We examine shareholder litigation and the price and nonprice terms of bank loan contracts. After filing a lawsuit, defendant firms pay higher loan spreads and up-front charges, experience more financial covenants, and are more likely to have a collateral requirement. These findings are consistent with reputational losses associated with shareholder litigation. The magnitude of a firm’s lost market value when the lawsuit is filed is positively related to the increase in the firm’s future borrowing costs. We investigate whether the lawsuit allegations and its merit affect future bank loan terms. Our results do not appear to be affected by self-selection.

An abstract is not available for this content so a preview has been provided. As you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Information production associated with derivatives markets is not a sideshow; rather, it has significantly positive spillover effects on an array of corporate decisions of underlying firms. Using a regression-discontinuity design based on exogenous variation in options availability as an instrument for changes in the information environment, we show that options introductions have causal effects on corporate policies on both sides of the balance sheet. Through improved information efficiency, options availability reduces the need for debt and payout, increases efficient investment, and yields superior innovation. We conduct two independent experiments demonstrating that our instrument’s impact is not derived from alternative channels.

Using a hand-collected sample of 18,269 equity analysts from 42 countries over the period of 2004 to 2019, we establish an intriguing negative association between a country’s institutional/economic development and its female share of equity analysts. We show that, in individualistic countries only, there is no gender gap in analyst forecast accuracy. We further show that female analysts are more skilled and more likely to drop out when underperforming in individualistic countries compared to peers in collectivistic countries. The evidence supports our hypothesis that the national cultural value of individualism encourages women to make career choices consistent with their general aversion to competition.

We examine the effects of implementing a U.S. approach to the enforcement of mandatory disclosure in China. Using a hand-collected sample of comment letters (CLs) issued by the Shanghai Stock Exchange over the period of 2013 to 2018, we show that stock price reactions to CL receipts and replies are negative and significant. Using textual analysis to match issues raised by regulators to targeted firms’ changes in disclosure, we show that these firms do address CL issues point by point, but do not experience significant improvements in their information environments. Our article highlights the importance of incentives rather than regulation/enforcement in reducing information asymmetry.

Previous literature finds anomalies are at least as prevalent in developed markets as in emerging markets; namely, the global anomaly puzzle. We show that while market development and information diffusion are linearly related, information diffusion has a nonlinear impact on anomalies. This is consistent with theoretical developments concerning the process of information diffusion. In extremely low-efficiency regimes, without newswatchers sowing the seeds of price discovery and ensuring the long-run convergence of price to fundamentals, initial mispricing and subsequent correction will not occur. The concentration of emerging countries in low-efficiency regimes provides an explanation to the puzzle.

We document that a firm’s culture, specifically, its religiosity, affects its cost of debt. Firms in higher-religiosity counties have higher credit ratings and lower debt costs. The impact of religiosity is stronger for firms with greater information asymmetry and during recessions. Further, religiosity has additional explanatory power for the cost of bank loans (but not the cost of public bonds) beyond its impact through ratings. This supports the argument that banks have superior abilities in pricing soft information, such as corporate culture. Finally, the impact of religiosity is stronger when the lender is a small bank.

We examine the link between bank competition and financial stability using the recent financial crisis as the setting. We utilize variation in banking competition at the state level and find that banks facing less competition are more likely to engage in risky activities, more likely to face regulatory intervention, and more likely to fail. Focusing on the real estate market, we find that states with less competition had higher rates of mortgage approval, experienced greater inflation in housing prices before the crisis, and experienced a steeper decline in housing prices during the crisis. Overall, our study is consistent with greater competition increasing financial stability.

This study constructs a firm-level measure of large foreign ownership (LFO) and investigates its impact on stock return volatility in 31 emerging markets. We find a negative relationship between LFO and volatility, even after controlling for potential endogeneity and the impact of major domestic shareholders. This suggests a stabilizing role of LFO in emerging markets, which is consistent with previous suggestions in the literature on the strong commitments and potential monitoring role of large foreign shareholders. Overall, our study highlights the importance of recognizing the heterogeneity among foreign investors and the benefits of large foreign shareholders to emerging stock markets.

Can social norms give rise to distorted information in China? We observe that China’s leading social norm related to alcohol consumption and social drinking enhances earnings management. An analysis of toxic alcohol scandals supports a causal interpretation. Further evidence suggests that the influence of alcohol may come from the negative externality that it creates, which is propagated by corporate leaders and cannot be attenuated by market-oriented institutions. Our results reveal a social norm externality that may have important normative implications.