12 Jessica Liu, Weiling Liu
Political frictions significantly affect both pricing and supply in the long-term care insurance (LTCI) market. Comparing the same insurer’s requests submitted for the same policy at the same time to different state regulators, we find that they are 13% more likely to be approved and receive 4% more of the requested amount after an election year. Over time, regulatory pushback on premium increase requests
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Adverse Selection and Climate Risk: A Response to Ouazad and Kahn (2022) Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-09-12 Michael LaCour-Little, Andrey Pavlov, Susan Wachter
We identify two issues in the work of Ouazad and Kahn (2022). Correcting either reverses the original result. The two changes are to use the correct FHFA conforming loan limits for each county and year and to compare the individual loan amount to that limit correctly. There is no evidence that lenders transfer climate risk by altering loan origination and securitization behavior. None of our results
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Common Venture Capital Investors and Startup Growth Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-09-09 Ofer Eldar, Jillian Grennan
We exploit the staggered introduction of liability waivers when investors hold stakes in conflicting business opportunities as a shock to venture capital (VC) investment and director networks. After the law changes, we find increases in within-industry VC investment and common directors serving on startup boards. Despite the potential for rent extraction, same-industry startups inside VC portfolios
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Scale or Yield? A Present-Value Identity Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-31 Thummim Cho, Lukas Kremens, Dongryeol Lee, Christopher Polk
We propose a loglinear present-value identity in which investment ("scale"), profitability ("yield"), and discount rates determine a firm’s market-to-book ratio. Our identity reconciles existing influential market-to-book decompositions and facilitates novel insights from three empirical applications: (1) Both investment and profitability are important contributors to the value spread and stock return
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Existence of the Wealth-Consumption Ratio in Asset Pricing Models with Recursive Preferences Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-31 Walter Pohl, Karl Schmedders, Ole Wilms
Modern asset pricing models combine recursive preferences with complex dynamics for the underlying consumption process. The existence of solutions is for many of these models an unsettled question. This paper introduces a novel technique to prove existence and nonexistence, as well as uniqueness for models with recursive preferences. The approach applies to many models of interest, including those
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Dynamic Equilibrium with Costly Short-Selling and Lending Market Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-16 Adem Atmaz, Suleyman Basak, Fangcheng Ruan
We develop a dynamic model of costly stock short-selling and lending market and obtain implications that simultaneously support many empirical regularities related to short-selling. In our model, investors’ belief disagreement leads to shorting demand, whereby short-sellers pay shorting fees to borrow stocks from lenders. Our main novel results are as follows. Short interest is positively related to
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Diverse Hedge Funds Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-12 Yan Lu, Narayan Y Naik, Melvyn Teo
Hedge fund teams with heterogeneous educational backgrounds, academic specializations, work experiences, genders, and races, outperform homogeneous teams after adjusting for risk and fund characteristics. An event study of manager team transitions, instrumental variable regressions, and an analysis of managers who simultaneously operate solo- and team-managed funds address endogeneity concerns. Diverse
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Shareholder Monitoring through Voting: New Evidence from Proxy Contests Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-12 Alon Brav, Wei Jiang, Tao Li, James Pinnington
We present the first comprehensive study of mutual fund voting in proxy contests. Among contests where voting takes place, passive funds are 10 percentage points less likely than active funds to vote for dissidents. The gap shrinks significantly when accounting for votes withheld from management nominees, settled contests, and votes by non- “Big-Three” fund families. Passive and active funds are equally
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Cross-Selling in Bank-Household Relationships: Mechanisms and Implications for Pricing Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-12 Christoph Basten, Ragnar Juelsrud
We show that banks cross-sell future deposits and loans to existing household depositors. A bank is 20-percentage-points more likely to sell a loan to an existing depositor than to an otherwise comparable household. Existing depositors pay a premium when borrowing, and we find no indication that banks obtain an informational advantage on such borrowers, suggesting that the cross-selling is driven more
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The Rise of Star Firms: Intangible Capital and Competition Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-11 Meghana Ayyagari, Asli Demirguc-Kunt, Vojislav Maksimovic
