We document that the convenience yield of U.S. Treasuries exhibits properties consistent with a hedging perspective of safe assets, that is, Treasuries are valued highly if they appreciate with poor aggregate shocks. In particular, the convenience yield tends to be low when the covariance of Treasury returns with the aggregate stock market returns is high. A decomposition of the aggregate stock‐bond covariance into terms corresponding to the convenience yield, the frictionless risk‐free rate, and default risk reveals that the covariance between stock returns and the convenience yield itself drives the effect in a substantive capacity.
I show how firms optimize the allocation of charitable funds around investments that require external stakeholder support, such as mergers and acquisitions. Acquirers increase donations to target‐related charities before making a takeover offer, but scale funds back after withdrawing from a deal. Firms redistribute funds from nontakeover‐related areas to target insider–affiliated charities, employee communities, and counties with a regulatory presence. Targeted donations that encourage blockholder reciprocity and employee commitment are associated with better deal performance through decreased merger premiums and lower integration costs. Overall, the results highlight firms’ use of philanthropy to manage stakeholder relations in takeover decisions.
To study competition, innovation, and industry dynamics that arise as a result of their interaction, we develop a new oligopolistic general-equilibrium Schumpeterian growth model. This model ties together the endogenous growth, oligopolistic competition, and dynamic industrial organization literatures in a single unified framework. Within each industry, there are an endogenously determined number of large firms (“superstars”) that compete á la Cournot and a continuum of small firms which collectively constitute a competitive fringe. Firms dynamically choose their innovation strategies, cognizant of other firms' choices, and their entry and exit are endogenous. The model is consistent with the macroeconomic trends observed in the United States since the 1970s, such as the domination of industries by a small number of superstar firms, the rise of markups, market concentration, profits, and R&D spending, and the decline in business dynamism, productivity growth, and the labor share. It replicates the empirical relationship between innovation and competition within and across industries. As an application, we estimate the model to disentangle the effects of separate mechanisms on the structural transition observed in the United States, which yields striking results: (1) While the increase in the average markup causes a significant static welfare loss, this loss is overshadowed by the dynamic welfare gains from increased innovation in response to higher profit opportunities. (2) The increasing costs of innovation are found to be the primary determinant of lackluster productivity growth, i.e., ideas are getting harder to find.
Key audit matters (KAMs) increase the salience of uncertainty surrounding the underlying accounts. We examine KAMs related to uncertain tax positions (UTPs), which highlight potential concerns to external stakeholders about uncertain tax planning activities such as multinational income shifting. Increased scrutiny may reduce the expected benefits of these strategies and discourage firms from pursuing them. Using KAM disclosures in the expanded audit reports, we find that group-level KAM disclosures are associated with a decline in multinational income shifting when the KAMs relate to UTPs. This relation is stronger when firms are financially unconstrained, when the institutional environment features strong tax enforcement, and when KAMs highlight specific risk statements and auditors provide explicit assurance. Overall, our findings reveal a novel and potentially unintended real effect of expanded audit reports: the salience of tax-related KAM disclosures influences multinational tax planning, highlighting broader consequences of this regulatory intervention. Data Availability: Data are available from the public sources cited in the text.
The Global Intangible Low-Taxed Income (GILTI) provision, enacted under the 2017 U.S. tax reform, aimed to deter profit shifting by U.S. multinational corporations (MNCs) but has raised concerns about unintended incentives to shift tangible investments abroad. Using an ex ante identification strategy based on public financial statements, we document that an average MNC increases foreign tangible investment by approximately $256.2 million relative to 2017 levels to minimize GILTI tax. Although this finding could raise concerns that firms are reducing domestic tangible investment for foreign expansion, we find no significant decline in domestic tangible investment. Furthermore, we find GILTI firms increase both foreign and domestic innovation, including capital-intensive technologies. The positive domestic innovation spillovers support the intended effect of the U.S. tax reform in boosting domestic economic growth. Our evidence reveals how international tax provisions, though aimed at curbing profit shifting, can simultaneously create unintended incentives.
Central banks increasingly disclose their private information regarding the economy’s current and future state (CBET). Consistent with CBET shifting investors’ collection and pricing of aggregate-level (where managers do not have an information advantage) toward firm-level (where managers do have an information advantage) information, we find that CBET reduces managers’ learning from stock price. The results are (1) pronounced when firms do not provide guidance and when noise trading in firms’ stock is low, and (2) robust to using the 2013–2014 amendments to the Bank of England’s Inflation Report as an exogenous shock. Additional evidence suggests that CBET lowers investment efficiency.
Using résumé data on over 20 million U.S. workers, we find that the flow of employees between a pair of firms sharply drops by about 20% during periods in which the firms share a board director. This relationship is stronger in settings where firms have greater potential gains from limiting worker mobility and is most pronounced for higher-skilled employees. Moreover, we find more connected firms have lower rates of internal promotion and no improvements in employee satisfaction. The evidence is consistent with shared directors serving as a mechanism for labor market coordination.
When financial constraints bind, firms adjust employment in response to cash flow shocks. A 2010 revaluation of business rates, a UK tax levied on business-occupied properties, implied that similar firms, occupying similar properties in narrow geographical locations, experienced different tax changes. I find that, on average, for every ￡1 of additional cash flow triggered by the tax change, 39 pence were spent on employment, with small and leveraged firms responding the most. I use these findings to discipline a general equilibrium model with firm heterogeneity and financial frictions and quantitatively determine the aggregate effects of a fiscal transfer to firms.