Knowledge that Transforms

We examine how corporate misconduct affects merger and acquisition (M&A) activity of non-prosecuted peer firms. We find that exposure to peer misconduct increases the propensity to participate in M&A transactions, both as an acquirer and as a target. Firms exposed to peer misconduct experience adverse financial and valuation pressures, creating opportunities for financially stronger firms to acquire distressed rivals at discounted prices. We show that acquisitions involving targets exposed to peer misconduct are characterized by lower takeover premiums, a higher fraction of stock payment, higher acquirer announcement returns, and greater deal synergies. Overall, the evidence supports the view that misconduct spillovers disproportionately affect targets through heightened regulatory pressures and compliance costs, shifting bargaining power toward acquirers in M&A transactions.

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.

We survey 153 empirical studies of family firms and document 192 operational definitions representing 25 distinct definition types. These definitions can be decomposed into five recurring, codable dimensions: ownership, management, board representation, embeddedness, and succession. We relate these dimensions to economic mechanisms including agency conflicts, residual control rights, transaction costs, and dynastic control. Alternative definitions select systematically different populations and yield materially different estimates of firm performance and innovation. Definition choice is largely unrelated to the research question, except in succession studies. Ownership thresholds track private enforcement of self-dealing rules, but not statutory shareholder rights or rule of law. We conclude that the family firm is a family of related constructs rather than a single latent construct. Definitions should therefore match the family-firm construct implied by the research question, and results should be reported across alternative classification rules.

Public audit oversight bodies have become ubiquitous following the establishment of the U.S. PCAOB in 2002. However, despite their cost and prominence, little is known of their economic implications, if any. We examine the relation between establishment of public audit oversight bodies (POBs) and cross-border investment. Using a difference-in-differences design, we find that after a country establishes a POB, the country attracts more foreign capital. Our results suggest that total foreign portfolio investment (FPI) increases by approximately $11 billion for the average country that establishes a POB. The impact of POBs on foreign investment is dependent on the effectiveness of the POB in improving audit quality and the strength of a country’s existing institutional environment. Our study provides evidence of real economic effects of public audit oversight around the world, which adds to the literature on auditor oversight and to the broader literature on economic consequences of regulation. Data Availability: Data are available from the public sources cited in the text.

Although extensive research examines the costs and benefits of adopting new disclosure regulations, little addresses the consequences of regulatory inaction. We investigate whether firms in nonadopting countries incur additional information losses, beyond the forgone benefits, when their foreign peers adopt International Financial Reporting Standards (IFRS). Nonadopters bear an absolute liquidity cost as foreign peers adopt IFRS, consistent with negative externalities from IFRS and accompanying reforms. Exploiting heterogeneity across nonadopting countries, we observe more pronounced liquidity declines among firms with greater institutional ownership overlap with IFRS peers. This effect appears more pronounced when IFRS peers are domiciled in countries with concurrent enforcement reforms or greater comparability improvements. Further evidence shows shared intermediaries—investors and analysts—reduce information production for nonadopters as other firms in their portfolios adopt IFRS. Overall, regulatory inaction degrades information environments: resources shift to the new regime, worsening liquidity for firms in the old regime. Data Availability: Data used in this study are available from commercial sources cited in the text.

Using regression discontinuity and difference-in-differences designs to compare prices of California homes across a new wildfire risk zone boundary, I identify null effects in the immediate vicinity of the new risk zone boundary. In contrast, prices of homes newly assigned to a riskier zone drop by 5.7% further away from the new risk zone boundary. These findings suggest that households do not respond to the risk salience triggered by the new risk zone assignment. Instead, they update their risk beliefs in response to rezoning in a way that is consistent with the actual wildfire risk.

We estimate the supply-side effects of climate change on firm sales by exploiting variation in local average temperature across suppliers of the same client. A 1°C increase in temperature leads to a 2.5% decline in annual sales. This effect is nonlinear, with stronger effects among suppliers in regions with the largest temperature increases and in cooler regions. Manufacturing and heat-sensitive industries are more affected, consistent with a reduction in labor productivity and labor supply when local temperatures rise. Nondiversified and financially constrained firms are also more affected, supporting the importance of operational and financial flexibility in adapting to climate change.