Abstract The presence of shadow banks in corporate term loan syndicates adversely affects credit lines’ liquidity provision, despite shadow banks not directly funding credit lines. Within the same syndicated loan deal, shadow banks attract not only riskier borrowers but also fewer banks as co-lenders, both in the term loan and in the credit line. Furthermore, credit lines in deals funded by shadow banks, compared to those without shadow bank participation, are smaller, with shorter maturities, and lower drawdown rates. Overall, our results highlight that syndicated loan deals with a strong presence of shadow banks offer borrowers lower liquidity protection. JEL G21, G22, G23

Does an additional year of formal education affect the decision to become an entrepreneur? Using human capital theory as a conceptual lens, we explore three channels through which it might: productivity, certification, and health impacts. To test the mechanisms and uncover whether there are causal relationships between these variables, we exploit two exogenous changes to British compulsory schooling laws that generated sharp across-cohort differences in years of education. Using a fuzzy regression discontinuity design, we estimate that the reforms significantly reduced self-employment. We go on to explore which channels best explain this finding, and discuss implications for scholars and policymakers. • A Regression Discontinuity Design is used to obtain causal estimates of the relationship between high school education and adult entrepreneurship. • The study exploits as a natural experiment legal reforms to the national minimum school leaving age in Britain. • Estimates indicate a negative relationship between an additional year of schooling and engagement in self-employment. • The findings cast doubt on the notion that the additional schooling affected self-employment through productivity or credentialing channels. • Policy implications might be most applicable to developing countries where governments are exploring whether to raise school leaving ages.

Automotive manufacturers have been under intense pressure to improve the fuel efficiency, or miles per gallon (MPG), of their internal combustion engine (ICE) vehicles. Research that explores hidden costs of continuing to push the limits of ICE MPG is sparse. We analyze the relationship between the MPG of 643 unique model-engines produced and sold by 18 manufacturers over an 18-year period and 19,785 vehicle safety defects reported to the National Highway Traffic Safety Administration (NHTSA). Each additional MPG improvement is associated with a 17.5 percent increase in safety defects. Results are confirmed when using fuel prices as an instrument for MPG. In post-hoc analyses, we find that a 2011 federal government fuel efficiency policy change explains an increase in the adoption of MPG-enhancing engine technologies, which subsequently led to an increase in safety defects. Moreover, we find that an increase in MPG is associated with an increase in safety recalls, and that safety defects mediate the relationship between MPG and safety recalls. To address selection bias concerns, we confirm our results using a separate quality reporting channel, demonstrating that increases in MPG are associated with a reduction in JD Power Quality & Reliability ratings. We also examine a key alternative explanation, that increasing MPG causes vehicles to be driven more miles, inherently leading to more defects. No evidence is found for this alternative; in fact we find the opposite to be true: an increase in MPG is associated with lower mileage at the time of the defect, indicating that increasing MPG leads to both more and faster defects. For manufacturers, our results identify an unexpected downside to striving to meet aggressive, federally mandated fuel efficiency standards: less safe vehicles. For NHTSA, our findings identify a possible contradiction in their two key objectives: sustainability and safety. Our study leads to policy recommendations, which we were fortunate to present to NHTSA’s Associate Administrator for Vehicle Safety Research and members of his staff.

Abstract A theoretical model of the borrower–lender relationship predicts that increased competitive threats lead to a reduction in loan covenant restrictiveness that is stronger for groups of borrowers who face constraints to their ability to raise external financing or compete in the product market. These predictions arise because competition impacts the dynamics of borrower performance so that lenders must trade off the benefit of controlling agency problems against a heightened cost of lost product market opportunities for the borrower, ultimately lowering the optimal use of covenants. We find strong empirical support for these predictions, highlighting an important role of competition for optimal financial contracting rooted in underlying agency problems.

Abstract Multinational firms (MNEs) dominate trade flows, yet their foreign production decisions are often ignored in firm-level studies of exporting and importing. Using newly merged data on U.S. firms’ trade and global production, we show that MNEs are more likely to trade with countries that are proximate to their affiliates. We rationalize these patterns with a new source of firm-level scale economies that arises when fixed costs to source from, or sell in, a market are shared across the MNE’s plants. These shared fixed costs create interdependencies between firms’ production and trade locations that generate third-market responses to trade policy changes.

Abstract We study how public school teachers use paid sick leave. Most US sick leave schemes operate as individualized credit accounts: Paid leave is earned, and unused leave accumulates. We construct a unique dataset of daily leave balances and behavior among 982 teachers for 2010–2018. Sick leave use increases during flu season, and evidence indicates that the average teacher does not use sick leave for leisure, though some subsets of teachers (e.g., the young and inexperienced) do. Usage increases with leave balance; the elasticity is around 0.4. Further, teachers with higher balances are less likely to work sick, particularly during flu season.

Abstract We examine Twitter discussion of sell-side analysts’ stock recommendation revisions. While many investors lack direct access to analyst research, we observe revision-related Twitter discussion associated with approximately 90 percent of the revisions in our sample, usually within three hours of their announcement. Revision-related Twitter discussion is greater for upgrades and for analysts from larger brokerages. Examining within-revision intraday price discovery, we observe increased price discovery during intraday windows with more revision-related tweets, especially for tweets that have more user engagement, are posted by more influential authors, or involve stocks with more intense retail trading volume. We find that revision-related retail trading is more intense and better predicts future returns for revisions with more revision-related Twitter discussion. We observe no such evidence for institutional investors who have direct access to sell-side research. Our results suggest that Twitter is an important channel in facilitating price discovery following analyst revisions, particularly among retail investors.