We analyze the price effect of the introduction of collective action clauses (CACs) in newly issued sovereign bonds of eurozone countries as of January 1, 2013. By allowing a majority of creditors to modify payment obligations, such clauses reduce the likelihood of holdouts, while facilitating strategic default by the sovereign. We find that CAC bonds trade in the secondary market at lower yields than otherwise similar no-CAC bonds. The yield differential widens in countries with worse ratings and in those with stronger legal systems, especially if of midrange quality. Hence, CACs are seen as pro- rather than anticreditor provisions.

Economic theories posit conflicting hypotheses on how wealth inequality affects entrepre-neurial dynamism. We investigate the impact of wealth inequality on business dynamics by constructing local measures of household wealth inequality based on financial rents, home equity, and 1880 farmland. We then identify the effect of wealth inequality on entrepre-neurship by instrumenting it with land distribution under the 1862 Homestead Act. Wealth inequality decreases firm entry and exit, and the proportion of high-tech businesses across metropolitan statistical areas. Wealth inequality also lowers the supply of public goods, such as education. Growth in income per capita consequently lags.

We study the impact of higher capital requirements on banks’ balance sheets and their transmission to the real economy. The 2011 EBA capital exercise is an almost ideal quasi-natural experiment to identify this impact with a difference-in-differences matching estimator. We find that treated banks increase their capital ratios by reducing their risk-weighted assets, not by raising their levels of equity, consistent with debt overhang. Banks reduce lending to corporate and retail customers, resulting in lower asset, investment, and sales growth for firms obtaining a larger share of their bank credit from the treated banks. Received November 28, 2016; editorial decision March 9, 2018 by Editor Philip Strahan.