Theories from the economics, management control, and organizational behavior literatures predict that when it is difficult to align incentives by contracting on output, aligning preferences via employee selection may provide a useful alternative. This study investigates this idea empirically using personnel and lending data from a financial services organization that implemented a highly decentralized business model. I exploit variation in this organization in whether or not employees are selected via channels that are likely to sort on the alignment of their preferences with organizational objectives. I find that employees selected through such channels are more likely to use decision‐making authority in the granting and structuring of consumer loans than those who are not. Conditional on using decision‐making authority, their decisions are also less risky ex post. These findings demonstrate employee selection as an important, but understudied, element of organizational control systems.

Using nonparametric techniques, we develop a methodology for estimating and testing conditional alphas and betas and long-run alphas and betas, which are the averages of conditional alphas and betas, respectively, across time. The estimators and tests can be implemented for a single asset or jointly across portfolios. The traditional Gibbons, Ross, and Shanken (1989) test arises as a special case of no time variation in the alphas and factor loadings and homoskedasticity. As applications of the methodology, we estimate conditional CAPM and multifactor models on book-to-market and momentum decile portfolios. We reject the null that long-run alphas are equal to zero even though there is substantial variation in the conditional factor loadings of these portfolios.

Using a new database, we document the determinants of involuntary consumer bank account closures. During 2001–2005, approximately 30 million debit accounts were involuntarily closed for excessive overdrafting. We focus on multiple factors to explain this phenomenon: household economics and financial decision-making ability, social capital, bank policies, and the alternative financial services sector. Involuntary closures are more frequent in US counties with a larger fraction of single mothers, lower education levels, lower wealth, and higher unemployment. Closures are higher in communities with high property crime rates and low electoral participation. Bank policies have an independent relation to closures, with counties having more competitive banking markets and more multi-market banks experiencing higher closure rates; bank structure also seems to affect the speed at which banks adjust their policies to changes in household income. Finally, using both national data and a state-level shift in regulation, we find evidence that access to payday lending leads to higher rates of involuntary account closure.