We quantify the cost of pledging collateral for small businesses by exploiting a regulatory quirk of the SBA disaster lending program in which firms are exempt from posting collateral if their loan size is below a threshold. Firms bunch their loans below the threshold, and the resultant distortion in the loan size distribution reveals the magnitude of the collateral cost. The collateral cost is substantial and varies across collateral types, business sectors, and collateral laws in ways consistent with flexibility-based theories. Our findings have implications for firms’ borrowing constraints and disaster lending program designs.

We find that local religious social norms mitigate professional misconduct by financial advisors. Using publicly disclosed misconduct data, we find that financial advisors working in areas with greater religious participation are less likely to violate ethical standards. When advisors move to counties with greater religious participation, their misconduct rates decrease. The effect of local religiosity is robust across population density levels, misconduct types, and market conditions. We strengthen identification by using shocks to religious participation following local disclosures of sexual abuse by Catholic priests. The findings show that local religiosity restrains misconduct not only in previously studied corporate financial settings but also when professionals provide financial services to individuals and households.

We explore the impact of overlapping institutional ownership (OIO) within supply chains on the earnings management practices of supplier firms. Utilizing a dataset of U.S. publicly traded supplier firms from 1988 to 2016, we discover that suppliers with institutional ownership overlapping with their major customers exhibit reduced levels of discretionary accruals. This finding implies that such overlap discourages suppliers from engaging in upward earnings management through the manipulation of discretionary accruals. We also find that OIO curtails accrual-based earnings management by enhancing the relationship between supply chain partners and bolstering external monitoring. Additionally, we find that OIO also mitigates the extent of real earnings management undertaken by the supplier firm. These findings remain robust after addressing potential endogeneity concerns. Our results underscore the significant role of OIO within supply chains in curbing both accrual-based and real earnings management by supplier firms.