I document that the right tail of the firm size distribution systematically thickens with economic development. To rationalize this fact, I develop a parsimonious idea search model in which both aggregate growth and the firm size distribution are endogenously determined. The model features an asymptotic balanced growth path along which Gibrat's law holds at each date, and the right tail of the firm size distribution thickens monotonically toward Zipf's law. The model also implies that policies favoring large firms can improve welfare by better utilizing the diffusion externalities arising from idea search.

Using a large international sample of firms, we examine the relation between carbon management ability (CMA) and firm-level climate risk exposure. We find that CMA is negatively associated with climate risk exposure. More importantly, we show that firms with high-CMA managers tend to achieve a reduction in climate risk exposure through enhancing regulatory compliance (evidenced by fewer stakeholder rights violations), reducing environmental, social, and governance-related controversies, investing in research and development, undertaking more investment in environmental initiatives, and cultivating a favorable corporate culture. Cross-sectional analyses indicate that the negative association between CMA and climate risk exposure is stronger for firms in carbon-intensive sectors and firms with a dedicated corporate sustainability committee. Further, we reveal that CMA exerts a greater influence on climate risk exposure in stakeholder-oriented countries and in countries that have signed the Paris Agreement. Finally, we reveal that firms with high-CMA managers tend to have better financial performance. Overall, our findings indicate that CMA plays a crucial role in driving firms towards more sustainable and responsible business practices, leading to better corporate performance and enhanced corporate reputation.

ABSTRACT: We argue that reductions in shareholder taxes should lower the cost of equity capital more for financially constrained firms than for other companies. Consistent with this prediction, we find that, following the 1997 (TRA) and the 2003 (JGTRRA) cuts in U.S. individual shareholder taxes, financially constrained firms enjoyed larger reductions in their cost of equity capital than did other firms. The results are consistent with the incidence of the tax reductions falling mostly on firms with both pressing needs for capital and disproportionate ownership by individuals, the only shareholders who benefited from the legislations. The paper provides a partial explanation for the seemingly puzzling finding that, following the unprecedented 2003 reduction in dividend tax rates, non-dividend-paying firms outperformed dividend-paying firms. The results suggest that it was not dividend status that mattered, but financial constraint, a common attribute of non-dividend-paying companies. Data Availability: Data are available from public sources identified in the study.