Knowledge that Transforms

We examine how domestic product market competition shapes firms’ foreign market expansion. Using a panel of U.S. public firms from 1997 to 2017 and text-based measures of output offshoring, we show that stronger domestic competition increases foreign sales activity. To address endogeneity concerns, we exploit the competitive effects of policy-induced variation from staggered rejections of the Inevitable Disclosure Doctrine. Further tests indicate that these labor mobility shocks that intensify competitive pressure spur foreign expansion primarily among firms with stronger intangible and organizational capabilities and higher profitability. The findings suggest that domestic competition is an important driver of foreign market expansion.

We measure flow diversification in mutual funds using the cross-sectional correlation of daily flows across investor clienteles. Greater flow diversification is associated with lower future flow volatility, smaller subsequent outflows, and lower cash holdings. We decompose flow correlation into predictable and unexpected components. Unexpectedly low flow correlation is associated with higher post-outflow fund returns, mitigating outflow-induced externalities on incumbent shareholders. Flow diversification also dampens the higher flow-performance sensitivity of illiquid funds, partially offsetting strategic complementarities that can generate fragility.

Sovereign credit default swaps spreads price the credit risk embedded in government borrowing. We ask how macroeconomic fundamentals predict that risk, and whether a linear mapping from fundamentals to spreads is adequate. Across a large panel of OECD economies, linear methods perform well across countries but lose predictive accuracy after 2022 and fail to capture how spreads vary across maturities. Nonlinear methods recover both. While linear forecasts mainly rely on fiscal ratios, nonlinear predictions draw on the term-structure slope throughout, inflation during the 2022–2024 monetary tightening, and consumer confidence during the Eurozone crisis. These predictive relationships hold panel-wide rather than country-by-country.

We provide novel international evidence that inflation is positively associated with corporate credit risk on average. A 1-standard-deviation increase in inflation is associated with a 21-basis-point increase in next-year credit default swap spreads. Importantly, this relationship is convex: it is negative or weak at low inflation levels but much more positive in high-inflation environments. The positive relation between inflation and credit risk is stronger for firms with greater refinancing vulnerability and more rigid operating cash flows, and in countries with more inflation-responsive monetary regimes and weaker institutional environments. Our findings are consistent with opposing roles for debt rigidity and operating rigidity.

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Past research has documented a substantial finance wage premium. We examine whether this premium reflects differences in lifetime career opportunities. Using resume data, we reconstruct career trajectories in finance and nonfinance sectors and build synthetic measures of career attractiveness that account for compensation levels, growth, and risk. We find that asset management and investment banking provide a sizable risk-adjusted career premium relative to banking, insurance, and other sectors. This premium has declined across cohorts, particularly relative to high tech. Labor-market entry patterns respond to these premia: potential entrants treat finance and high-tech careers as substitutes when choosing where to start.

This article studies buybacks with two informed parties: a manager and an outside speculator. Buybacks introduce two countervailing forces. A competition effect reduces speculator profits when buybacks compete against speculative trades. A dispersion effect increases speculator profits: buying undervalued shares generates gains, while buying overvalued shares generates losses, widening the dispersion in per-share value across states. Sufficiently informed buybacks benefit shareholders; uninformed buybacks harm them. These effects vary with shareholders’ liquidity exposures. The desirability of informed buybacks depends on the prevalence of speculation. Authorization depends on ownership, governance, and market conditions. Shareholders might welcome informed buybacks—not merely tolerate them.

Using a calibrated, collective life-cycle portfolio choice model for a dual-income couple, we show that an increase in the ability to share risk within the household due to a mean-preserving spread in the partners’ coefficients of relative risk aversion leads to a substantial increase in financial risk-taking. Importantly, we show that risk sharing has a larger economic impact on portfolio choice than risk diversification. While unitary models usually do not fully replicate the optimal portfolio choice of collective models, we propose approximations that work reasonably well for moderate background risk. We provide strong empirical support for our key findings.

We study the aggregate impact of information spillovers emerging from industry star firms. Changes in stars’ relative earnings growth predict future earnings growth, consensus earnings surprises, and job postings of same-industry nonstar firms. Star-firm performance also predicts industry-level GDP and employment growth. Price markup and innovation spillovers are potential channels underlying these patterns. Our results further show that this performance predictability is not fully incorporated into nonstars’ stock prices. A long–short portfolio based on star firms’ earnings growth earns an annualized 6-factor alpha of 8.7%. Together, our findings provide consistent evidence of the economic importance of star firms.

While the Dodd–Frank Act (DFA) mandates board risk committees for large banks, we argue that such committees do not benefit all banks. Banks forced by the DFA to adopt a board risk committee do not experience a reduction in risk following adoption. In contrast, banks that voluntarily established risk committees before the DFA exhibit lower risk, especially when these committees possess greater risk expertise. Using unique interview data, we find that board risk committees serve as active monitors rather than merely rubber-stamping management proposals. However, regulatory-mandated tasks limit their monitoring role.