Knowledge that Transforms

Why do firms offer nonwage compensation instead of the equivalent amount in financial compensation? We argue that firms use nonwage benefits, specifically female-friendly benefits, such as maternity leave, to increase gender diversity by efficiently attracting women. Using Glassdoor data, we show that firms offer higher-quality maternity leave benefits in labor markets in which female talent is relatively scarce. This result also holds more generally when examining all female-friendly nonwage benefits and is not present when looking at gender-neutral benefits. Moreover, using staggered adoption of state laws, we show that voluntary provision of these benefits can increase firm value. Wei Jiang.

Until the 1970s, U.S. mortgage lenders commonly discounted half of the wife’s income in couples’ joint mortgage applications. This changed with the introduction of antidiscrimination legislation in the 1970s, providing a natural experiment to study the relaxation of income-related borrowing constraints. I study the effects of the reform by estimating difference-in-differences regressions and solving a simple calibrated life cycle model. I find substantial positive effects of the reform on mortgage borrowing and homeownership rates of married couples with working wives. Moreover, I find a positive effect on married women’s labor force participation, which strongly amplifies the homeownership and borrowing effects.

We show that banking relationships promote corporate environmental, social, and governance (ESG) policies. Specifically, banks are more likely to grant loans to borrowers with ESG profiles similar to their own and positively influence the borrower’s subsequent ESG performance. Their influence is more pronounced when (1) banks have significantly better ESG ratings than borrowers and (2) borrowers are bank dependent. We exploit M&A among lenders as a source of quasi-exogenous variation in the lender’s ESG standard to alleviate endogeneity concerns. Overall, our study presents the first evidence on the interplay between responsible bank lending and borrowers’ ESG behavior.

We apply a machine-learning algorithm, calibrated using general human vision, to predict the visual salience of prices of stock price charts. We hypothesize that the visual salience of adjacent prices increases the decision weights on returns computed from those prices. We analyze the inferred impact of these weights in two experimental studies that use either historical price charts or simpler artificial sequences. We find that decision weights derived from visual salience are associated with experimental investments. The predictability is not subsumed by statistical features and goes beyond established models.

We document that finance companies and FinTech lenders increased lending to small businesses after the 2008 financial crisis. We show that most of the increase substituted for a reduction in bank lending. In counties in which banks had a larger market share before the crisis, finance companies and FinTech lenders increased their lending more. We find no effect of reduced bank lending on employment, wages, and new business creation by 2016. Our results suggest that finance companies and FinTech lenders are major suppliers of credit to small businesses and played an important role in the recovery from the 2008 financial crisis.

By allowing different agency mortgage-backed securities (MBS) to be traded based on limited characteristics, the to-be-announced (TBA) market generates liquidity and benefits the MBS market broadly. We quantify effects of the TBA structure on mortgage borrowers. Exploiting discontinuities in TBA eligibility, we estimate that TBA eligibility reduces mortgage rates by 7 to 28 basis points. The TBA eligibility benefit is larger for mortgages with higher expected prepayments. We also find that TBA eligibility affects refinancing, which has implications for monetary policy transmission. Our finding is relevant for housing policies, such as housing finance reforms and uniform MBS.

I develop a model of real exchange rate determination that attributes a central role to the intertemporal government budget condition, which equates the market value of government debt to the present value of government surpluses. To enforce this equilibrium condition in the presence of nominal rigidities, the real exchange rate has to adjust in response to shocks to government surpluses. The model predicts that fiscal shocks account for real exchange rate movements, and the factor structure in fiscal shocks aligns with the factor structure in currency returns. Both predictions are confirmed in the sample of developed countries.

Debt overhang is associated with higher financial fragility and slower recovery from recession. However, while household credit booms have been extensively documented to have this property, we find that corporate debt does not fit the same pattern. Newly collected data on nonfinancial business liabilities for 18 advanced economies over the past 150 years shows that, in the aggregate, greater frictions in corporate debt resolution make for slower recoveries, with weak investment and more persistent “zombie firms” and that this is an important factor in explaining the difference in outcomes relative to household credit booms.

Since the finance industry is transforming into a data industry, measuring the quantity of data investors have about various assets is important. Informed by a structural model, we develop such a cross-sectional measure. We show how our measure differs from price informativeness and use it to document a new fact: data about large high-growth firms is becoming increasingly abundant, relative to data about other firms. Our structural model offers an explanation for this data divergence: large high-growth firms’ data became more valuable, as big firms got bigger and growth magnified the effect of these changes in size.

We derive analytic solutions for the valuation, optimal investment, and optimal payout of a financially constrained firm. While marginal q and average q would be identically equal in the absence of financial constraints, they differ when financial constraints bind. We use analytic solutions to characterize the properties of regressions of investment on average q and cash flow. The coefficient on cash flow is positive, but does not isolate the impact of the financial constraint, since it also partially reflects the impact of persistent profitability. The coefficient on average q understates the impact of persistent profitability.