Knowledge that Transforms

Abstract This paper investigates the effects of housing wealth shocks on workers’ career decisions related to job quality and long-term career outcomes. Using a novel data set of career histories in the film industry, we find that homeowners facing greater house price declines reduce participation in high-quality projects but increase involvement in low-quality films. Conversely, renters are not affected by these shocks. Consistent with individuals using home equity during job searches, these shocks have a greater impact on homeowners who extracted home equity during the housing boom. Moreover, house price declines from the housing crisis affect long-term career paths. (JEL J01, R20, D14, G51)

Abstract When firms can issue debt at discrete dates only, debt maturity becomes an effective tool to constrain investment and debt policies. In the absence of other frictions, single-period debt restores first-best investment. With market freezes, long-maturity debt amplifies underinvestment and the leverage ratchet effect, while short maturity mitigates these distortions. Calibrating the model to U.S. nonfinancial firms shows that choosing the optimal debt maturity can reduce the cost of commitment problems and market frictions by up to 4% of firm value. A decomposition of the equilibrium credit spread reveals that the component associated with time-inconsistent debt and investment policies is largest when leverage and default risk are low, and is substantially reduced by shorter debt maturities. (JEL G12, G31, G32, E22)

Abstract We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition. (JEL D43, G21, M42, M49)

Abstract This paper is the first to explore emotional support as an important determinant of household financial outcomes. Using microdata from the United States and Australia, I document that individuals who feel emotionally supported are less likely to experience financial distress. This relationship is not confounded by nonemotional aspects of social support and is confirmed by between-siblings and within-individual analyses. Further investigation suggests emotional support helps to overcome psychological barriers that impede individuals from taking precautions against adverse shocks. Moreover, when such shocks occur, those with strong emotional support can better cope with the adversity as emotional support boosts their confidence. (JEL D14, D91, G41, G51, Z13)

Abstract We analyze how countercyclical liquidity policy—via reserve requirements (RRs)—affects the credit cycle. For identification, we exploit supervisory credit register data and RR changes in Brazil made for monetary and macroprudential purposes and affecting banks differently. We find that countercyclical liquidity policy smooths credit supply cycles at the loan and firm levels. The effects of easing during crises are three times stronger than are those of tightening during booms, particularly for low-risk firms. We also explore interest rate policy. Credit supply effects are stronger among high-risk firms and during tightening, when interest rates are more effective than RRs.

Abstract This paper highlights a connection between the stability of a bank’s funding sources (debt claims) and the liquidity of assets backing those claims. Using a natural experiment and hand-collected data on over 5,000 repurchase contracts, the paper shows that a shock that increased the liquidity of private-label MBS resulted in a greater proportion of MBS financed on balance sheet by unstable funding sources (short-term repo debt). This finding is relevant to a recent banking crisis (the SVB collapse in March 2023) in which losses on a bank’s liquid assets led to a run by uninsured (“flighty”) depositors financing those assets. (JEL G2, K2)

Abstract This study shows that higher banking organization growth is associated with higher operational losses per dollar of total assets and incidence of tail operational losses. Event studies using merger and acquisition activity and instrumental variable regressions provide consistent evidence. The relationship between banking organization growth and operational risk varies by loss event types and balance sheet categories. Higher growth before the Global Financial Crisis predicts higher operational losses during the crisis. We also find evidence that executive compensation incentives and board monitoring could moderate the relationship between growth and operational losses. These findings have implications for banking organization performance, risk management, and supervision as the banking industry continues to grow and consolidate.

Abstract We study how involving employee board representatives in determining managerial compensation affects the within-firm pay ratio. The 2009 German Compensation Act shifted executive pay decisions to the entire supervisory board, amplifying employees’ influence at firms with parity employee representation. This reform resulted in increased manager-to-worker pay ratios, driven by higher managerial compensation, without corresponding changes in firm performance or manager turnover. The result is robust in matched samples and absent in falsification tests. Improved employee job security and weak wage increases point to a possible alliance between employees and managers, indicating shared governance may not necessarily reduce pay inequality.

Abstract This paper studies the impact of career concerns on technological change by analyzing the adoption of digital cinematography in the U.S. motion picture industry. This setting allows us to collect rich data on the adoption of this new technology at the project level (i.e., movie) and on the career of the main decision-maker (i.e., director). We find that early-career directors played a leading role in the adoption of digital technology, an effect that appears to be explained by career concerns, rather than alternative motives we consider and analyze. Technological savviness also plays a role. (JEL: G30, O33, L82, M50)Received: June 25, 2025Editor: J. Anthony Cookson 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 This study demonstrates that banking organizations with higher artificial intelligence (AI) investments are exposed to more operational risk. Using comprehensive supervisory data on operational losses from large U.S. bank holding companies (BHCs) combined with detailed company-level data on AI-skilled human capital, we show that BHCs with more AI investments suffer higher operational losses per dollar of total assets. The impact of AI investments on operational losses significantly varies by loss type and is driven by external fraud, client-related issues, and system failures. These losses stem not only from small, frequent incidents but also from severe, tail-risk events. The risk-enhancing effect of AI is more pronounced for BHCs with weaker risk management practices. Our findings have important implications for banking performance, risk, and supervision.