Knowledge that Transforms

Environmental and social (ES) funds in non-ES families must balance incorporating the stakeholders’ interests they advertise and maximizing shareholder value favored by their families. We find that these funds support ES proposals that are far from the majority threshold, while opposing them when their vote is more likely to be pivotal. This strategy results in a high average support for ES proposals, seemingly consistent with their fiduciary responsibilities, while opposing contested ES proposals. This greenwashing strategy is driven by ES funds in non-ES families who cater to institutional investors. Indeed, these funds experience lower inflows when providing low average support for ES proposals. This strategic voting is not exhibited in governance proposals, nor by ES funds in ES families or by non-ES funds in non-ES families, reinforcing the notion of strategic voting to accommodate family preferences while appearing to meet the fiduciary responsibilities of the funds.

We test the effect of going public on economic growth in the areas surrounding initial public offering (IPO) firms. We compare the effects of IPO filers that complete their IPOs with those that do not, using post-filing stock market fluctuations as an instrument for IPO completion. We show that IPOs that are large relative to the size of their counties lead to a 1.1 percentage point relative reduction in annual county-level establishment growth, with similar effects for employment and population growth. There are no corresponding effects for relatively small IPOs. These negative effects appear to be driven by a crowding out of local sector peers, but the crowding out also disrupts local agglomerations and slows down growth among other businesses that rely on local demand. Overall, our results indicate that macroeconomic gains from IPOs trade off against disruptions in local agglomeration economies where public firms originate.

In common-law systems, firms’ litigation risk depends both on written laws and how courts interpret these laws. Using 321 US circuit court rulings, we introduce a novel measure capturing courts’ attitudes toward defendants in securities lawsuits. Our results confirm that financial misreporting firms in more defendant-friendly circuits face fewer lawsuits. Consistent with lower expected litigation costs, firms in these circuits face less negative market reactions when misreporting is revealed, invest less in preventing misreporting, and are more likely to engage in aggressive misreporting. We conclude that defendant-friendly precedents reduce firms’ legal liability and worsen their financial reporting quality.

Traders may run on financial markets merely out of fear of future liquidity shocks. We present a model that shows that adequately calibrated circuit breakers can prevent such coordination failures by curbing excessive trading. It suggests a novel, forward-looking circuit breaker that becomes most restrictive in cases when expected welfare losses of inefficient market runs are largest. The probabilities of current and future liquidity shortages are important determinants for such welfare-optimized circuit breakers. We empirically illustrate how to calibrate these parameters. We also determine under which economic conditions circuit breakers damage welfare and should not be implemented.

Using a comprehensive dataset of Italian small and medium-sized enterprises, we find that differences between private and public information on firm creditworthiness affect the decision to issue bonds. Our evidence supports favorable (rather than adverse) selection in corporate bond markets. Specifically, holding public information constant, firms with better private fundamentals are more likely to access bond markets. These effects are weaker for opaque firms and stronger for firms with worse publicly observable risk. Additionally, credit conditions improve for issuers following the bond placement, compared with a matched sample of non-issuers. This is consistent with a model where banks offer more flexibility than markets during financial distress and firms use market lending to signal credit quality to outside stakeholders.

I analyze time series momentum along the Treasury term structure. Yield curve momentum is primarily due to changes in the level factor of yields. Because yield changes are partly induced by changes in the federal funds rate, yield curve momentum is related to post-FOMC (Federal Open Market Committee) announcement drift. The momentum factor is unspanned by the information in the term structure today and is hence inconsistent with standard term structure, macrofinance, and behavioral models. I argue that the results are consistent with a model with unpriced longer term dependencies.

The corporate bond market is larger, more illiquid, and presumably less efficient than the equity market. These features provide numerous profit opportunities for corporate bond mutual funds that are unique to the corporate bond market. However, whether corporate bond mutual funds have the valuation skills needed to take advantage of these opportunities is unclear. We introduce a novel measure to assess the valuation skills of investment-grade corporate bond mutual funds, which we refer to as the valuation accuracy score (VAS). VAS recognizes funds holding more underpriced and less overpriced corporate bonds as ex-ante having better valuation skills. It predicts future fund performance, is stable over time, and is unrelated to other sources of skill. Investors chase the performance of higher-VAS funds more aggressively and exhibit a convex flow–performance relation among these funds.

Panic-based (non-fundamental) spikes in depositors’ attention can be a source of bank fragility in theory, but separating such spikes from underlying fundamentals is challenging empirically. Using online search data, we show that during the Global Financial Crisis, UK banks facing surges in attention respond by increasing retail deposit rates, but only for instant withdrawal deposits. Exploiting variation across brands owned by the same bank (and thus sharing the same fundamentals), we find that banks respond even when surges are not justified by fundamentals. In addition, comparing onshore and offshore deposits by the same brand, we show that bank response is substantially stronger when the lack of deposit insurance and a larger presence of wholesale depositors magnifies potential losses to depositors.

We present results from an experiment where participants have access to automated trading algorithms, which they may deploy at will while still trading manually. Treatments differ in whether robots must not be halted, deployment is compulsory, or robots can be halted and replaced at will. We hypothesize that robot trading would reduce mispricing, and that the effect would be more pronounced as commitment degree increases. Yet, compared to manual trading only, we observe equally large and frequent mispricing and, in early trading, significantly higher bid–ask spreads and more frequent flash crashes/price surges. Participants earn more, provided they combine robot and manual trading. Compared to evidence from archival data, we find significantly higher use of liquidity-taking robots. We attribute this to the inability, in the field, to identify the presence of liquidity takers when they happen not to trade.

This article documents the existence of an intensive margin of the gender gap in innovative entrepreneurship. Not only there are fewer women than men who become entrepreneurs, but female entrepreneurs also hold smaller equity stakes, make less substantial investments, and are less frequently appointed as firm executives compared to their male counterparts. Leveraging the context of emergency contraception deregulation in Italy and varying abortion service accessibility, I find that mitigating maternity risk narrows these gaps. Consequently, female-led firms become riskier and more attractive to venture capital investors during their early stages.