We examine impediments to liquidity provision by mutual funds to insurance companies during corporate bond fire sales. We find that financial regulation and limited capital capacity significantly affect liquidity provision. Mutual funds reduced their purchase of fire-sale bonds following regulatory changes after the 2008–2009 financial crisis. Funds facing more capital constraints (proxied by smaller cash and Treasury holdings, less liquid corporate bond investments, higher redemption risk, and less active investment styles) provide less liquidity. Mutual funds actively investing in fire-sale bonds earn significant returns from liquidity provision and demonstrate superior overall skills in corporate bond investments.

In closed-end funds, a managed distribution policy (MDP) is a dividend commitment potentially requiring the liquidation of assets. We argue that MDPs lower managerial claims on fund assets and, when the fund is at a discount, increase shareholder value. This transfer of wealth can be rationalized by managers wishing to deter a challenge from activist shareholders through a costly proxy vote. We find strong empirical evidence that managers respond to the presence of activists using MDPs, that MDPs constitute an effective wealth transfer to shareholders, and that activists are less likely to challenge management when an MDP is in place.

In contrast to the “lazy prices” phenomenon in the stock market, more 10-K textual changes lead to larger increases in volatility smirks—consistent with options traders buying more out-of-the-money put options based on negative information disclosed in textual changes. Moreover, the lazy-prices effect is mainly driven by stocks with tradable options, suggesting that limits to arbitrage lead to a delayed response of stock prices. Finally, the return predictability of textual changes is stronger for stocks with larger option volatility smirk changes. Sophisticated options traders, therefore, demonstrate superior skills at extracting relevant information from public filings.