This paper investigates whether monitoring by bank lenders affects CEO incentives of borrowing firms. We find that an increase in bank monitoring incentives significantly reduce the sensitivity of CEO wealth to stock return volatility (Vega). The results are more profound when bank lenders are more powerful and reputable and have a prior lending relationship with the borrowing firms. Additionally, Vega decreases after financial covenant violations and increases when bank lenders have offsetting equity stakes in borrowing firms. The reduction in Vega due to bank monitoring has some real effects on borrowing firms’ corporate policies. These results together suggest banks have a unique role in monitoring and shaping CEO incentives to mitigate the risk-shifting incentives of firm managers.

This study investigates the relationships between bank activism and target firms’ debtholder value, shareholder value, and firm performance. We find that bank activists are more likely to target firms with heavier syndicated loan borrowing and lower credit quality than other shareholder activists. Bank activism events are associated with significantly positive abnormal bond returns, and this effect only exists in the subset of observations where bank shareholder activists possess a loan stake in the target firm. The target firms of bank activism exhibit a significant improvement in credit quality, coupled with decreases in syndicated loan interest rate spreads, crash risk, and CEO risk-taking incentives.

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms after we match them on firm size and insolvency risk. When the short ban was in effect, the market quality of financial stocks without subprime assets exposure had deteriorated to a larger degree than that of financial companies with subprime assets exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also be seen as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.

We investigate how director networks impact IPO characteristics and find that firms with better-connected directors have higher IPO market valuation, more positive offer price revisions, higher first-day returns, more pre-IPO media coverage, and superior post-IPO stock performance. Director networks are beneficial to the share offering because corporate directors help facilitate information exchange with prospective investors, attract their attention to the IPO, and maintain and grow their interest after the IPO.