We explore the impact of religious norms on the relationship between corporate social responsibility (CSR) and firm value. Employing a longitudinal sample of publicly listed U.S. firms, we document that strong local religious norms in the area surrounding firms’ headquarters attenuate the positive effect of CSR on firm value. In cross-sectional analyses, we find that the attenuating effect of strong local religious norms is amplified for firms with heightened litigation risk. We also find that the positive effect of CSR on firm value is amplified for firms headquartered in areas where prevailing religious norms are more tolerant of risk-taking. Further, we find that strong religious norms attenuated the positive association between CSR and abnormal stock returns during the 2008–2009 financial crisis. Taken together, our findings cast local religious norms as an important contextual factor that influences the insurance value of CSR—the protection that CSR affords against stakeholder reactions to negative events.

We examine how options trading affects voluntary corporate disclosure, so that we can shed light on whether managers’ potential learning from the options market induces them to withhold disclosure. We find that options trading reduces the likelihood and frequency of management earnings forecasts, suggesting that firms that have active options trading on their stock make fewer voluntary disclosures. This finding is in accordance with the theoretical prediction that managers strategically reduce disclosure to avoid crowding out informed trading, which can give them informative feedback for their decision making. In support of the managerial learning channel, we document a real effect of reduced disclosure: When managers disclose less, options trading has a stronger positive effect on firm investment efficiency. The more pronounced effect of options trading on management earnings forecasts when the need for managerial learning is higher further supports the learning channel.

Using the NOx budget program (NBP) as a quasi-natural experiment, we study how air quality affects the productivity of patent inventors. Motivated by previous studies linking air quality to people's risk-taking tendencies and cognitive abilities, we find that after the implementation of the NBP, inventors located in NBP participating states produce more patents and the quality of their patents increases. These inventors engage more in exploratory innovation and less in exploitative innovation, and they shift their strategies toward risky, high-value innovation. Our findings suggest that risk-taking and cognitive ability are the channels through which improved air quality enhances inventor productivity.

The finance literature offers two competing possibilities on how investors respond to the quality of public financial statements in their pricing decisions. They could collect either (i) more private information to benefit from lower information collection cost, or (ii) less private information because of lower incremental benefits. In this paper, we use the audit setting to examine which possibility prevails. Using the idiosyncratic return volatility as a proxy for firm‐specific information, we show in a sample of 51,559 firm‐year observations for 8,261 U.S. firms spanning the period of 2000–2010 that firms audited by higher‐quality auditors exhibit lower average idiosyncratic return volatility but a higher concentration of it at the time of earnings announcements. Our findings are consistent with the argument that investors reduce private information collection in response to higher audit quality. Our findings are robust to alternative measures of audit quality and idiosyncratic return volatility.

Whether and how credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt relative to bank debt when CDSs referencing their debt start trading. The results are robust to the endogeneity of CDS trading. Furthermore, the increase in public debt is concentrated in senior bonds and notes, which are the most common CDS reference assets. The effect of CDS trading is most pronounced when bond underwriters take a net selling CDS position and for informationally opaque firms. These findings suggest that the hedging and informational roles of CDSs have real effects on corporate debt structure.

We find that mutual funds whose managers are socially connected with firm auditors hold more shares of these firms and generate superior portfolio returns. Cross‐sectional results reveal that the relation between social connections and mutual fund stockholdings is more pronounced: when the social connections are stronger, when the auditor is in a better position or has stronger incentives to acquire private information, when the fund manager exercises more power, for small audit firms, for auditors in areas with poor investor protection, and for public firms with greater business opacity or private information. Other results are consistent with fund managers electing to schedule their corporate site visits to coincide with the fieldwork of their connected auditors, as would be expected if fund managers time their visits to meet with these auditors to facilitate information transfer. Additionally, we observe associations between fund trading prior to earnings surprises and audit opinions, and the presence of social connections between fund managers and firm auditors. Finally, we show that mutual funds and firms in which they invest tend to appoint connected auditors and pay them higher fees. Collectively, we document empirical patterns that would arise if socially connected auditors and mutual fund managers share information.

Institutional cross-owners, specifically institutional investors with significant stakes in multiple firms in the same industry, are becoming increasingly common in the United States. In this paper, we investigate and find that the presence of institutional cross-owners facilitates a firm's financing of its investment opportunities, consistent with institutional cross-owners reducing the adverse selection concerns of those who provide capital for the investment opportunities. We then examine the conditions under which the presence of institutional cross-owners is likely to more significantly reduce adverse selection and thereby have even more of a positive effect on the financing of investment opportunities. We document that relative to transient institutional cross-owners, dedicated institutional cross-owners facilitate more financing of investment opportunities. We also find that institutional cross-owners facilitate the financing of investment opportunities even more for firms with greater dependence on external financing, those with an opaque financial reporting environment, and those with more product market competition. Our paper offers novel insight into how a firm can benefit from the presence of institutional cross-owners.

We study the impact of CEO early-life disaster experience on stock price crash risk. Using a longitudinal sample of U.S. firms, we document that firms led by CEOs with early-life disaster experience have higher stock price crash risk. Our findings are consistent with CEOs who experienced early-life disasters being more risk tolerant, and thus more willing to accept the risks associated with bad news hoarding, engendering formation of stock price crashes. In cross-sectional analyses, we find that the effect of CEO disaster experience is amplified when a CEO has greater equity compensation-based incentives and power over corporate board to hoard bad news. Reinforcing bad news hoarding narrative, we also find that stocks of the firms led by CEOs with early-life disaster experience exhibit stronger asymmetric response to bad versus good news disclosures and are more likely to experience crashes accompanied by breaks in the strings of uninterrupted earnings increases. Further, consistent with early-life disaster experience making CEOs more risk tolerant, we find that firms led by CEOs with early-life disaster experience tend to have higher cash-flow volatility and stock return volatility. Evidence from supplemental analysis suggests that the impact of CEO early-life disaster experience on crash risk varies in a curvilinear manner with the severity of disaster.