This study investigates whether and to what extent bank control over firms by their representation on boards of directors and by equity holdings through trust business may affect corporate environmental responsibility. Using a large sample of listed firms in the United States from 2004 to 2016, we find that banker directors with equity affiliation improve firms’ environmental performance scores and such impact is associated with affiliated bank’s shareholdings, investment horizon, and environmental orientation. Additionally, we document that the effects of bank control on firm’s environmental investments is stronger for firms with more short-term institutional investors but weaker for firms with more analyst coverage. Moreover, we find that when firms are financially constrained, banker directors reduce environmental investments. Finally, product-market competition matters for a firm’s environmental strategies as the relation of bank control and environmental investments is more profound under conditions of greater industry competition.

We examine how accounting‐based compensation plans influence a firm's contracts with its creditors. After granting long‐term accounting‐based compensation plans (LTAPs) to CEOs, firms pay lower spreads and have fewer restrictive covenants in new bank loans. Mechanisms leading to lower borrowing cost include improvements in debt repayment ability, reduced shareholder‐debtholder conflicts, and reduced risk‐taking incentives. Creditors view LTAPs as a substitute for monitoring, adjust covenant design based on LTAP features, and value plans with concave performance‐payout functions and reasonable performance targets. A firm's credit rating improves and CDS spread declines after LTAP grants, suggesting that LTAPs help reduce firms' credit risk.

We propose an Optimal candlesticK (OK) estimator for the spot volatility using high-frequency candlestick observations. Under a standard infill asymptotic setting, we show that the OK estimator is asymptotically unbiased and has minimal asymptotic variance within a class of linear estimators. Its estimation error can be coupled by a Brownian functional, which permits valid inference. Our theoretical and numerical results suggest that the proposed candlestick-based estimator is much more accurate than the conventional spot volatility estimator based on high-frequency returns. An empirical illustration documents the intraday volatility dynamics of various assets during the Fed chairman’s recent congressional testimony.

On January 1, 2010, the Shenzhen Stock Exchange (SZSE) in China launched an online interactive platform named “Hudongyi.” This platform enables individual investors to communicate directly with executives of firms listed on the SZSE, under the supervision of the SZSE, thereby providing a quasi-natural experiment to study the impact of individual investors on corporate governance. Employing a difference-in-differences design, we document that the investor-firm interactions on Hudongyi deter real earnings management by firms listed on the SZSE through reducing information asymmetry and raising reputational costs. This effect varies with posting specificity, interaction effectiveness, and firm features. These findings suggest that individual investors can effectively engage in corporate governance when their right to speak up is facilitated by proper technology and regulatory scrutiny.

This paper uses loan application-level data from a peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we provide evidence of monetary policy's impact on a nonbank financial institution's risk-taking. We find that the search-for-yield is the main driving force of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and greater riskiness of credit allocation. However, these changes do not necessarily relate to a larger loan amount on average.

How do corporate bond mutual funds manage liquidity to meet investor redemptions? We show that during tranquil market conditions, these funds tend to reduce liquid asset holdings to meet redemptions, temporarily increasing relative exposures to illiquid asset classes. When aggregate uncertainty rises, however, they tend to scale down their liquid and illiquid assets proportionally to preserve portfolio liquidity. This fund-level dynamic management of liquidity appears to affect the broad financial market: Redemptions from the corporate bond fund sector lead to more corporate bond selling during high-uncertainty periods, which generates price pressures and predicts strong return reversals.

Disagreement measures are known to predict cross-sectional stock returns but fail to predict market returns. This paper proposes a partial least squares disagreement index by aggregating information across individual disagreement measures and shows that this index significantly predicts market returns both in- and out-of-sample. Consistent with the theory in Atmaz and Basak (2018), the disagreement index asymmetrically predicts market returns with greater power in high-sentiment periods, is positively associated with investor expectations of market returns, predicts market returns through a cash flow channel, and can explain the positive volume-volatility relationship.

We investigate whether and how an exogenous and unprecedented improvement in non-U.S. firms' financial-reporting quality affects post-earnings-announcement drift (PEAD). We find that PEAD declines after the information shock, and this decrease is more pronounced for firms with fewer concurrent earnings announcements, greater institutional holdings, and lower limits to arbitrage. In addition, the decrease in PEAD is driven by firms with greater changes in financial reporting, an increase in analyst forecast accuracy and institutional ownership, and a decrease in limits to arbitrage. These findings support the mispricing explanation of PEAD, in particular the limited attention hypothesis, in an international setting.

We propose a novel high-frequency decomposition of daily stock returns into news- and non-news-driven components, and uncover evidence of pervasive stock market underreaction to firm news. Prices tend to drift in the same direction as the initial market response for several days after the news arrival without reversals. A trading strategy exploiting the return drift generates high abnormal returns and remains profitable after transaction costs. To understand the economic mechanism, we find that the return drift is stronger when investors are distracted. Analysts’ slow adjustments of market expectations following firm news also contribute to the market underreaction.