This article studies whether knowledge protection affects shareholder value and firms’ investment in knowledge assets using the staggered adoptions and rejections of the inevitable disclosure doctrine (IDD) by U.S. state courts as exogenous changes in the level of knowledge protection. We find positive (negative) abnormal stock returns around the IDD adoption (rejection) day for firms headquartered in the state, and we uncover a positive IDD treatment effect on firms’ investment in knowledge assets. Moreover, the effects on stock returns and knowledge assets investment are stronger in more knowledge-oriented industries and firms. Finally, enhancing knowledge protection does not discourage local entrepreneurial activity.

We estimate the causal effect of liquidity regulation on bank balance sheets. We take advantage of the heterogeneous implementation of tighter liquidity regulation by the UK Financial Services Authority in 2010. We find that banks adjusted the composition of both assets and liabilities, increasing the share of high quality liquid assets and non-financial deposits while reducing intra-financial loans and short-term wholesale funding. We do not find evidence that the tightening of liquidity regulation caused banks to shrink their balance sheets, nor reduce the amount of lending to the non-financial sector

I examine whether bank regulators and external auditors have conflicting effects on loan loss provision timeliness, an accounting choice associated with important economic consequences and a potential conflict between regulators and auditors. In the absence of the other group, auditors and strict regulators are each positively associated with timeliness. However, audits are negatively associated with timeliness when strict regulators are present, consistent with a conflict for which auditors are the dominating group as audited banks attain a similar level of timeliness regardless of the extent of regulatory scrutiny. Collectively, this suggests that regulators and auditors differentially influence loan loss provisions

We examine the effects of financial reporting regulation on firms’ banking. Exploiting discontinuous public disclosure and auditing requirements assigned to otherwise similar small and medium-sized private firms, we document that financial reporting regulation reduces firms’ reliance on concentrated and local bank relationships and increases banks’ reliance on firms’ financial reporting, consistent with a shift in firms’ banking from relationship toward transactional approaches. Our evidence suggests that financial reporting regulation substitutes for banks’ information production role by burdening firms with the disclosure and auditing of their financial statements, consistent with institutional complementarities between reporting and banking systems. Received October 21, 2016; editorial decision September 15, 2017 by Editor Philip Strahan

I exploit variation in the adoption of disclosure and supervisory regulation across U.S. states to examine their impact on the development and stability of commercial banks. The empirical results suggest that the adoption of state‐level requirements to report financial statements in local newspapers is associated with greater stability and development of commercial banks. I also examine which political constituencies influence the adoption of disclosure and supervisory regulation. I find that powerful landowners and small private banks are associated with late adoption of these regulations. These findings suggest that incumbent groups oppose disclosure rules because the passage of such rules threatens their private interests

We examine the effects of the world's first comply-or-explain dividend regulation in China's Shanghai Stock Exchange, which requires firms to either pay at least 30% of profits as dividends or explain the use of funds. We find that many firms increased their payout ratio to comply, by increasing dividends or decreasing earnings. Firms with high profitability, state ownership, and fewer agency conflicts were more likely to comply. However, complying firms subsequently issued more debt and had a decline in accounting performance and firm valuation. The evidence suggests that the comply-or-explain regulation increased firms' dividends at substantial costs

We study the liquidity behavior of commercial banks in response to negative capital shocks. Using pre-Basel III data, U.S. banks with assets less than $1 billion treated (unregulated) liquidity and (regulated) capital as substitutes. Following exogenous shocks to their regulatory capital ratios, these banks shifted away from loans, loan commitments, and dividend payouts, actions that both repaired their capital ratios and enhanced their liquidity positions. We find little similar behavior at larger banks. We conclude that a minimum capital constraint naturally mitigates liquidity risk at community banks, justifying the exemption of these banks from the Basel III liquidity standards

Retail banking is a complex industry in which depository institutions bundle various services and may have market power. We use a recent regulation as a natural experiment to provide broad evidence about competition and the importance of bundling in retail banking. That regulation, which resulted from the Durbin Amendment to the Dodd–Frank Act, capped debit card interchange fees for banks with over 10 billion in assets. Using a difference-in-differences identification strategy, we document and quantify the resulting decline in interchange income for treated banks. We further find that treated banks offset more than 90% of the lost interchange income through increases in deposit fees for account holders. We argue that the ability to adjust deposit fees indicates (i) that treated banks have market power with respect to their account holders and (ii) strong complementarity between debit card transactions and deposit accounts. These results are robust when limiting the sample to banks near the asset threshold or using control banks with low direct competition with treated banks. Treated banks neither reduced costs nor strategically avoided the 10 billion threshold

This paper quantitatively assesses time inconsistency, moral hazard, and political ideology in monopoly regulation of electricity distribution. We specify and estimate a dynamic model of utility regulation featuring investment and moral hazard. We find underinvestment in electricity distribution capital aiming to reduce power outages and use the estimated model to quantify the value of regulatory commitment in inducing greater investment. Furthermore, more conservative political environments grant higher regulated returns but have higher rates of electricity loss. Using the estimated model, we quantify how conservative regulators thus mitigate welfare losses due to time inconsistency but worsen losses from moral hazard

China's broad anti-corruption campaign includes a regulation that requires bureaucrats to resign from director positions in listed companies. Using this particular event to test the effect of the anticorruption regulation, we find that this regulation costs firms with banned directors on average 4%. This cost cannot be explained by the typical cost of losing a director or by damage from a political vendetta conducted by the leadership. We further show that the anticorruption regulation impedes firm value not only through political connections but also through the anticorruption disincentive, the incentive to act passively for fear of being accused of corruption. Finally, affected firms reduce their investments, hire more employees and have poor performance afterwards