Macro-finance addresses the link between asset prices and economic fluctuations. Many models reflect the same rough idea: the market’s ability to bear risk is greater in good times, and less in bad times. Models achieve this similar result by quite different mechanisms. I contrast their strengths and weaknesses. I highlight directions for future research, including additional facts to be matched, and limitations of the models that should prod future theoretical work. I describe how macro-finance models can fundamentally alter macroeconomics, by putting time-varying risk premiums and risk-bearing capacity at the center of recessions rather than variation in the interest rate and intertemporal substitution.

This paper examines the interplay among bank liquidity creation (which incorporates all bank on- and off-balance sheet activities), monetary policy, and financial crises. We find that: (1) high liquidity creation (relative to trend) – particularly off-balance sheet liquidity creation – helps predict crises, controlling for other factors; (2) monetary policy has statistically significant, but economically minor effects on liquidity creation by small banks during normal times, and these effects are even weaker during financial crises; (3) monetary policy has very little effects on medium and large bank liquidity creation during both normal times and crises. These findings suggest that authorities may wish to monitor bank liquidity creation closely in order to predict and perhaps lessen the likelihood of financial crises. They might also consider other tools to control bank liquidity creation, such as capital and liquidity requirements.

Using detailed administrative records, we find that, on average, women receive lighter sentences in comparison with men along both extensive and intensive margins. Using parametric and semiparametric decomposition methods, roughly 30% of the gender differences in incarceration cannot be explained by the observed criminal characteristics of offense and offender. We also find evidence of considerable heterogeneity across judges in their treatment of female and male offenders. There is little evidence, however, that tastes for gender discrimination are driving the mean gender disparity or the variance in treatment between judges.

Numerous studies find that criminal court judges issue racially disparate sentences, but whether these patterns reflect tastes for discrimination remains unclear. An alternative explanation is statistical discrimination, which implies that judges rely on race to predict a felon’s latent criminality in the absence of perfect information. This paper uses an empirical approach that distinguishes between taste-based and statistical discrimination. The intuition is that if the rank order of judicial incarceration rates depends on race, then this is symptomatic of taste-based discrimination. The rank-order test results imply that we cannot reject the null hypothesis of no taste-based discrimination.

A majority of U.S. banks between 1973 and 2012 held equity capital significantly beyond the required minimum. We study the risk-return tradeoff in connection with a bank’s capital structure, and identify several new significant market factors that drive the level of equity capital in banks. During normal growth periods, bank leverage is negatively related to a level of competition and loan portfolio diversification, while high bank leverage is associated with low past liquidity. During recessions and expansions, the roles of those factors change following distortions in risk-return tradeoff. In distress, when banks approach regulatory capital requirements, market determinants of book leverage lose their significance; however, leverage does not decrease until a bank is within 1% of the minimal capital threshold.

The neoclassical theory of investment has mainly been tested with physical investment, but we show that it also helps explain intangible investment. At the firm level, Tobin’s q explains physical and intangible investment roughly equally well, and it explains total investment even better. Compared with physical capital, intangible capital adjusts more slowly to changes in investment opportunities. The classic q theory performs better in firms and years with more intangible capital: Total and even physical investment are better explained by Tobin’s q and are less sensitive to cash flow. At the macro level, Tobin’s q explains intangible investment many times better than physical investment. We propose a simple, new Tobin’s q proxy that accounts for intangible capital, and we show that it is a superior proxy for both physical and intangible investment opportunities.

Competing explanations for the long-standing gap between black and white earnings attribute different weight to wage discrimination and human capital differences. Using new data on local school quality, we find that human capital played a predominant role in determining 1940 wage and occupational status gaps in the South despite entrenched racial discrimination in civic life and the lack of federal employment protections. The resulting wage gap coincides with the higher end of the range of estimates from the post–Civil Rights era. We estimate that truly “separate but equal” schools would have reduced wage inequality by 29%–48%.

Using a difference-in-differences approach, we study how intellectual property right (IPR) protection affects innovation in China in the years around the privatizations of state-owned enterprises (SOEs). Innovation increases after SOE privatizations, and this increase is larger in cities with strong IPR protection. Our results support theoretical arguments that IPR protection strengthens firms' incentives to innovate and that private sector firms are more sensitive to IPR protection than SOEs.

Firms are under increasing pressure to implement effective internal whistleblowing systems. While firms can provide incentives to encourage internal whistleblowing, it remains controversial how such incentives should be structured. We examine whether the effectiveness of incentives encouraging internal whistleblowing is a joint function of the framing of such incentives (reward or penalty) and the strength of descriptive norms supporting internal whistleblowing. We predict and find in a lab experiment that penalties lead to a greater increase in internal whistleblowing (compared to rewards) when descriptive norms supporting whistleblowing are stronger. Our study contributes to the previous accounting literature on dishonesty and the role of management control systems design in promoting honesty and ethical norms in organizations. We also contribute to an emerging accounting literature on the links between controls, norms, and individual behavior by distinguishing between descriptive norms and injunctive norms and by highlighting the interplay between these two types of norms. Our results have important implications for organizations considering adopting incentives to encourage internal whistleblowing.