Earlier studies have linked equity market liberalization to growth in emerging markets. Some conclude liberalization causes growth, whereas others contend contemporaneous economic policies and conditions play important roles. The causal argument contends that foreigner investability in public firms leads to lower discount rates and greater share issuance, investment, and efficiency. Using three separate measures of foreign investability, we do not find these effects. Moreover, common de jure foreigner-investability measures are poor de facto measures. Economic indicators, not directly influenced by equity market liberalization, also grow faster in countries with more investable firms. Our findings suggest foreigner investability cannot fully explain the equity-market-liberalization-growth relation.

This study examines whether recent mergers between small and midsize accounting firms influence competition by increasing the number of firms that can compete with larger rivals in the U.S. public company audit market. I find that in-market mergers generate efficiencies that are reflected in a post-merger reduction in audit hours but not in reduced audit quality. For both in-market and out-of-market mergers, clients switching to post-merger firms are more likely to be accelerated filers and are significantly larger in terms of several proxies for size and complexity. Lastly, I find that an increase in market-level merger activity is associated with lower profitability of Big 4 firms operating in the same market but only in the smaller client segment. These findings suggest that recent mergers have actually increased competition in some segments of the audit market despite already high concentration and concerns about a lack of sufficient competition.

This paper investigates the psychological effects from stock market returns. Using an FBI database of over 55 million daily reported crime incidents across the United States, crime is proposed as a measure of psychological well-being. The evidence suggests that stock returns affect the well-being of not only investors but also noninvestors. Specifically, a contemporaneous negative (positive) relationship between daily stock market returns and violent crime rates is found for investors (noninvestors). A similar relationship is also found between local earnings surprises and violent crime. The contrasting relationships for investors and noninvestors suggests that relative wealth may influence well-being.

We challenge the theorized trade-off between risk management and investment due to collateral constraints. We compile a unique dataset of derivative transactions and collateral for U.S. public firms. Exploiting exogenous variation in cash-collateral, we observe significant effects on hedging but no impact on investment. Variations in PPE-collateral, instead, impact investment but show no association with hedging. Our findings suggest that a firm’s assets should not be seen as interchangeable; they rather play distinct roles in the collateralization process.

Little is known about how the SEC selects its targets for investigation. We study this subject using a new database of formal SEC investigations. We predict and find that case selection is associated with a firm's (i) likelihood of regulatory noncompliance, (ii) exposure to private sector scrutiny, and (iii) conspicuous public trigger events. The relationship between investigations and regulatory noncompliance and private sector scrutiny preferences is sensitive to SEC constraints, whereas the relationship with triggers is not. We also examine the association between investigation motives and enforcement actions, an important SEC outcome reported to Congress. While regulatory noncompliance-motivated and public trigger-motivated investigations are more likely to result in public charges, specifically when the SEC is constrained, private sector scrutiny-motivated investigations are less likely to result in public charges. Finally, investigation rates of potential targets are associated with the career trajectories of SEC personnel, while investigation outcomes are not.

We provide the first evidence of systematic bias among an emerging type of credit rating agency that relies on subscriptions from institutional clients as its primary source of revenue. Using data from Egan-Jones Ratings Company (EJR), a representative subscriber-paid rating agency, we show that EJR issues more optimistically biased credit ratings, less timely downgrades, and less accurate ratings for firms held by more EJR clients. Our evidence is consistent with EJR optimistically biasing its ratings to bolster subscriber revenue, which allows institutional clients to invest in riskier bonds with higher expected returns. Taken together, our findings suggest that the emergence of subscriber-paid rating agencies as an alternative to more traditional issuer-paid agencies is unlikely to resolve problems arising from conflicts of interest but rather alter the nature of these conflicts in the ratings process.

CEOs’ option-based compensation and discussions about political risk (risk-talking) in successive earnings conference calls are significantly positively associated. This effect is more significant in the subsample of firms with less equity price volatility and poor investment risk-taking (lower capital expenditure). Furthermore, seven out of eight components of risk-talking are positively related to CEOs’ option-based compensation. These findings suggest that CEOs with more options in compensation packages are likely to find discussing political risk during corporate earnings calls as a viable alternative to boost proxies of risk-taking outcomes (such as equity price volatility), especially when they perceive risk-taking expectations to be untenable.

We examine the direct and indirect impacts of natural disasters on deposit rates of U.S. bank branches from 2008 to 2017. We capture the indirect impact by the spatial spillover effects of disasters, from branches directly exposed to such disasters to neighboring branches. We theoretically motivate our spatial framework by local competition for deposits among branches and provide empirical evidence consistent with this model. We find that indirect effects contribute to at least two-thirds of the total impact for deposit rate-setting branches. Rate-setting branches in affected counties, on average, raise their deposit rates on 12-month CDs by 1.5 basis points directly due to the disaster shock. However, there is an additional indirect increase of 2.7 – 4.3 basis points for all rate-setting branches, including those in adjacent but unaffected counties, due to the local geographical competition for deposits. We also confirm that the spillover effect occurs among branches across counties via an overlooked social connectedness. Moreover, and importantly, online and one-county banks are more likely to rely on the information channel embedded in the social connectedness effect in response to natural disasters. Branches in less concentrated local markets also respond more to the nature disaster and rate adjustments of neighboring branches.

Firms facing complex objectives often decompose the problems they face, delegating different parts of the decision to distinct subunits. Using comprehensive data and internal models from a large U.S. airline, we establish that airline pricing is not well approximated by a model of the firm as a unitary decision maker. We show that observed prices, however, can be rationalized by accounting for organizational structure and for the decisions by departments that are tasked with supplying inputs to the observed pricing heuristic. Simulating the prices the firm would charge if it were a rational, unitary decision maker results in lower welfare than we estimate under observed practices. Finally, we discuss why counterfactual estimates of welfare and market power may be biased if prices are set through decomposition, but we instead assume that they are set by unitary decision makers.

Using proprietary data from AngelList Talent, we study how startup job seekers’ search and application behavior changed during the COVID-19 downturn. We find that workers shifted their searches and applications away from less-established startups and toward more-established ones, even within the same individual over time. At the firm level, this shift was not offset by an influx of new job seekers. Less-established startups experienced a relative decline in the quantity and quality of applications, ultimately affecting their hiring. Our findings uncover a flight-to-safety channel in the labor market that may amplify the procyclical nature of entrepreneurial activities.