Suppliers are subject to the credit risk of their customers when they sell products on credit. However, rights to the collateral value of the products they sell may mitigate some of this risk. This paper demonstrates the important role of laws that support suppliers’ rights to reclaim and liquidate collateral. Using a change in the US bankruptcy code that altered the rights of a subset of suppliers, I use a difference-in-differences setting to show that an improvement in suppliers’ rights to the liquidation value of collateral results in an increase in the amount and duration of trade credit offered. The increase in collateral protection also reduced suppliers’ lending standards, resulting in more dispersed trade credit lending and riskier customer portfolios. Finally, I find that the increase in collateral rights decreased suppliers’ incentives to monitor their customers, consistent with collateral and monitoring being substitutes. Overall, the paper shows that with strong legal protections in place, trade credit has an important collateral component.

Using quarterly data on initial public offerings (IPOs) and seasoned equity offerings (SEOs) for 37 countries from 1995 to 2014, we show that changes in equity issuance are positively related to lagged changes in aggregate local stock market liquidity. This relation is as economically significant as the well-known relation between equity issuance and lagged stock returns. It survives the inclusion of proxies for market timing, capital market conditions, growth prospects, asymmetric information, and investor sentiment. Changes in liquidity are less relevant for issuance by firms with greater financial pressures and by firms in less financially developed countries.

We examine the rise in student loan defaults in the Great Recession by linking administrative student loan data at the individual borrower level to student loan borrowers’ individual tax records. A Blinder-Oaxaca style decomposition shows that shifts in the composition of student loan borrowers and the massive collapse in home prices during the Great Recession can each account for approximately 30% of the rise in student loan defaults. Falling home prices affect student loan defaults by impairing individuals’ labor earnings, especially for low income jobs. By contrast, when comparing the default sensitivities of homeowners and renters, we find no evidence that falling home prices affect student loan defaults through a home equity-based liquidity channel. The Income Based Repayment (IBR) program introduced by the federal government in the wake of the Great Recession reduced both student loan defaults and their sensitivity to home price fluctuations, thus providing student loan borrowers with valuable insurance against negative shocks.

Elevated levels of government debt raise concerns about their effects on long-term growth prospects. Using the cross-section of US stock returns, we show that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms, and (ii) higher levels of the debt-to-GDP ratio predict higher risk premiums for high-R&D firms. Furthermore, rises in the cost of capital for innovation-intensive firms predict declines in subsequent productivity and economic growth. We propose a production-based asset pricing model with endogenous innovation and fiscal policy shocks that can rationalize key aspects of the empirical evidence. Our study highlights a novel and distinct risk channel shaping the link between government debt and future growth.

This paper examines whether employees involved in residential mortgage-backed security (RMBS) securitization experienced internal and external labor market consequences relative to similar non-RMBS employees in the same banks and why. Senior RMBS bankers experienced similar levels of job retention, promotion, and external job opportunities. Even signers of RMBS deals with high loss and misreporting rates or deals implicated in lawsuits experienced no adverse internal or external labor market outcomes. These findings are likely not explained by targeted or delayed employee discipline, small legal fines, or protection due to pending litigation but are consistent with implicit upper-management approval of RMBS activities.

This study examines whether mood affects the aggregate state-level macroeconomy through its impact on firm-level decisions. Using sky cloud cover as a proxy for mood, we show that mood affects the economic expectations of small business managers. After relatively sunnier periods, managers have more optimistic expectations, and the component of their expectations related to mood influences hiring and investment decisions. Consequently, mood affects state-level job creation and new business starts, especially during periods of greater economic uncertainty. These results suggest that mood-induced economic expectations influence firm-level managerial decisions and state-level macroeconomic fluctuations.

Employing a classic measure of technological closeness between firms, we show that the returns of technology-linked firms have strong predictive power for focal firm returns. A long-short strategy based on this effect yields monthly alpha of 117 basis points. This effect is distinct from industry momentum and is not easily attributable to risk-based explanations. It is more pronounced for focal firms that: (a) have a more intense and specific technology focus, (b) receive lower investor attention, and (c) are more difficult to arbitrage. Our results are broadly consistent with sluggish price adjustment to more nuanced technological news.