In within-firm analysis of 1,805 executives, executives implicated in financial reporting fraud cases have significantly stronger equity incentives than their within-firm peers who are not implicated in the fraud. Executives implicated in fraud cases also have significantly stronger equity incentives than executives at non-fraud firms in similar roles. However, the equity incentives of non-implicated executives at fraud firms are no different than those for executives at non-fraud firms. The results are significant across executive roles and for equity incentives measured as wealth sensitivity to changes in stock price or stock price volatility. Executive-level analysis that considers which executives are implicated in the fraud may provide more precise measurement of the association and statistical significance of the relationship between equity incentives and fraud. Finally, firm-level measures that consider the equity incentives of all members of the top management team may better identify fraud firms than do measures focusing on one executive.

We present the first analysis of the effect of grade retention on adult criminal convictions, exploiting test cutoffs for ninth-grade promotion in Louisiana. Eighth-grade retention increases the likelihood of violent crime conviction by 1.05 percentage points (58.44%) and increases the number of violent crime convictions at first conviction. The effects are likely driven by declines in high school peer quality and reduced educational investments that result in lower noncognitive skill acquisition. Extrapolating effects away from the cutoff shows that our results are generalizable to a larger group of low-performing students and are evident for both property and drug crimes.

We investigate the equilibrium interest rate charges on non-recourse and recourse loans secured by stock. In such loans, the client retains the option to prepay and recover the collateral stock. We adopt a structural model of the firm where debt levels, with endogenous bankruptcy, affect equity dynamics. Complicating matters, the link between total equity and the price of a share of stock that forms the collateral depends on the extent of dilutions and buybacks that occur. For levered firms, due to dilution in bad states of nature, stock prices typically fall faster than equity values; and for firms that engage in buybacks in good states of nature, stock prices will rise faster than equity values. Banks that ignore these features underestimate the equilibrium interest rate charge on stock-based loans. We provide an analysis of individual stock-based loans and their portfolio characteristics, the latter of which can be used by banks to ascertain capital requirements.

Bank capital requirements reduce the probability of bank failure and help mitigate taxpayers’ sharing in the losses that result from bank failures. Under Basel III, direct capital requirements are supplemented with liquidity requirements. Our results suggest that liquidity provisions of banks are connected to bank capital and that changes in liquidity indirectly affect the capital structure of financial institutions. Liquidity appears to be another instrument for adjusting bank capital structure beyond just capital requirements. Consistent with Diamond and Rajan (2005), we find that liquidity and capital should be considered jointly for promoting financial stability.

We build on recent SWF literature that documents an equity discount for SWF investments and extend it to bond markets to investigate whether SWFs represent a threat or an opportunity to bondholders. We find robust evidence supporting the political agenda hypothesis which points to the existence of a “SWF bond risk premium”. Compared to other government shareholding types, we also find that SWF ownerships present higher risk to bondholders and result in higher increase in the target firm's cost of debt. Furthermore, this SWF bond risk premium is larger during non-crisis periods and for SWFs originating from autarchic countries. Interestingly, we show strong evidence that SWFs may signal a passive investment stance and reduce the SWF bond risk premiums by: i) investing through separate investment vehicles, ii) targeting firms with an existing major shareholder, iii) improving their internal governance, and iv) increasing their transparency.

We examine the impact of economic policy uncertainty (EPU) on bank liquidity hoarding. We create a comprehensive measure of bank liquidity hoarding that takes into account asset-, liability-, and off-balance sheet activities. Using over one million bank-quarter observations, we find that in response to EPU, banks hoard liquidity overall and through all three components. This behavior is more pronounced for banks with less liquidity, more peer-bank spillover effects, and more EPU exposure. Additional analyses of interest rate spreads on several bank products suggest that our findings reflect at least in part bank choices, rather than just the reactions of customers.

We examine whether adding more founding family members as firm owners and/or managers matters to corporate governance outcomes. Based on a sample of 1242 founder-controlled publicly traded Chinese private-sector firms, we find that more such family involvement is associated with lower volumes of related party transactions suspicious of expropriating shareholder wealth. The curtailing relation is stronger when family members own firm shares and/or serve as managers, and are more arm's-length relatives instead of immediate kin of the founders. The intra-family governance effects are stronger when firms are subject to weaker capital market disciplines or have more free cash under insider discretion. The overall evidence is consistent with founding family members' information advantages and ownership incentives making them more robust monitors of managerial decisions than other formal mechanisms, which help enforce shareholder rights in emerging markets.

We estimate the impact of macroeconomic conditions on the childcare market. We find that the industry is substantially more exposed to the business cycle than other low-wage industries and responds more strongly to negative shocks than positive ones. Indeed, childcare employment requires more time to recover than the rest of the economy. Although the reduction in supply may pose difficulties for parents, we find evidence that center quality is countercyclical. When unemployment rates are higher, childcare workers have on average higher levels of education and experience, turnover rates are lower, and consumer reviews on Yelp are higher.