An extensive review of the evidence related to the 2007–09 crisis reveals that it was an insolvency risk crisis, not a liquidity crisis. The appropriate post-crisis regulatory reform should therefore focus on increasing capital requirements. The Basel III liquidity requirements do not serve a useful economic purpose in dealing with the root causes of the stresses that led to the 2007–09 crisis, and unnecessarily constrain the asset transformation and liquidity creation roles of banks to the detriment of economic growth.

I study whether the demand for monitoring explains the scope for renegotiation in private debt contracts. Theory suggests that renegotiation trades off the benefits of enhanced monitoring with the costs of creditor intervention. Consistent with this tradeoff, I show that monitoring demand proxies bear a positive association with renegotiation intensity. In contrast, the costs of creditor intervention are associated with less frequent renegotiations. I also find that contractual monitoring mechanisms, such as covenants and concentrated syndicate structures, are positively related to renegotiation intensity. Furthermore, renegotiations transmit new information to the market, in line with private creditors discovering information during renegotiations.

In this study we use the recently mandated risk factor disclosure to examine the spillover effect of the Securities and Exchange Commission (SEC) review of qualitative corporate disclosure. We find that firms not receiving any comment letter (“No‐letter Firms”) modify their subsequent year's disclosures to a larger extent if the SEC has commented on the risk factor disclosure of (i) the industry leader, (ii) a close rival, or (iii) numerous industry peers. We refer to this effect as “spillover.” Further, we find that after SEC comments on the industry leader's disclosure, No‐letter Firms also provide more firm‐specific disclosures in the subsequent year. The increased disclosure specificity reduces these firms’ likelihood of receiving SEC risk disclosure comments on their new filings. Our evidence suggests an indirect effect of the SEC review of qualitative disclosure.

The U.S. bank stress tests aim to improve financial system stability. However, they may also affect bank credit supply. We formulate and test opposing hypotheses about these effects. Our findings are consistent with the Risk Management Hypothesis, under which stress-tested banks reduce credit supply−particularly to relatively risky borrowers−to decrease their credit risk. The findings do not support the Moral Hazard Hypothesis, in which these banks expand credit supply−particularly to relatively risky borrowers that pay high spreads−increasing their risk. Results are generally stronger for safer banks, banks that passed the stress tests, and the earlier stress tests.

We study the role of borrowers’ balance sheet conservatism (i.e., conservatism in asset values) in debt contract design. We find that borrowing costs are decreasing in the degree of balance sheet conservatism, and this effect is stronger for firms with lower credit quality. This is consistent with balance sheet conservatism reducing lenders’ uncertainty about the liquidation value of assets, thus facilitating the ex ante screening of borrowers. We predict that better ex ante screening also reduces the need for ex post monitoring, and find that balance sheet conservatism is associated with less restrictive covenant terms. Further, we find that asymmetric timeliness in earnings is associated with lower borrowing costs only when balance sheet conservatism is not high. This result suggests that lenders appear to recognize the constraining effect of high balance sheet conservatism on future conservatism in earnings.

We examine the relation between chief executive officer (CEO) inside debt holdings and the firm's choice between debt and equity financing when it accesses external capital markets. We find positive relations between CEO inside debt holdings and both the firm's likelihood to issue debt and the proportion of debt of their total external financing. Additional analysis indicates that CEO inside debt is negatively related to the cost of debt and positively related to the stock price reaction around the public debt issue announcement. Our results are consistent with the argument that inside debt aligns managers' and debtholders' interests leading to favorable debt terms that motivate firms to raise debt to meet their capital needs.

We exploit the staggered adoption of universal demand (UD) laws, which hinders shareholders’ rights to initiate derivative lawsuits, by 23 states in the United States from 1989-2005 as a quasi-natural experiment to examine the effects of shareholder litigation as a corporate governance mechanism on corporate cash holdings and its implication for shareholder value. We find that reduced derivative lawsuit risk following the passage of UD laws leads to lower level and higher value of cash. Further analysis indicates investment as a channel through which UD laws affect the level and value of cash. Our evidence highlights the dark side of shareholder litigation, which induces firms to pursue a conservative liquidity policy that hampers shareholder value.

We explore the market for lending to start-ups and two mechanisms that facilitate trade within it: (1) the salability of patent collateral and (2) the credible commitment of equity investors. Intensified trading in the secondary patent market is strongly related to lending, particularly for start-ups with more redeployable patent assets. Utilizing the crash of 2000 as a severe and unexpected capital supply shock for venture capitalists, we further show that lenders continue to finance start-ups with recently funded investors better able to credibly commit to refinance their portfolio companies while withdrawing from otherwise promising projects that could have needed their funds the most.