Optimal stock investment decisions rely on assessments of the distribution of expected returns. Using a representative sample, we find over half the US population cannot answer simple questions on expected stock returns. Respondents who are unable to make any return prediction, who cannot answer questions on the distribution of expected returns, or who reveal unlikely distributional beliefs participate less in the stock market and have smaller stock investments. However, overoptimistic investors are more likely to participate in the stock market and have larger stock investments. These results persist after controlling for financial literacy, intelligence, education, and demographics. People who are ignorant about stock return distribution are more likely to invest in equities if they have higher levels of trust. Therefore, trust can substitute for cognition as a factor positively associated with individuals’ propensity to invest.

We study wealth effects for a sample of 156 spin-offs from 15 different European countries that were announced between January 1987 and September 2000. The cumulative average abnormal return over the 3-day event window is 2.62%. This number increases to 2.66% for the subsequently completed spin-offs. The cumulative average abnormal return is 3.57% for completed spin-offs by companies that increase their industrial focus and only 0.76% for non-focus increasing companies. The difference between these two sub-samples is significantly different from zero. These results are in line with previous studies for the US. The long-run returns in excess of matching firms are mostly insignificant for parents, subsidiaries and pro-forma combined firms. This result suggests that, unlike US spin-offs, European spin-offs are not associated with long-run superior performance.

We study whether firms that are led by chief executive officers (CEOs) with law degrees (lawyer CEOs) have different credit ratings and costs of debt from other firms. Our sample consists of Standard & Poor’s 1500 firms from 1992 to 2020, 9.2% of which have lawyer CEOs. We find that these firms have better credit ratings, compared to other firms. On average, their cost of debt is 10% lower than that of firms led by CEOs without legal backgrounds. Our results are robust to different specifications, sampling methods, and controls, such as firm and CEO characteristics. We identify two ways that CEO expertise translates into higher credit ratings: lawyer CEOs are associated with a lower future volatility of stock returns and a reduction in information risk. The decreased business risk and better financial reporting are associated with 5% lower auditing fees for firms with lawyer CEOs.

We examine the role of award-winning CEOs in corporate innovative activities. We find no significant difference in innovation outputs between firms of media award-winning CEOs and a matched sample of predicted winners. However, firms headed by winners of non-media awards generate significantly more patents and citations in the second and third year after the award. Firms led by CEO-winners of media awards attract more interest in Google and see an increase in the number of financial analysts that follow them. These effects likely exert more pressure on managers to meet short-term goals and hence impede the firms’ innovation. We do not find the same effects for firms that have CEOs who win non-media awards. The latter category sees an improvement in employee treatment following the award year. These different channels explain why innovation only increases for firms that are headed by CEOs who win non-media awards.

We survey institutional investors about their role in capital structure decisions and views on capital structure theories. Over 82% of investors believe they influence corporate capital structure decisions, especially for smaller, younger, and more financially constrained firms. Unlike corporate managers, investors consider agency costs of free cash flow important drivers of capital structure. Investors' responses also support pecking order and market timing theories. Most investors find financial constraints important, with components of the Kaplan–Zingales and Whited–Wu indexes dominating other proxies. Overall, our findings suggest a first-order impact of investor preferences on capital structure decisions.

Do happy people predict future risk and return differently from unhappy people, or do individuals rely only on economic facts? We survey investors on their subjective sentiment-creating factors, return and risk expectations, and investment plans. We find that noneconomic factors systematically affect return and risk expectations, where the return effect is more profound. Investment plans are also affected by noneconomic factors. Sports results and general feelings significantly affect predictions. Sufferers from seasonal affective disorder have lower return expectations in the autumn than in other seasons, supporting the winter blues hypothesis.

While convertible offerings announced between 1984 and 1999 induce average abnormal stock returns of −1.69%, convertible announcement effects over the period 2000–2008 are more than twice as negative (−4.59%). We hypothesize that this evolution is attributable to a shift in the convertible bond investor base from long-only investors towards convertible arbitrage funds. These funds buy convertibles and short the underlying stocks, causing downward price pressure. Consistent with this hypothesis, we find that the differences in announcement returns between the Traditional Investor period (1984–1999) and the Arbitrage period (2000–September 2008) disappear when controlling for arbitrage-induced short selling associated with a range of hedging strategies. Post-issuance stock returns are also in line with the arbitrage explanation. Average announcement effects of convertibles issued during the Global Financial Crisis are even more negative (−9.12%), due to a combination of short-selling price pressure and issuer, issue, and macroeconomic characteristics associated with these offerings.