The Taylor rule presents a traditional approach to guiding and evaluating contemporary monetary policy as a function of inflation and economic slack. While the responsibilities of the Federal Reserve (Fed) include price stability and long-run growth, its mission has grown to include financial stability. Surprisingly, the question of whether financial stability ought to be considered as an element of monetary policy is hotly contested. This study aims to determine whether policymakers’ discussions of financial stability and other factors systematically explain deviations of observed policy rates from the rates implied by the Taylor rule. To this end, we conduct content analysis of the Fed’s monetary policy discussions to discover actual topics that enter into policy. We offer two main findings: First, discussion themes extracted from released Federal Open Market Committee meeting minutes provide explanatory power beyond standard Taylor rule variables. Second, additional explanatory power is provided by a tri-mandate policy rule that accounts for changes in the economic and financial system as moderated by the evolving preferences of the policymakers. We show that a discussion-based thematic model with financial stability dominates Taylor-type rules during normal times. Moreover, the tri-mandate policy model with financial stability dominates Taylor-type rules in zero lower bound conditions. Taken together, these findings reveal that financial stability has mattered to the Fed continuously and remains critical in setting monetary policy in zero lower bound.

We investigate how banks scrambled for liquidity following the asset-backed commercial paper (ABCP) market freeze of August 2007 and its implications for corporate borrowing. Commercial banks in the United States raised dollar deposits and took advances from Federal Home Loan Banks (FHLBs), while foreign banks had limited access to such alternative dollar funding. Relative to before the ABCP freeze and relative to their non-dollar lending, foreign banks with ABCP exposure charged higher interest rates to corporations for dollar-denominated syndicated loans. The results point to a funding risk manifesting as currency shortages for banks engaged in maturity transformation in foreign countries.

We examine commercial real estate fund managers’ abilities to generate abnormal profits through selection of outperforming property submarket segments or through the timing of entry into and exit from submarkets. The vast majority of portfolio managers exhibit little market timing ability, with the exception of non-NYSE real estate investment trusts after the financial crisis. A substantial fraction of managers seems able to successfully select property submarkets. Selection performance exhibits significant persistence. Managers that are active in more liquid markets tend to exhibit better timing performance, while managers exhibiting better selection ability appear to be active in less liquid markets.

We explore revealed preferences for the contractual treatment of changes to GAAP in a large sample of private credit agreements issued by publicly held U.S. firms. We document a significant time‐trend toward excluding GAAP changes from the determination of covenant compliance over the period from 1994 to 2012. This trend is positively associated with proxies for standard setters’ shift in focus toward relevance and international accounting harmonization. At the firm level, borrowers facing higher uncertainty are more likely to write contracts that include GAAP changes, but these firms also show a more pronounced time‐trend toward excluding GAAP changes. While this evidence is broadly consistent with an efficiency role for GAAP changes in debt contracting, it is also consistent with a shift in standard setters’ focus offering a partial explanation of why fewer contracts rely on GAAP changes in 2012 than in 1994.

We show that the dividend yield and earnings yield jointly are strong predictors of dividend growth. We motivate the joint specification with a theoretical model and show how omitting the earnings yield biases the dividend yield coefficient towards zero, explaining why the dividend yield by itself is a poor predictor of dividend growth. Our empirical results are robust in pre- and post-war U.S. data, in recessions and expansions, in international data, and when controlling for additional predictors.

This research examines the relationship between policy uncertainty and mergers and acquisitions (M&As). We find that policy uncertainty is negatively related to firm acquisitiveness and positively related to the time it takes to complete M&A deals. In addition, policy uncertainty motivates acquirers to use stock for payment and to pay lower bid premiums. Acquirers, on average, create larger shareholder value from M&A deals undertaken during periods of high policy uncertainty, which is attributable to their prudence as well as the wealth transfer from the financially constrained targets to acquirers.

Defense litigation counsel are retained by target firm management to defend them in mergers and acquisition (M&A) litigation. We use hand collected data from a ten-year period (2003−2012) to examine whether the choice of defense litigation counsel affects the outcome of M&A litigation and shareholder value. We construct league tables for defense litigation firms and identify the top 10 defense litigation firms. Comparing these firms with all other defense litigation firms, we find that top defense litigation counsel are involved in a significantly higher proportion of cash deals, non-same-industry deals (implying a lower possibility of antitrust-related concerns), and friendlier deals, all of which are associated with smaller initial takeover premium proposals. We find evidence that, controlling for endogeneity, top defense litigation counsel negotiate cheaper and faster settlements than other defense litigation counsel thereby protecting low premium deals from more serious challenges. We also show that top defense litigation counsel are more effective in multijurisdictional litigation cases, again obtaining cheaper and faster settlements in low premium deals, which we theorize shows that they are better able to handle the complexity and strategy that accompany these lawsuits.

We test whether credit rating analysts consider managerial ability as a credit risk factor and find that higher‐ability managers obtain more favorable credit ratings. Controlling for past performance, these results suggest that managerial ability is itself a significant credit rating factor. Cross‐sectional analyses indicate that managerial ability is beneficial specifically in firms facing financial or competitive pressure. We find that high‐ability managers mitigate the adverse impact on ratings of other credit risk factors including negative earnings and low interest coverage. Our results contribute to a growing literature documenting economic benefits to hiring and retaining high‐quality management.

This research examines the relations between tournament-based incentives and corporate cash holdings and the value of cash. We find robust evidence that tournament-based incentives are positively related to cash holdings and the value of cash. Moreover, the effect of tournament-based incentives on the value of cash is stronger for financially constrained firms. Our evidence indicates that as tournament-based incentives motivate riskier corporate policy choices that lead to not only larger expected shareholder value but also greater cash-flow uncertainty, firms increase cash holdings to cushion potential liquidity shortfalls that may cause underinvestment.

We find evidence that chief executive officers’ (CEOs’) hobby of flying airplanes is associated with significantly better innovation outcomes, measured by patents and citations, greater innovation effectiveness, and more diverse and original patents. We rule out alternative explanations, leading us to conclude that CEO pilot credentials capture the personality trait of sensation seeking. Sensation seeking combines risk taking with a desire to pursue novel experiences and has been associated with creativity. Our evidence highlights sensation seeking as a valuable personality trait that can be used to identify CEOs who are likely to drive innovation success.