Abstract We examine the role of race and racial concordance between financial advisors and their local community. We document significant differences in stock market participation based on community racial composition, as well as differences in the characteristics of communities served by minority advisors. Notably, minority advisors are more likely to serve racially concordant communities, which tend to be poorer. We find that racial concordance has only a modest relation with local stock market participation. However, while minority advisors are more likely to leave the industry, this relation is mitigated among advisors located in more concordant communities. (JEL G20, G50, D14, J15)

Abstract Predicted stock issuers (PSIs) are firms with expected high-investment and low-profit profiles that earn extremely low returns. We evaluate alternative explanations for this empirical phenomenon. Our results show top-PSI firms are cash-strapped, have lottery-like payoffs, high volatility, high beta, low liquidity, and high shorting costs. Over the next 2 years, top-PSI firms earn return on assets of −30% per year, report disappointing earnings, and experience strongly negative forecast revisions. They perform poorly in down markets and are six times more likely to delist for performance-related reasons. Overall, we find substantial support for mispricing, some support for nonstandard preferences, and virtually no support for the risk explanation. (JEL G12, G14, G32, G40, G41) 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.

Limited coverage is a standard feature in deposit insurance schemes. It is used to limit moral hazard, and achieves this objective by reinforcing market discipline: depositors have more incentives to monitor banks’ risk-taking if they have skin in the game. In this paper, I study market discipline and coverage levels by analyzing the relationship of funding costs and deposit growth with banks’ risk. I use a database of Colombian banks’ balance sheets and take advantage of a sudden, significant, and exogenous increase in the coverage level that occurred in April 2017. I find evidence of market discipline throughout the period of analysis and most results are consistent with it not being reduced by the change in the coverage level. The results are nuanced, however. Two variables are impacted: one in the quantity and the other in the price dimension. Furthermore, results also vary when I look at specific groups of banks separately. Market discipline is not present in big banks. Too big-to-fail perceptions seem to limit it. This is also the case for banks concentrated in fully insured deposits, where limited coverage has a less prevalent role.

In 1936–37, the Federal Reserve doubled member banks’ reserve requirements. Friedman and Schwartz (1963) famously argued that the doubling increased reserve demand and forced the money supply to contract, which they argued caused the recession of 1937–38. Using a new database on individual banks, we find that higher reserve requirements did not generally increase banks’ reserve demand or contract lending because reserve requirements were not binding for most banks. Aggregate effects on credit supply from reserve requirement increases were therefore economically small and statistically zero.

Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivates this paradigm shift. The renewed interest in hysteresis (or “scarring” in recent parlance) has been sparked by the persistent impact of the global financial crisis —as GDP in advanced economies remained far below the precrisis trends for over a decade—and recent concerns about the lasting impact of the COVID-19 shock. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects. (JEL E22, E23, E24, E32, E63, G01, O41)

We examine whether individual-level taxes affect executives' propensity to use nonpublic information in insider trades. We predict and find a positive relation between abnormal insider trading profitability and income tax rates. Using plausibly exogenous variation in state income tax rates, we estimate that the average executive uses insider trading profits to offset between 12.2% and 19.6% of the effect that income taxes have on their net compensation. We show that the sensitivity of these profits to tax rates varies predictably with the executives' compensation and shareholdings, firm monitoring effectiveness, and information asymmetry between insiders and outside investors. We also demonstrate a positive association between SEC enforcement actions and tax rates, suggesting that tax-rate-driven changes in abnormal trading profits expose insiders to legal risk. We find that insider trading volume exhibits little sensitivity to tax rates. Our findings show that income taxes affect executives’ tendency to use private information in their trades.

We find that dividend paying firms demonstrate superior corporate social responsibility (CSR) performance in the subsequent year than non-paying firms. This effect can be explained by stakeholder relationship management through CSR, as dividend payout reflects the inherent conflict between shareholders and stakeholders. Specifically, for dividend payers, we find an increase in CSR performance after states adopt constituency statutes which encourage board’s attention on stakeholders, supporting a causal inference of the stakeholder relationship management’s effect on CSR. The increase in dividend payers’ CSR around the constituency statute adoption is more pronounced when management is friendlier to CSR, which lends further support for the stakeholder relationship management channel. We find no support for the short-termism view of dividends or the notion that CSR is solely an outcome of agency problems within firms. In conclusion, our findings suggest that dividend payout serves as a mechanism for balancing shareholder and stakeholder interests, leading to improved CSR performance among dividend-paying firms.

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.

This paper assesses when the validity of difference‐in‐differences depends on functional form. We provide a novel characterization: the parallel trends assumption holds under all strictly monotonic transformations of the outcome if and only if a stronger “parallel trends”‐type condition holds for the cumulative distribution function of untreated potential outcomes. This condition for parallel trends to be insensitive to functional form is satisfied if and essentially only if the population can be partitioned into a subgroup for which treatment is effectively randomly assigned and a remaining subgroup for which the distribution of untreated potential outcomes is stable over time. These conditions have testable implications, and we introduce falsification tests for the null that parallel trends is insensitive to functional form.

Abstract Using satellite imagery of retail firms’ parking lots to measure time-varying local firm-specific performance, we document that analysts incorporate local information into their forecasts. Analysts rely more on local signals when less firm-wide information is available. This incorporation of noisy local firm information has firm-level implications. Examining across industries, we find causal evidence that geographic concentration of analysts increases consensus forecast errors and decreases firm liquidity. These effects are stronger for harder-to-value stocks. The market values geographic firm information, as the abnormal return around forecast revisions is higher for analysts who cover a firm from a unique location.