This study explores the distress risk anomaly—the tendency for stocks with high credit risk to perform poorly—among 38 countries over two decades. We find a strongly negative relationship between default probabilities and equity returns concentrated among low-capitalization stocks in developed countries in North America and Europe. Although risk-based explanations provide a poor account of these patterns, several pieces of evidence point to a behavioral interpretation, suggesting that stocks of firms in financial distress are temporarily overpriced.

[CEOs with large networks earn more than those with small networks. An additional connection to an executive or director outside the firm increases compensation by about $17,000 on average, more so for "important" members, such as CEOs of big firms. Pay-for-connectivity is unrelated to several measures of corporate governance, evidence in favor of an efficient contracting explanation for CEO pay.]

Homeowners who originally bought when marketwide price levels were high (low) fetch high (low) sales prices and rents, even decades later. We study the propagation of reference-dependence to neighboring listings. The “spillover” reference point effect is about one-half as large as the “own” reference point effect. Neither house quality nor location appears capable of explaining the result. Using a simple model to provide empirical predictions, we find support for a competition-based mechanism. We quantify the aggregate effect of own and spillover reference point effects on aggregate prices and/or rents at the ZIP code level.

[We use exogenous scheduling of Wall Street Journal columnists to identify a causal relation between financial reporting and stock market performance. To measure the media's unconditional effect, we add columnist fixed effects to a daily regression of excess Dow Jones Industrial Average returns. Relative to standard control variables, these fixed effects increase the R² by about 35%, indicating each columnist's average persistent "bullishness" or "bearishness." To measure the media's conditional effect, we interact columnist fixed effects with lagged returns. This increases explanatory power by yet another one-third, and identifies amplification or attenuation of prevailing sentiment as a tool used by financial journalists.]

Over the last 20 years, the stock market indicates that value creation has become heavily concentrated in a few headquarter cities. At the same time, firms in value-creating cities have experienced declines in their profitability, because of large increases in wages and rents. Our findings thus highlight the difference between flow-based (e.g., operating profits) and stock-based (e.g., securities prices) indicators of local productivity. Conventional proxies for a city’s appeal to high value-added workers, such as education rates and weather, are positively related to stock market valuations, but negatively related to near-term operating performance.

We document lead-lag effects on returns between coheadquartered firms in different sectors. Geographic lead-lags yield risk-adjusted returns of 5%–6% annually, half that observed for industry lead-lag effects. Whereas industry lead-lag effects are strongest among small, thinly traded stocks with low analyst coverage, geographic lead-lags are unrelated to these proxies for investor scrutiny. We propose an explanation linked to the structure of the investment analyst business, which is organized by sector, not by geographic region. Our findings suggest that in lead-lag relationships, analysts common to both leading and lagging firms are important, regardless of the number of analysts covering each individually.

We use exogenous scheduling of Wall Street Journal columnists to identify a causal relation between financial reporting and stock market performance. To measure the media's unconditional effect, we add columnist fixed effects to a daily regression of excess Dow Jones Industrial Average returns. Relative to standard control variables, these fixed effects increase the R-super-2 by about 35%, indicating each columnist's average persistent "bullishness" or "bearishness." To measure the media's conditional effect, we interact columnist fixed effects with lagged returns. This increases explanatory power by yet another one-third, and identifies amplification or attenuation of prevailing sentiment as a tool used by financial journalists. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

Recent studies conflict sharply about the stock returns of financially distressed firms. Both the basic empirical pattern and interpretation have been challenged. This study addresses both critiques. Analyzing about 4.3 million firm-months observations in 38 countries from January 1992 to June 2013, we find a strong, negative link between credit risk and subsequent equity returns, concentrated among low-capitalization stocks in developed countries in North America and Europe. Comparisons between countries reveal: 1) no relation to creditor rights, inconsistent with theories based on shareholders expropriation, but 2) a strong, positive relation to individualism, a proxy for investor overconfidence. Additional analysis using within-country proxies for investor overconfidence further supports an overconfidence-based explanation.

CEOs with large networks earn more than those with small networks. An additional connection to an executive or director outside the firm increases compensation by about $17,000 on average, more so for "important" members, such as CEOs of big firms. Pay-for-connectivity is unrelated to several measures of corporate governance, evidence in favor of an efficient contracting explanation for CEO pay.

Research shows that access to high-quality financial services varies with local income and wealth. We study how financial firms’ internal allocation of human capital contributes to these disparities. Using a near-comprehensive panel of over 350,000 U.S. mortgage loan officers, we document large and persistent differences in productivity and performance. We find that firms’ hiring and promotion practices allocate workers with less experience or poor track records to branches serving low-income customers. Further, the consequences of poor performance differ by location: low sales, bad loans, and misconduct are more tolerated in low-income branches, exacerbating income-based disparities in financial services.