Purchase obligations are forward contracts with suppliers and are used more broadly than traded commodity derivatives. This paper is the first to document that these contracts are a risk management tool and have a material impact on corporate hedging activity. Firms that expand their risk management options following the introduction of steel futures contracts substitute financial hedging for purchase obligations. Contracting frictions, such as bargaining power and settlement risk, as well as potential hold-up issues associated with relationship-specific investment, affect the use of purchase obligations in the cross-section, as well as how firms respond to the introduction of steel futures.

We investigate whether incentives to join the Fortune 500 affect corporate decisions. Firms closer to the cutoff appear to take actions to join the list by engaging in more mergers and acquisitions activity, bidding for larger targets, and paying higher takeover premia. Further, the relation is stronger for firms with more-entrenched chief executive officers, and the stock market reaction to bids is worse when bidders are close to the Fortune 500’s cutoff. A 1994 methodological change by Fortune acts as an exogenous shock for identification. Our results suggest that firms try to increase revenues to join the Fortune 500 but that such actions adversely affect shareholders.

Abstract We investigate whether suppliers adjust innovative supply chain investment following stock market signals about customers’ economic prospects. We show that suppliers increase R&D and investment in customer-related patents after positive market reactions to customers’ new product announcements. A battery of falsification tests suggest that spurious factors are unlikely to explain our results. Market signals about customers appear more important when information asymmetry is greater, when suppliers face greater competitive threats, and when suppliers are financially unconstrained. Our evidence suggests that the stock market can be a viable source of information to mitigate supply chain frictions. (JEL G14, G30, L14)

We examine how access to bank credit affects trade credit in the supplier–customer relationships of U.S. public firms. For identification, we use exogenous liquidity shocks to supplier firms in the form of staggered changes to interstate bank branching laws. Using a variety of tests, we show that supplier firms with greater access to banking liquidity offer more trade credit to their customers. We also show that when bank branching restrictions are relaxed in the supplier’s state, the supplier–customer relationship is more likely to survive.

This paper tests the proposition that higher tournament incentives will result in greater risk-taking by senior managers in order to increase their chance of promotion to the rank of CEO. Measuring tournament incentives as the pay gap between the CEO and the next layer of senior managers, we find a significantly positive relation between firm risk and tournament incentives. Further, we find that greater tournament incentives lead to higher R&D intensity, firm focus, and leverage, but lower capital expenditures intensity. Our results support the hypothesis that option-like features of intra-organizational CEO promotion tournaments provide incentives to senior executives to increase firm risk by following riskier policies. Finally, the compensation levels and structures of executives of financial institutions have received a great deal of scrutiny after the financial crisis. In a separate examination of financial firms, we again find a significantly positive relation between firm risk and tournament incentives.

Abstract Using hand-collected data on CEO noncompete agreements (NCAs), we find that NCAs are less common when CEOs expect to incur greater personal costs from reduced job mobility and more common when firms expect to suffer greater economic harm if departing CEOs leave to work for a competitor. Additionally, turnover-performance sensitivity is stronger when CEOs have NCAs. Finally, total compensation and incentive pay are higher if CEOs have more enforceable NCAs. Our identification strategy exploits staggered state-level changes in NCA enforceability. Overall, our findings suggest that restrictions on job mobility have important implications for how CEOs are monitored and compensated.

Abstract We hypothesize that corporate takeover markets create significant constraints for short sellers. Both short sellers and corporate bidders often target firms with declining economic prospects. Yet, a target firm’s stock price generally increases upon a takeover announcement, resulting in losses for short sellers. Therefore, short sellers should require higher rates of return when the takeover likelihood is higher. Consistent with this prediction, the return predictability of monthly short interest increases with industry-level takeover probability and decreases as takeover defenses are implemented. Our results suggest that efficient takeover markets create trading frictions for short sellers and can therefore inhibit overall market efficiency.

Purchase obligations are forward contracts with suppliers and are used more broadly than traded commodity derivatives. This paper is the first to document that these contracts are a risk management tool and have a material impact on corporate hedging activity. Firms that expand their risk management options following the introduction of steel futures contracts substitute financial hedging for purchase obligations. Contracting frictions, such as bargaining power and settlement risk, as well as potential hold-up issues associated with relationship-specific investment, affect the use of purchase obligations in the cross-section, as well as how firms respond to the introduction of steel futures. Received May 31, 2016; editorial decision March 17, 2017 by Editor David Denis.