This study empirically examines the role of shocks to macro-uncertainty in shaping the responses of stock market participants to firm-specific earnings news. Specifically, I find that investors place greater weight on bad news following an increase in macro-uncertainty. By contrast, I find that investors place equal weight on both good and bad news following a decrease in macro-uncertainty. Furthermore, my findings show that these effects are more pronounced (1) for firms whose prior returns are more correlated with macro-uncertainty, (2) for firms that experience abnormally low trading volume during the earnings announcement, (3) for firms with relatively lower levels of institutional ownership, and (4) for firms with relatively higher information uncertainty. In sum, these findings provide novel empirical evidence that investors behave in a manner consistent with ambiguity aversion, with the effects strongest among unsophisticated investors.

Examining banks across 27 countries, we estimate two measures of the forward-looking orientation reflected in discretionary loan provisioning practices within a country. We document that forward-looking provisioning designed to smooth earnings dampens discipline over risk-taking, consistent with diminished transparency inhibiting outside monitoring. In contrast, forward-looking provisioning reflecting timely recognition of expected future loan losses is associated with enhanced risk-taking discipline. Thus, proposals to change loan loss accounting embed significant risks of unintended consequences, as gains from reducing pro-cyclicality may be swamped by losses in transparency that dampen market discipline and increase the scope for less prudent risk-taking by banks.

This paper investigates the extent to which delayed expected loan loss recognition ( DELR ) is associated with greater vulnerability of banks to three distinct dimensions of risk: (1) stock market liquidity risk, (2) downside tail risk of individual banks, and (3) codependence of downside tail risk among banks. We hypothesize that DELR increases vulnerability to downside risk by creating expected loss overhangs that threaten future capital adequacy and by degrading bank transparency, which increases financing frictions and opportunities for risk‐shifting. We find that DELR is associated with higher correlations between bank‐level illiquidity and both aggregate banking sector illiquidity and market returns (i.e., higher liquidity risks) during recessions, suggesting that high DELR banks as a group may simultaneously face elevated financing frictions and enhanced opportunities for risk‐shifting behavior in crisis periods. With respect to downside risk, we find that during recessions DELR is associated with significantly higher risk of individual banks suffering severe drops in their equity values, where this association is magnified for banks with low capital levels. Consistent with increased systemic risk, we find that DELR is associated with significantly higher codependence between downside risk of individual banks and downside risk of the banking sector. We theorize that downside risk vulnerability at the individual bank level can translate into systemic risk by virtue of DELR creating a common source of risk vulnerability across high DELR banks simultaneously, which leads to risk codependence among banks and systemic effects from banks acting as part of a herd.

Regulators around the world have begun to require investment companies to provide information regarding fossil fuel investments to external stakeholders. In this paper we examine whether such disclosures impact the investment portfolios and/or investment policies of the disclosing firms. Using a 2016 California disclosure mandate that required some U.S. insurance companies to disclose their fossil fuel investments on a public website, we find the disclosing insurers reduced their fossil fuel investments by approximately 20 % relative to the non-disclosers. Despite this on-average result, we note significant variation in changes to investment portfolios. We find insurers pressured by external stakeholders, including public shareholders and environmental activists, are more likely to divest. In contrast, enhanced Californian regulatory oversight power is unrelated to divesture. Even after the disclosure mandate is reversed, we find the disclosing insurers do not revert to their pre-policy holdings of fossil fuel investments, suggesting the impact created a longer-term change in investment behavior.

This paper examines whether managers can reduce the detrimental effects of information overload by spreading out, or temporally smoothing, disclosures. We begin by attempting to identify managerial smoothing. We find that when there are multiple disclosures for the same event date, managers spread the disclosures out over several days. Managers are also more likely to delay a disclosure when there has been a disclosure made within the three days before the event date. Finally, managers are more likely to engage in disclosure smoothing when disclosures are longer, the information environment is more robust, firm information is complex, uncertainty is high, and disclosure news is more positive. Our second set of analyses examines whether there are market benefits to disclosure smoothing. Using two different measures of disclosure smoothing, we find that smoothing is associated with increased liquidity, reduced stock price volatility and increased analyst forecast accuracy.

We investigate whether a borrower's media coverage influences the syndicated loan origination and participation decisions of informationally disadvantaged lenders, loan syndicate structures, and interest spreads. In syndicated loan deals, information asymmetries can exist between lenders that have a relationship with a borrower and less informed, nonrelationship lenders competing to serve as lead arranger on a syndicated loan, and also between lead arrangers and less informed syndicate participants. Theory suggests that the aggressiveness with which less informed lenders compete for a loan deal increases in the sentiment of public information signals about a borrower. We extend this theory to syndicated loans and hypothesize that the likelihood of less informed lenders serving as the lead arranger or joining a loan syndicate is increasing in the sentiment of media-initiated, borrower-specific articles published prior to loan origination. We find that as media sentiment increases (1) outside, nonrelationship lenders have a higher probability of originating loans; (2) syndicate participants are less likely to have a previous relationship with the borrower or lead bank; (3) lead banks retain a lower percentage of loans; and (4) loan spreads decrease.

This paper investigates whether greater competition increases or decreases individual bank and banking system risk. Using a new text‐based measure of competition, and an instrumental variables analysis that exploits exogenous variation in bank deregulation, we provide robust evidence that greater competition increases both individual bank risk and a bank's contribution to system‐wide risk. Specifically, we find that higher competition is associated with lower underwriting standards, less timely loan loss recognition, and a shift toward noninterest revenue. Further, we find that higher competition is associated with higher stand‐alone risk of individual banks, greater sensitivity of a bank's downside equity risk to system‐wide distress, and a greater contribution by individual banks to downside risk of the banking sector.

Regulation is often proposed, developed, and finalized over a lengthy rule-making period prior to its adoption. We examine the period over which banking authorities discussed, adopted, and implemented Basel III to understand how firms respond to proposed regulation. We find evidence to suggest that affected banks not only lobbied rule-makers against it but also made strategic financial reporting changes and altered their business models in ways that reduced their exposure to the proposed rule prior to rule-makers finalizing the regulation. Further, our results indicate a sequential response, with banks responding through lobbying and strategic financial reporting prior to making business model changes. These findings highlight the interplay among firms’ financial reporting, business model, and political choices in response to proposed regulation and indicate that the appropriate date for an event study may be the regulation’s announcement date rather than its adoption or implementation dates.