Knowledge that Transforms

We develop a theory of stakeholder governance examining how green stakeholders influence organizations. Conflicts of interest arise from heterogeneous green preferences and intensify as they diverge. Changes in green preferences can generate unexpected outcomes by shifting control rights: greener stakeholders may reduce organizational sustainability, while browner ones might enhance it. We show that a top-down approach consistently improves organizational sustainability, while a bottom-up approach can harm it. We also uncover an asymmetry in compensation and delegation decisions between green and brown principals, driven by the public good nature of social payoffs. These findings have implications for manager–employee, investor–entrepreneur, and board–CEO relationships.

I study how bankruptcy law firm advertisements affect household credit, exploiting the borders of local TV advertisement media markets. I document a significant advertising effect on filing rates and subsequently show that ad exposure is associated with better financial outcomes. I then characterize how ad-induced filers are different from existing filers in terms of case, financial, and credit variables. I find that ad-induced filers are more likely to receive a discharge, file with lawyer representation, and be first-time filers. I interpret these findings as evidence that bankruptcy law firm advertisements help mitigate frictions in the bankruptcy decision.

We construct Environmental, Social, and Governance (ESG) scores for U.S. active equity mutual funds using roughly 500 metrics across ESG issues and rating agencies. Under a revealed-preference framework, we use machine learning to identify issues driving fund flows and generate ESG-driven flows as proxies for ESG performance. We estimate expected benchmark-adjusted returns using ex-post realized returns and ex-ante measures. Better-ESG funds attract larger subsequent flows and face fewer redemptions after poor performance, yet have lower expected returns, indicating flows reflect investor ESG preferences rather than high-return beliefs. Investors effectively pay $48 million more annually for a top-ESG fund.

A variety of timing strategies shown to generate alpha and high Sharpe ratios at the monthly horizon exhibit substantially deteriorated performance at longer investment horizons. The effect is large: multi-factor alphas are more than halved going from one-month to 10-year returns, and factors that exploit time-series predictability drive them to zero. I argue that such return dynamics reflect compensation for exposure to shocks that are particularly risky from a long-horizon investor’s perspective. I illustrate the idea by showing that seasonality in the volatility of price-of-risk and expected-cash-flow shocks generates seemingly profitable timing strategies.

This paper investigates the role of rights offerings in U.S. Chapter 11 reorganizations as a new market-based mechanism for mitigating bargaining frictions. Using novel hand-collected data, I document three facts: (i) over the past two decades, rights offerings financed 35% of large bankruptcies, (ii) they are predominantly proposed and underwritten by hedge funds, and (iii) their occurrence is highly correlated with stock market performance. In an instrumental variable setting, I find that compared with other sources of financing, rights offerings lead to higher creditor recoveries, shorter reorganization durations, and lower refiling rates. They also allow firms to access new capital without resorting to asset liquidations, which are value-reducing. My findings suggest that by alleviating key bargaining frictions in large and complex bankruptcy cases, rights offerings may improve the efficiency of resource allocation in the economy.

We propose a novel identification strategy to estimate the long-term imprinting effects of being born in the Great Recession on innovative startups. After purging ubiquitous selection biases and sorting effects, we find that recession startups experience substantially better long-term outcomes in terms of survival and growth in employment and sales, despite being born when funding is scarce and demand is declining. In contrast to prior work, we find that the recession does not encourage entry into entrepreneurship as job prospects dim; instead, it discourages exit by critical R&D workers who help recession startups out-innovate and out-perform expansion startups.