The dramatic increase in the percentage of mutual funds lending equities suggests that lending fees are an increasingly important source of income for investment advisors. We find that funds that lend equities underperform otherwise similar funds in spite of lending income. The effect of lending is concentrated in funds that cannot act on the short-selling signal due investment restrictions set by the fund family to diversify their fund offerings across styles. Our findings suggest that the family organization explains why fund managers lend, rather than sell, stocks with short selling demand.

We show that credit rating agencies can influence political elections. We find that incumbent political parties experience an increase in their vote shares following municipal bond upgrades. The evidence is consistent with rating agencies affecting elections indirectly by expanding local governments’ debt capacity and directly through an impact on voters’ perceptions of the quality of incumbent politicians. To identify these effects, we examine election outcomes within neighboring counties by exploiting exogenous variation in municipal bond ratings due to Moody’s recalibration of its scale in 2010.