Knowledge that Transforms

Abstract Using granular data on global investment funds in difference-in-differences regressions around the announcement of the U.S. Inflation Reduction Act (IRA), we identify a novel international spillover channel of green industrial policies. Sustainable global investment funds received more inflows with the act announcement, in turn increasing their cross-border portfolio investments worldwide. Recipient economies better prepared to address climate change benefited most from sustainable global funds’ additional investments. Our results are stronger for funds with a larger portfolio share invested in the United States and in IRA-targeted industries. Yet, we see strong international spillovers even for non-U.S.-domiciled sustainable funds investing entirely outside the United States. Thus, global investment funds have become an important conduit for the international spillover of climate policies. (JEL F3, G1, G2, Q5)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 a data set of public procurement auctions and registered shareholders of all bidding firms in Singapore, we study the effects of ownership networks on prices and efficiency in product markets. We find participating bidders with common owners or common owners’ owners are more likely to submit identical bids, and the identical bids are associated with higher contract prices. Our structural estimates suggest removing ownership network effects improves a procurer’s cost efficiency. Our findings are robust to falsification tests, bid rounding concerns, placebo tests using other common stakeholder relationships, and weighting based on a machine-learning prediction of the auction format.

Abstract We model credibility challenges financial regulators often face when disclosing bank stress test results. Since disclosures influence banks’ risk-taking and depositors’ withdrawal decisions, regulators may have incentives to misreport. We show that regulators can reveal results credibly through imprecise disclosures to both banks and depositors. The regulator reveals only the range or the interval in which the result lies. Crucially, our findings indicate that stress test results can be disclosed credibly without assuming that the regulator is committed to truthful disclosure.

Abstract Downstream customer firms’ bargaining power can lead to suboptimal diversification in upstream suppliers’ innovation when customers cannot commit to a long-term relationship. After the revelation of financial fraud by a major customer, suppliers surprisingly outperform a control group in terms of sales growth, Tobin’s q, and survival likelihood over a 10-year period. Our results suggest that, before a fraud revelation, supplier managers’ short decision horizons and aversion to short-term risk enable influential customers to demand relation-specific innovation, leading to suboptimal diversification. When customer importance weakens, suppliers engage in riskier and novel innovation, thereby stimulating sales growth. (JEL G14, G3, L14, L24)

Abstract We study the relationship between managerial ownership and firm performance in a unique private firm setting. The simplicity of the ownership structure and nature of our sample firms help isolate the incentive-aligning effect of managerial ownership from the influence of other effects. We find that managerial ownership is positively associated with firm performance. This positive association is concave but not reversed as ownership increases, indicating a diminishing effect of ownership on performance. We use unique features of the data to further mitigate endogeneity concerns. Our findings support managerial ownership as an effective incentive-aligning tool in the absence of managerial entrenchment.

Abstract This paper investigates share price reactions and corporate responses to a set of policy changes regarding binding say-on-pay in Switzerland. The cross-section of stock price reactions indicates a trade-off: On the one hand, binding votes on executive compensation amounts, especially when conducted retrospectively, can help reduce agency costs by enhancing the alignment of management and shareholder interests. On the other hand, retrospective binding votes entail costs, for example, by distorting executives’ incentives for extracontractual, firm-specific investments. Corporate responses to the policy changes also reflect these trade-offs. Overall, our findings suggest that stronger and more direct shareholder power may not always be in the best interests of the shareholders themselves. (JEL G38, G34)

Abstract Does AI make firms vulnerable or resilient to cyberrisk? We develop a firm-year measure of AI intensity for U.S. listed firms using patents and 10-K business descriptions. A 1-standard-deviation increase in cyberrisk reduces patenting by 25%–30% for non-AI firms, with larger declines in data-intensive technologies. Frontier AI firms are much less affected, and their valuations rise when cyberrisk is high. This resilience does not extend to firms that adopt external AI tools without internal AI innovation. The evidence fits two channels: cyberrisk raises the cost of data-intensive innovation, and internal AI development builds organizational capacity to sustain innovation under cyberrisk.

Abstract We model mortgage refinancing as a bargaining game involving the borrowing household, the incumbent lender, and outside banks. We show that bargaining can provide a competitive advantage to the incumbent bank. In equilibrium, the borrower’s ability to refinance depends on the incumbent bank’s cost (dis)advantage relative to locally present competing banks and on the average creditworthiness of borrowers in the relevant market. It is also driven by borrower impatience and switching costs. We find empirical support for the key predictions of our model in an administrative data set covering the universe of mortgages in Belgium. (JEL G11, G21, G51)

About 37% of Chinese listed firms have medical expertise, as measured by the existence of senior executives with a medical degree or medical-industry experience. Using the COVID-19 outbreak in China as a natural experiment, we find that the stock returns of firms with medical expertise, excluding those within the healthcare and pharmaceutical industry, are significantly higher than those without. The positive impact is more pronounced if a CEO or Chairman has medical expertise and if the firm is not state-owned. Overall, this study underlines the importance of diversified executive human capital on firm performance through disentangling macro shocks.

Abstract We present causal evidence on the effect of boardroom networks on firm value. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. We find stronger effects for firms with fewer business partners and less experienced directors. Finally, we show that network centrality has a positive effect on directors’ compensation, providing evidence of rent sharing, and liquidity. (JEL: D57, G14, G32, L14) Received: 25 January 2024Editor: Andrew EllulAuthors 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.