Prior literature examines the impact of geographically close natural disasters on top executives’ risk perceptions. Using Chinese data, this study investigates how corporate risk-taking is influenced by psychologically close disasters, which may be geographically distant. Specifically, we focus on major natural disasters that occur in places emotionally attached to CEOs or chairmen, including their hometowns and college locations. We show that top executives increase corporate risk-taking, manifested in higher return volatility and riskier corporate policies, following disasters in their geographically distant places of attachment, while no such effect is observed for close places of attachment. This effect continues into the next four to eight quarters. The increase in risk-taking is amplified when the disaster event is more salient and when the executive has a stronger connection to their distant attached places, and it is weaker for executives with better emotional resilience. Collectively, our study sheds additional light on the important role of affective connections in corporate risk decisions.

Using a large sample of firms from 43 markets, we find significant time-series variation in firms’ leverage ratios around the world. Industry median leverage ratios and aggregate leverage ratios also change substantially over time. Relative to actual leverage ratios, target leverage ratios estimated from the time-varying target models are much more stable. Variance decomposition shows that leverage instability is largely driven by deviations from the target. A number of firm and market characteristics are related to capital structure instability. We also find evidence consistent with firms using financing activities to adjust their leverage ratios towards the target in global markets.

We examine the impact of derivatives hedging on the spot market using accurate hedge ratios of covered warrants traded in the Taiwan Stock Exchange (TWSE). Results present significant positive abnormal returns and trading volumes before the announcement of a warrant’s issuance, and the effect is stronger when the hedging demand is larger. Moreover, a significantly positive relationship exists between stock return volatility and the price elasticity of hedging demand. Finally, we observe a significantly negative price effect upon the underlying stock after a call warrant has expired in-the-money due to the liquidation of hedging portfolios.

Access to firms’ innovation outputs determines the extent of knowledge spillover that poses risk to innovation appropriability. We provide plausibly causal evidence that processing costs of financial disclosures, which inform users of the economic value of innovation, play a key role in firms’ management of knowledge spillover. We exploit an exogenous, randomly assigned, and staggered policy shock by the SEC that reduces processing costs of mandatory financial disclosures. In response, firms reduce patenting rates, with the effect concentrated among firms in more competitive industries and with lower costs of capital. Firms also reduce their patent disclosure quality. Our results suggest firms rely more on trade secrecy as their innovation property protection mechanism. Lower processing costs of financial disclosures affect neither innovation inputs nor voluntary disclosure practices. Our results show that firms strategically manage access to their innovation outputs through financial disclosures, patent disclosures, and trade secrecy to curb knowledge spillover.

Our study examines how the adoption of the inevitable disclosure doctrine (IDD) across US state courts affects the relationship between leverage and CEO compensation. We find that the IDD adoption significantly attenuates the typically positive association between leverage and CEO pay. This effect is more pronounced for CEOs with higher ex-ante mobility, greater career concerns, weaker organizational influence, and higher firm-specific skills. Rejecting the IDD, on the other hand, amplifies the positive relationship between leverage and CEO pay. Our findings underscore the influence of labor market dynamics on CEO compensation.

In this article we examine whether and how changes in personal bankruptcy laws, viewed as a shock to employees’ expected personal wealth, affect corporate policies. Following a reform in personal bankruptcy laws that limits individuals’ access to bankruptcy protection, firms more affected by this regulation reform increase labor costs, reduce investment, and engage in less risk taking. The effects are stronger when employees have more bargaining power. Furthermore, firms in industries characterized by high unemployment risk reduce leverage. These results support the view that firms choose more conservative policies to mitigate employees’ expected welfare losses.

Exploiting the setting of staggered adoption of the Inevitable Disclosure Doctrine (IDD) in U.S. state courts, we examine how quasi-exogenous restrictions of outside employment opportunities affect CEO compensation structure. The IDD adoption constrains executives' ability to work for competitors, which likely decreases CEOs' tendency to take risks by increasing the cost of job loss and reducing the reward to risk taking. We expect the board to respond by increasing the sensitivity of CEO wealth to stock volatility (vega) to encourage risk taking. We find a significant increase in vega post-IDD adoption. The effect is stronger among CEOs with greater career concerns. The effect also increases with the ex ante CEO mobility and the importance of trade secrets, suggesting the board increases vega more when there is a greater reduction in CEO outside opportunities. Overall, we provide new evidence on how external labor market frictions affect the convexity of CEO compensation.