[We examine the conflicts of interest and the flow of information between divisions of financial institutions. Using data on analyst recommendations and stockholdings of investment banks advising acquirers in mergers, we find evidence that information from investment banking flows to other divisions of the bank. Specifically, following a merger announcement, changes in a bank's stockholdings of the acquirer are positively associated with changes in recommendations by its analyst. This relationship, however, does not exist before the merger announcement. Additional tests show that the relationship between stockholdings and recommendations following a merger announcement is strongest when conflicts of interest for analysts are likely the smallest.]

[We study financial contracting using transactions from the private investments in public equity market. Our tests show that the use of terms that are contingent on an issuer's future performance increases with issuer risk. Among issuers with poorer stock performance, higher cash burn rates, and more uncertain investment prospects, purchase discount-only contracts are uncommon and contracts with contingent terms are frequently used. Our evidence also supports arguments that issuer bargaining power with investors erodes as financing alternatives grow more limited. In particular, terms that can transfer control to investors are most commonly used by issuers in the weakest financial condition.]

We study financial contracting using transactions from the private investments in public equity market. Our tests show that the use of terms that are contingent on an issuer’s future performance increases with issuer risk. Among issuers with poorer stock performance, higher cash burn rates, and more uncertain investment prospects, purchase discount-only contracts are uncommon and contracts with contingent terms are frequently used. Our evidence also supports arguments that issuer bargaining power with investors erodes as financing alternatives grow more limited. In particular, terms that can transfer control to investors are most commonly used by issuers in the weakest financial condition.

This paper studies the hedging policies of oil and gas producers between 1992 and 1994. My evidence shows that the extent of hedging is related to financing costs. In particular, companies with greater financial leverage manage price risks more extensively. My evidence also shows that the likelihood of hedging is related to economies of scale in hedging costs and to the basis risk associated with hedging instruments. Larger companies and companies whose production is located primarily in regions where prices have a high correlation with the prices on which exchange‐traded derivatives are based are more likely to manage risks.

This study examines the sensitivity of equity values of oil producers to changes in the uncertainty of future oil prices. We document that this sensitivity is negatively correlated with a firm's debt ratio and its production costs. These results indicate that companies that are more likely to experience financial distress or underinvestment from low cash flows are adversely affected by increases in the uncertainty of future cash flows. We conclude that corporate risk management can increase shareholder value by reducing the expected costs of financial distress and underinvestment.

We examine the conflicts of interest and the flow of information between divisions of financial institutions. Using data on analyst recommendations and stockholdings of investment banks advising acquirers in mergers, we find evidence that information from investment banking flows to other divisions of the bank. Specifically, following a merger announcement, changes in a bank's stockholdings of the acquirer are positively associated with changes in recommendations by its analyst. This relationship, however, does not exist before the merger announcement. Additional tests show that the relationship between stockholdings and recommendations following a merger announcement is strongest when conflicts of interest for analysts are likely the smallest.

Abstract We study bank policies to limit lending to companies engaged in mountaintop removal (MTR) coal mining, a form of coal extraction that has raised many environmental concerns. Using the staggered introduction of these policies, we document that these policies did not lead to meaningful changes in average bank lending or MTR mining. However, larger banks, banks that are under media pressure, and banks operating in the affected states are more likely to reduce MTR loans. Our results are consistent with the hypothesis that banks announced these policies under pressure and to improve their green credentials. (JEL G21, G28, G32) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract We analyze how incentives affect the reporting of fair values using mutual funds’ valuations of Level 3 equity holdings. We conjecture that the observed stickiness of reported values arises because funds defer revaluation until they can make a sufficiently compelling and objective case to avoid costly accusations of aggressive valuation. Consistent with our conjecture, we find that funds’ revaluations of the same security are clustered in time and tightly distributed, and revaluations of non-traded securities are more likely when market returns are larger and the source of those returns is less subjective. In addition, consistent with a greater concern for overvaluation, we document that funds are more likely to reduce valuations of these holdings when market returns are negative. Finally, given the stickiness of valuations, we provide evidence that funds exploit valuation discretion to improve performance rankings through the timing of revaluations rather than through the levels of new values.

Abstract This paper examines the relation between the performance and valuations of publicly traded subsidiaries in the United States and the ownership stake of their parent companies. Cross-sectional and time-series tests demonstrate that subsidiaries of parents that own a substantial minority stake exhibit negative peer-adjusted operating performance and are valued at a 23% median discount relative to peers. In contrast, majority-owned and fully divested subsidiaries show no abnormal performance or valuations. The results of our study indicate that the association between parent ownership and subsidiary performance is nonlinear and that some parents behave opportunistically toward their publicly traded subsidiaries.