We provide novel evidence of the role of investor sentiment in determining firms' capital structure decisions from three perspectives: leverage ratio, debt maturity and leverage target adjustment. We find that when investor sentiment is high, firms increase their leverage ratios, supporting our contention that high investor sentiment increases firms' debt capacity and facilitates the use of an aggressive leverage policy. Debt maturity is shorter in high sentiment periods, implying that firms are confident about future earnings and use shorter debt maturity to signal their financial solvency. Leverage target adjustment is slower in low sentiment periods, indicating higher costs of external finance. Furthermore, the sentiment-leverage relationship sensitivity is greater for financially constrained firms. Our extended analysis determines that leverage-increasing firms generate lower stock returns subsequent to a period of high sentiment, offering practical insights into the economic consequences of increasing leverage in high sentiment periods on corporate value for investors. Our research advances the understanding of the impact of investor sentiment on firms' financing decisions and stock returns.

This paper documents significant cross-return predictability of news variables, derived from textual analysis of news articles, for a broad cross-section of currencies. By employing forecasts based on the Least Absolute Shrinkage and Selection Operator (LASSO) that incorporate both news variables and forward discounts, we develop a notably profitable trading strategy. This strategy proves robust against transaction costs, risk adjustments, and controls for currency characteristics. Further analyses indicate that both risks and market frictions contribute to the profitability of the trading strategy, highlighting the crucial role of news in financial markets.

We examine the effect of co-opted boards on corporate misconduct and document a significant positive relationship. Utilising a large sample of public U.S. companies from the period 2001 to 2015, we find that a one standard deviation increase in the proportion of co-opted directors on a board leads to a 4.3% rise in corporate misconduct. This outcome is robust to a series of sensitivity tests and continues to hold after accounting for potential endogeneity concerns. Further analyses indicate that co-opted directors propose fewer board agenda items, exhibit lower attendance at board meetings, and receive compensation packages in excess of industry norms, which exacerbate stakeholder-agency conflicts. Cross-sectional analysis demonstrates that the documented relationship is most pronounced among firms with weak external monitoring, greater CEO-board social ties, boards whose members have high career concerns, and where CEO power is low. Additional tests reveal that co-opted directors engage in more environmental- and workplace-related violations than other types of stakeholder violations. Overall, our investigation generates original evidence that the presence of co-opted directors aggravates the incidence of corporate wrongdoing. Our study contributes to the continuing debate on the role of boards of directors and has policy implications for those responsible for devising and monitoring effective systems of corporate governance.

We examine sunshine-induced mood and its impacts on investors' bidding decisions in the primary market where seasoned equities are offered. Analyzing a unique database that records seasoned equity offerings (SEOs) investors' locations, identities, and bidding information, we examine the degree to which sunshine exerts an influence on investors' bidding behaviors (and subsequently SEO discounts) from two dimensions: sunshine intensity and duration. We find that investors exposed to stronger sunshine intensity or longer sunshine duration submit a higher bid price for SEOs, thus leading to lower offer discounts. We also find that mood misattribution and risk-taking act as channels to rationalize such a sunshine effect. Our moderating analyses indicate that the documented impact strengthens in the case of greater uncertainty, less-frequent bidders, retail investors, and lower levels of investment. These sunshine effects impact failed bids, SEO participation and SEOs' long-term performance. Our study provides original evidence that investors in the primary market can be influenced by a sunshine-induced mood, which, in turn, determines the cost of equity financing.

This study investigates the impact of heightened investor attention on stock price manipulation. To establish causality, we employ daily repeated quasi-natural experiments, where investors’ attention is influenced exogenously by price rounding rather than by stocks’ fundamental information. Our findings demonstrate that stocks included in the Winner List attract significant investor attention, which leads to increased stock price manipulation. A two-stage channel analysis reveals that this increased investor attention exacerbates stock price manipulation through noise trading. Moreover, the positive relationship between investor attention and stock price manipulation is more pronounced in stocks with higher firm-specific information asymmetry, fewer rational investors, weaker external monitoring, higher costs of arbitrage, and non-shortability. Additional analyses indicate that this positive relationship intensifies during periods of heightened investor sentiment, greater economic policy uncertainty and increased geopolitical risk. Our study provides original evidence that the saliency of information exacerbates stock price manipulation and destabilizes financial markets.