Knowledge that Transforms

Abstract Following the onset of COVID-19, research production in economics and finance (measured by the posting of working papers) increased by 29%. Production increases were widespread across geographies, job titles, departments, and ages with larger increases in top departments and for people under the age of 35. Men and women both experienced production increases with the exception of women between the age of 35 and 49, who experienced no production gains despite large increases for men in the same age group. COVID-19 increased reliance on past coauthorship networks, with larger production gains for authors that are more central to the network. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract Homeowners who originally bought when marketwide price levels were high (low) fetch high (low) sales prices and rents, even decades later. We study the propagation of reference-dependence to neighboring listings. The “spillover” reference point effect is about one-half as large as the “own” reference point effect. Neither house quality nor location appears capable of explaining the result. Using a simple model to provide empirical predictions, we find support for a competition-based mechanism. We quantify the aggregate effect of own and spillover reference point effects on aggregate prices and/or rents at the ZIP code level. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank’s deposit facility and assets’ eligibility for quantitative easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract Using regulatory data, we study German bank lending in countries targeted by financial sanctions. We find that domestic banks in Germany reduce lending in sanctioned countries, whereas their foreign bank affiliates outside Germany increase lending. In some cases, this is because the bank affiliates’ host countries have not imposed sanctions themselves. However, even German bank affiliates in host countries that enact sanctions like Germany increase lending if these host countries lack strong institutions and anticrime policies. These findings suggest that even universally adopted sanctions distort bank capital flows and competition if the level of their enforcement varies across bank locations. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Abstract Benchmarking incentivizes fund managers to invest a fraction of their funds’ assets in their benchmark indexes, and such demand is inelastic. We construct a measure of inelastic demand a stock attracts, benchmarking intensity (BMI), computed as its cumulative weight in all benchmarks, weighted by assets following each benchmark. Exploiting the Russell 1000/2000 cutoff, we show that changes in stocks’ BMIs instrument for changes in ownership of benchmarked investors. The resultant demand elasticities are low. We document that both active and passive fund managers buy additions to their benchmarks and sell deletions. Finally, an increase in BMI lowers future stock returns. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract Open-end mutual funds can use redemption in kind to satisfy investor redemptions by delivering securities instead of cash. We find that funds that reserve their rights to redeem in kind experience less redemption after poor performance. Evidence from actual in-kind transactions reveals several unique mechanisms for redemption in kind to mitigate fund runs, including the delivery of more illiquid stocks and stocks with greater tax overhang. Funds suffer less from the adverse impact of outflows on their performance. However, redeeming investors bear significant liquidation costs when they sell securities, costs associated with destabilization in the prices of these securities. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract Going public by merging with a Special Purpose Acquisition Company (SPAC) is much more expensive than conducting a traditional IPO. We rationalize why some companies merge with a SPAC by listing the potential benefits. We analyze the agency problems that certain SPAC features address. SPAC IPO investors and deal sponsors have earned remarkably high annualized average returns, although we warn that recent deals are likely to disappoint. Public investors in the merged companies have earned very low market-adjusted returns on an equally weighted basis, although high redemptions on the worst deals have limited the amount of money that they lost. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract We propose a model of strategic renegotiation in which businesses are sequentially interconnected through their liabilities. This financing structure, which we refer to as a credit chain, gives rise to externalities, as each lender’s willingness to provide concessions to its borrower depends on how this lender’s own liabilities are expected to be renegotiated. We highlight how government interventions aimed at preventing default waves should account for private renegotiation incentives and interlinkages. In particular, we contrast the consequences of targeted subsidy and debt reduction programs following economic shocks, such as pandemics and financial crises.

Abstract The benefits of internal labor markets are largest when they include industries that utilize similar worker skills, thereby facilitating cross-industry worker reallocation and collaboration. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Such acquisitions result in larger labor productivity gains and are less often undone in subsequent divestitures. Moreover, acquirers retain more high-skill workers and more often transfer workers to jobs in other industries inside the merged firm. Overall, our results link human capital reallocation with the value created by corporate diversification and provide an explanation for seemingly unrelated acquisitions. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Abstract We document significant negative effects of exposure to increased automation at work on household wealth accumulation. Beyond the income and savings channels, we uncover a novel mechanism contributing to the negative wealth effects of automation that arises through the endogenous optimal portfolio decisions of households. We show that households rebalance their financial wealth away from the stock market in response to increased human capital risk induced by pervasive automation, thereby attaining lower wealth levels and relative positions in the wealth distribution. Our evidence suggests that the portfolio channel amplifies the inequality-enhancing effects of increased automation. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.