We model the employee incentive problem jointly with a firm’s exit decision. Our model predicts that firms in industries where human capital is important are more likely to go public and use high-powered, stock-based compensation. We also show that the higher the management quality, the more likely a firm is to go public than to be acquired. Regarding life cycle, a firm with high capital intensity and/or high management quality will choose to go public at a younger age.

We study hedge fund performance evaluation under the stochastic discount factor framework of Farnsworth, Ferson, Jackson, and Todd (FFJT). To accommodate dynamic trading strategies and derivatives used by hedge funds, we extend FFJT’s approach by considering models with option and time-averaged risk factors and incorporating option returns in model estimation. A wide range of models yield similar conclusions on the performance of simulated long/short equity hedge funds. We apply these models to 2,315 actual long/short equity funds from the Lipper TASS database and find that a small portion of these funds can outperform the market.

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.

We examine how information-processing cost affects investors’ acquisition of firm-specific information using a natural experiment resulting from a recent mandate requiring U.S. firms to adopt eXtensible Business Reporting Language (XBRL) when submitting filings to the U.S. Securities and Exchange Commission (SEC). XBRL filings make financial data standardized, tagged, and machine readable. We find that XBRL adoption reduces firms’ stock return synchronicity. The reduction in synchronicity mainly applies to filings under the mandatory program as opposed to the voluntary program. Furthermore, such an effect is more pronounced for opaque and complex firms. Finally, we find that XBRL adoption also reduces price delay.