Does the early-career exposure of bank CEOs to the 1980s savings and loans (S&L) crisis affect the outcomes of banks they subsequently managed? We measure the S&L crisis exposure by the bank failure rate in the states where CEOs worked during the S&L crisis. Armed with this measure, we find that banks managed by CEOs with higher S&L crisis exposure took on less risk and that these banks better survived the financial crisis of 2008. In particular, CEOs adjusted risk attitudes in areas causing the S&L crisis: their more intense crisis experience reduced banks’ interest rate risk, exposure to risky financial innovation and credit risk. We establish the causal interpretation of the findings by evaluating the impact of crisis exposure via CEO hometown states and exploiting quasi-exogenous turnovers due to CEO retirement. Overall, CEOs learned from the past industry crisis which helped curtail their institutions’ risk exposures and enhance later crisis performance.

We document five novel facts about the role of search effort in forming trading relationships among firms by combining a variety of micro and macro datasets. These facts strongly suggest the presence of search complementarities. To study the implications of these facts for aggregate fluctuations, we build a dynamic general equilibrium model, disciplined by our new firm-level evidence on search effort. The model matches key aspects of the macro and micro data that have remained unaccounted for by standard models, including the time-varying bimodal distribution of output and the strong, nonlinear propagation of shocks. Also, changes to the volatility of shocks have nonlinear effects on macroeconomic fluctuations that advance a novel interpretation of the Great Moderation. Finally, we provide a new account of the state-dependent effects of fiscal policy.

It is common practice worldwide for corporate insiders to put up stock as collateral for personal loans. We highlight a potential problem in such pledging. When controlling shareholders face a margin call threat if stock prices fall below the required level for a loan, they have an incentive to use corporate resources for their private benefit. We develop and test a margin call hypothesis that controlling shareholders may initiate share repurchases to fend off potential margin calls associated with pledged stocks in order to maintain their control rights. Investors seem to recognize such behavior and discount the potential benefits of repurchase programs. However, share pledges are not reliably related to repurchases when control rights are not a concern. We further show that regulatory restrictions of control rights on pledging effectively reduce the likelihood of firms' repurchasing. Overall, our results shed light on the impact of share pledges on corporate decisions.

ABSTRACT While prior studies generally support that equity-based compensation induces CEOs to manipulate financial reporting, there is limited direct empirical evidence on whether financial misreporting concerns affect compensation design. A key challenge for establishing a causal relationship is that misreporting incentives and compensation policies are often endogenously determined. Exploiting the exogenous reduction in litigation threat following a 1999 ruling of the U.S. Ninth Circuit Court of Appeals, we examine how heightened misreporting concerns in a less litigious environment affect CEOs' compensation design. Consistent with the theoretical prediction that misreporting concerns prevent companies from providing more powerful incentive pay that is otherwise optimal, we find that firms headquartered in Ninth Circuit states decreased CEOs' equity portfolio vega relative to the control firms after the ruling. We further document that this reduction was concentrated among firms facing greater misreporting concerns post-ruling. JEL Classifications: J33; K22; M52.