This study investigates how the Uniform Fraudulent Transfer Act (UFTA) shapes venture capital (VC) investment strategies and startup outcomes. Using data on 34,578 VC-backed startups from 1977 to 2019, we find that the UFTA inadvertently leads VC investors to prioritize existing portfolio companies over new investments, resulting in longer funding durations. Startups subsequently rely more heavily on secured debt and experience diminished innovation outcomes. Additionally, under heightened financial pressure, startups commit violations more frequently, particularly employment-related offenses. Nonetheless, startups backed by more experienced VCs demonstrate stronger innovation performance and are more likely to achieve successful exits through initial public offerings.

Agent-based modeling (ABM) is a novel computational methodology for representing the behavior of individuals in order to study social phenomena. Its use is rapidly growing in many fields. We review ABM in economics and finance and highlight how it can be used to relax conventional assumptions in standard economic models. ABM has enriched our understanding of markets, industrial organization, labor, macro, development, public policy, and environmental economics. In financial markets, substantial accomplishments include understanding clustered volatility, market impact, systemic risk, and housing markets. We present a vision for how ABMs might be used in the future to build more realistic models of the economy and review some of hurdles that must be overcome to achieve this.

Financial reporting fraud continues to cost companies millions of dollars annually and is a major source of concern for regulators, stakeholders, and auditors. While academic research has largely focused on external auditors' fraud detection efforts, we analyze whether auditors can help prevent occurrences of fraud through low‐cost reputational signals of higher “strategic reasoning”; strategic reasoning refers to strategies that individuals take in light of the anticipated actions of others (see van der Hoek et al., 2005, A logic for strategic reasoning, AAMAS '05, 157−164). Specifically, we consider the potential impact on manager behavior of signaling whether audit professionals use zero‐, first‐, and second‐order audit approaches. Zero‐order audit approaches involve making decisions based mostly on the auditor's incentives, first‐order approaches involve decisions based mostly on the client's incentives, and second‐ or higher‐order audit approaches involve decisions based on the client's incentives while recognizing that the client will respond to the auditor's decisions (see Wilks & Zimbelman, 2004, Accounting Horizons , 18 (3), 173–184). Using a context‐rich experiment in which manager participants have no history of interacting with the auditor, we find that the likelihood of fraud occurring is lower when it is signaled that audit partners and their teams use a first‐ or second‐order strategic audit approach compared to a zero‐order approach, due to an increase in the perceived likelihood of the auditor detecting fraud. We also consider whether signaling an auditor's level of strategic reasoning influences the level of effort used to conceal fraud and find an increase in the expected level of fraud effort for managers in the first‐ and second‐order audit conditions.

We study the impact of uncertainty on optimal contracting in a multidivisional firm. Headquarters contract with division managers to induce effort. Uncertainty creates endogenous disagreement, thereby aggravating moral hazard. By hedging uncertainty, headquarters design incentive contracts that reduce disagreement and lower incentive provision costs, thereby promoting effort. Because hedging uncertainty can conflict with hedging risk, optimal contracts differ from those in standard principal-agent models. Our model helps explain the prevalence of equity-based incentive contracts and the rarity of relative-performance contracts, especially in firms facing greater uncertainty.

We use textual analysis of mandatory accounting filings to develop firm-level, time-varying measures of exposure to individual government agencies including the Securities Exchange Commission (SEC) and Internal Revenue Service (IRS). The measures vary predictably across industries and with agency-specific events such as the Sarbanes Oxley Act at the SEC and budget cuts at the IRS. The measures positively relate to undisclosed agency investigations and financial statement downloads. Firms' total exposure across government agencies negatively relates to their profitability, consistent with exposure to government agencies imposing net costs. Consistent with a causal interpretation of these results, the positive stock market reaction to the surprise election of Donald Trump, who promised to reduce the power of government agencies, positively varies with firms' exposure to government agencies. As initial applications of our measures, we demonstrate that expanded SEC oversight increases firms' stock liquidity and reduced IRS oversight decreases firms’ effective tax rates.

We develop a theory of information spillovers in sovereign bond markets in which investors can learn about default risk before trading in primary and secondary markets. If primary markets are structured as multi-unit discriminatory-price auctions, an endogenous winner’s curse leads to strategic complementarities in information acquisition. Shocks to default risk in one country may trigger crisis episodes with widespread information acquisition, sharp increases in the level and volatility of yields in risky countries, low and stable yields in safe countries, market segmentation, and arbitrage profits between primary and secondary markets. These predictions are consistent with the dynamics of auction informativeness during the Eurozone Sovereign Debt Crisis, which we measure using the reaction of secondary market yields to primary market yields.

In his work on economic development, Lucas?s goals were to understand the enormous diversity across countries in levels and growth rates of per capita income and to build a framework for studying developing economies with the same kind of precision and rigor that the neoclassical growth model had brought to the study of already industrialized countries. Lucas found knowledge spillovers to be a key mechanism. Thus, human capital, which he viewed broadly, is at the center of much of his work, and external effects are crucial. Lucas stated explicitly that in his view, physical capital plays a distinctly secondary role.

This study investigates the association between quantitative disclosure and information risk, hypothesizing that a greater proportion of numerical information in earnings conference calls decreases information risk and thus increases firm value. We find that, even after controlling for earnings information, more extensive numerical disclosure correlates positively with earnings announcement returns. This effect concentrates in firms with poorer information environments and during periods of heightened performance uncertainty. Finally, we show that a greater proportion of numerical disclosure reduces implied volatility, bid-ask spread, and implied cost of capital. Our findings highlight numerical disclosure's role in reducing information risk and emphasize its importance in financial disclosures.