Using distinct features of corporate bond exchange-traded funds (ETFs), I find that financial innovation has a significant and long-term positive valuation impact on the systemically important underlying securities. A one standard deviation increase in ETF ownership reduces high-yield and investment-grade bond spreads by 20.3 and 9.2 basis points, respectively, implying an average monthly price increase of 1.03% and 0.75%. Two novel quasi-natural experiments exploit exogenous changes in ETF eligibility to confirm the effect. Examining theoretical explanations for the effect, I find that ETFs decrease liquidity trader participation, increase institutional ownership, and insignificantly or negatively impact the liquidity of individual bonds

This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forgo long-term investment. Using a comprehensive sample of publicly listed firms in 30 countries over the period 2001–2010, we find instead that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital. Foreign institutional ownership also leads to significant increases in innovation output. We identify these effects by exploiting the exogenous variation in foreign institutional ownership that follows the addition of a stock to the MSCI indexes. Our results suggest that foreign institutions exert a disciplinary role on entrenched corporate insiders worldwide

Capital utilization and market power crucially affect asset prices in an economy exposed to shocks that improve real investment opportunities through capital-embodied technological innovations. We embed these two mechanisms in a standard general equilibrium model and show that (i) the price of risk for investment shocks is negative under fixed capital utilization, but positive under sufficiently flexible capital utilization, and (ii) the equity return exposure to investment shocks is negative under perfect competition, but positive under high market power. We further show that, high market power, persistent components in technology growth, and a strong preference for early resolution of uncertainty are jointly important to quantitatively match the observed equity risk premium

This paper revisits the association between firm value (as proxied by Tobin’s Q) and whether the firm has a staggered board. As is well known, in the cross-section firms with a staggered board tend to have a lower value. Using a comprehensive sample for 1978 – 2011, we show an opposite result in the time series: firms that adopt a staggered board increase in firm value, while de-staggering is associated with a decrease in firm value. We further show that the decision to adopt a staggered board seems endogenous, and related to an ex ante lower firm value, which helps reconciling the existing cross-sectional results to our novel time series results. To explain our new results, we explore potential incentive problems in the shareholder-manager relationship. Short-term oriented shareholders may generate myopic incentives for the firm to underinvest in risky long-term projects. In this case, a staggered board may helpfully insulate the board from opportunistic shareholder pressure. Consistent with this, we find that the adoption of a staggered board has a stronger positive association with firm value for firms where such incentive problems are likely more severe: firms with more R&D, more intangible assets, more innovative and larger and thus likely more complex firms

We advocate the use of excess returns rather than yields or log prices in analysing the risk neutral dynamics of the term structure. We show that under standard assumptions, excess returns are affine in the risk neutral innovations in the factors. This framework has several important advantages. First, it allows for an easy estimation of models that are more flexible than the AR(1). Indeed, we estimate models with more general dynamics, like ARFIMA(p, d, q), almost as easily as AR(1). Second, within our framework the dimension of the unrestricted model is the same for the AR(1) as it is for the richer models, and does not expand in line with the state vector as it does in a yield or log price framework. This makes it appropriate to test all of these risk neutral dynamic specifications against the same OLS unrestricted alternative. Our results for the US Treasury bond market show that the unrestricted model is preferred to the AR(1) by the Bayesian Information Criterion, but the opposite conclusion is reached for more flexible models. A final advantage of the excess returns framework is that the pricing errors are much lower than for the equivalent log price system