Knowledge that Transforms

This paper examines how bank loans evolve following unexpected deposit flows. Using bank-level U.S. commercial banks' data, we show that while large banks' lending is largely unaffected, loans at small banks significantly change after deposit shocks. Furthermore, the extent of this change among small banks depends on their exposure to off-balance-sheet liquidity risk, proxied by the level of unused commitments. Small banks with higher off-balance sheet exposures tend to extend fewer new loans following positive deposit shocks, suggesting that liquidity absorbed from the failure of other banks or market disruptions might not as easily be lent again to borrowers. Overall, these findings emphasize how off-balance-sheet risks can constrain the credit supply channel, even in the presence of liquidity surpluses.

We examine how variation in trade distortions across countries and industries is associated with the investment behavior of private equity funds, taking explicit account of their country and industry mandates. We use a sample of 9142 transactions across 60 countries and 52 industries completed by 1623 PE funds during 2010–2020. Overall, we find a negative and statistically significant association between trade policies that restrict imports in a given country-industry combination and the odds of a PE fund investment in that market. This association differs by trade policy instrument. We observe a positive and statistically significant link between tariffs and the likelihood of investment in the affected country-industry combination. In contrast, subsidies to import-competing firms are negatively associated with investment.

Firms’ green technology investments are increasingly important for competitive positioning, yet their impact on long-run performance remains unclear. Using electricity capacity data for global utility firms, we construct a unique structural measure of technological greenness based on renewable versus fossil fuel physical infrastructure. We find that adopting sustainable technologies is followed by a long-run improvement in corporate fundamentals that is only partially reflected in stock prices, yielding superior returns over a multi-year horizon. These results partly reflect higher revenue growth in liberalized retail markets rather than investor sentiment, revealing a consumer-based mechanism that likely extends to competitive downstream sectors.