The large divergence in the returns of top-performing star firms and the rest of the economy is substantially reduced when we account for the mismeasurement of intangible capital. Star firms produce and invest more per dollar in invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as nonstars. Star firms have higher markups
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Seller Debt in Acquisitions of Private Firms: A Security Design Approach Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-10 Mark Jansen, Ludovic Phallipou, Thomas Noe
We propose a security design model in which a potential acquirer approaches a firm with a value-add plan. The target has a single owner, who possesses private information: he alone knows whether his firm is compatible with the plan. The owner agrees that the acquirer will add value but believes that the value-add will not be as much as what the acquirer expects. Although the acquirer can choose any
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The Changing Economics of Knowledge Production Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-08-01 Simona Abis, Laura Veldkamp
Big data technologies change the way in which data and labor combine to create knowledge. Is this a modest innovation or a data revolution? Using hiring and wage data, we estimate firms’ data stocks and their knowledge production functions. Quantifying changes in production functions informs us about the likely long-run changes in output, in factor shares, and in the distribution of income, due to
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Who Mismanages Student Loans, and Why? Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-07-28 Kimberly Cornaggia, Han Xia
Many financially distressed students who qualify for federal assistance plans with interest moratorium and principal forgiveness instead accrue interest over long periods of nonpayment. This loan mismanagement is associated with higher delinquency. Mismanagement varies significantly across student gender and race: it is more prominent among male and non-white students. Mismanagement also varies across
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Business Group Spillovers Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-07-20 S Lakshmi Naaraayanan, Daniel Wolfenzon
We compare the investment of standalone firms across regions after a positive shock to the investment opportunities generated by a large-scale highway development project. We show that the standalones' investment sensitivity is lower in regions with a higher density of business groups in the local area. We investigate mechanisms driving our results and find support for a financing mechanism whereby
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The Human Factor in Acquisitions: Cross-industry Labor Mobility and Corporate Diversification Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-07-20 Geoffrey Tate, Liu Yang
The benefits of internal labor markets are largest when they include industries that utilize similar worker skills, thereby facilitating cross-industry worker reallocation and collaboration. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Such acquisitions result in larger labor productivity gains and are less often undone
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What Private Equity Does Differently: Evidence from Life Insurance Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-07-14 Divya Kirti, Natasha Sarin
This paper studies how private equity creates value and its consequences for consumer welfare in the insurance industry, where PE investments grew tenfold following the financial crisis. PE firms add value through regulatory and tax arbitrage that increases profits relative to their non-PE counterparts. Crucially, the impact on consumer welfare is nuanced: in the short run, consumers benefit from more
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The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-07-13 Jessica S Jeffers
This paper examines how labor mobility restrictions like noncompete agreements affect firms' investment decisions. Using matched employee-employer data from LinkedIn, I show that increases in the enforceability of noncompete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. Established firms that rely more on these knowledge-intensive occupations
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Mandatory Financial Disclosure and M&A Activity Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-06-17 Marcelo Ortiz, Caspar David Peter, Francisco Urzúa I, Paolo F Volpin
Taking advantage of the implementation of the 2003 European Commission (EC) directive on financial reporting, we explore the impact of mandatory financial disclosure on mergers and acquisitions (M&A). We find robust evidence that the number (and volume) of private firms becoming an M&A target increases with mandatory disclosure. Analyses of cross-industry differences, deal-level data, and post-deal
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Banks as Liquidity Multipliers Rev. Financ. Stud. (IF 8.414) Pub Date : 2023-06-17 Sylvain Carré, Damien Klossner
We characterize the interaction between banks’ liquid assets purchases and deposit issuance decisions. Using global games, we derive a liquidity multiplier: the amount of deposits a bank can create when endowed with one additional unit of liquid asset to maintain a given level of liquidity risk. In our central theorem, we prove it is larger than unity. This entails that banks have a special role in