A specific day-trading policy in Taiwan futures market allows an investigation of the performance of day traders. Since October 2007, investors who characterize themselves as “day traders” by closing their day-trade positions on the same day enjoy a 50% reduction in the initial margin. Because we can identify day traders ex ante, we have a laboratory to explore trading behavior without the contamination of potential behavioral biases. Our results show that the 3470 individual day traders in the sample incur on average a significant loss of 61,500 (26,700) New Taiwan dollars after (before) transaction costs over October 2007–September 2008. This implies that day traders are not only overconfident about the accuracy of their information but also biased in their interpretations of information. We also find that excessive trading is hazardous only to the overconfident losers, but not to the winners. Last, we provide evidence that more experienced individual investors exhibit more aggressive day trading behavior, although they do not learn their types or gain superior trading skills that could mitigate their losses.

We consider a model in which shareholders provide a risk-averse CEO with risk-taking incentives in addition to effort incentives. We show that the optimal contract protects the CEO from losses for bad outcomes and is convex for medium outcomes and concave for good outcomes. We calibrate the model to data on 1,707 CEOs and show that it explains observed contracts much better than the standard model without risk-taking incentives. When we apply the model to contracts that consist of base salary, stock, and options, the results suggest that options should be issued in the money. Our model also helps us rationalize the universal use of at-the-money options when the tax code is taken into account. Moreover, we propose a new way of measuring risk-taking incentives in which the expected value added to the firm is traded off against the additional risk a CEO has to bear.

This study examines the sophistication of rating agencies in incorporating managerial risk‐taking incentives into their credit risk evaluation. We measure risk‐taking incentives using two proxies: the sensitivity of managerial wealth to stock return volatility ( vega ) and the sensitivity of managerial wealth to stock price ( delta ). We find that rating agencies impound managerial risk‐taking incentives in their credit risk assessments. Assuming other things equal, a one standard deviation increase in vega ( delta ) will lead to an approximately one‐notch (two‐notch) rating downgrade. In addition, we evaluate the significance of credit ratings in the design of CEO compensation. Our findings suggest that rating‐troubled firms will gear down managerial incentives of risk seeking. In particular, other things equal, a rating downgrade to the lower edge of the investment category (i.e., BBB−) in the immediate prior year will bring about an approximately 51 percent reduction of vega incentive from options newly granted to the CEO in the current year. However, we find no evidence that firms' rating concerns significantly affect delta . Given the significance of credit ratings in the marketplace and their close connection to accounting, the findings of the current study advance our understanding, not only of how sophisticated rating agencies are in incorporating forward‐looking information (i.e., vega and delta ) into risk assessments, but of how influential the raters are in changing firms' compensation policies. The findings also have implications on the role of accounting in constraining excessive managerial risk taking with improved disclosures on managerial compensation.

We examine whether free-speech protections influence corporate environmental performance. Using the staggered enactment of U.S. anti-SLAPP statutes in a stacked difference-in-differences design from 1990 to 2019, we find that these laws significantly reduce firms’ toxic emissions without curbing economic activity. Anti-SLAPP enactments also promote environmental investment through green innovation, abatement spending, and waste reduction management, and strengthen governance via improved sustainability oversight, ESG-linked executive pay, employee training, and supply chain management. The effects are stronger when stakeholder monitoring is stronger and when managerial incentives embed sustainability goals. Overall, free-speech protections generate powerful environmental benefits.

This paper investigates the role of corporate financial reports in the Environmental Protection Agency's (EPA) regulatory activities. By tracking the EPA's direct retrieval of SEC filings, we identify three key findings. First, the EPA retrieves a large volume of financial reports, especially from firms in high‐pollution industries. Second, the EPA is more likely to access financial reports during enforcement investigations and significant rule proposals, but less so during compliance monitoring, with patterns varying predictably across firms. Third, the EPA's reliance on financial reports is potentially driven by its demand for information on firm liquidity, solvency, and profitability. Overall, our study highlights the usefulness of financial reports for the EPA as an environmental regulator.

Corporate executives managing some of the largest public companies in the U.S. are shaped by their daughters. When a firm’s chief executive officer (CEO) has a daughter, the corporate social responsibility rating (CSR) is about 9.1% higher, compared to a median firm. The results are robust to confronting several sources of endogeneity, e.g., examining first-born CEO daughters and CEO changes. The relation is strongest for diversity, but significant also for broader pro-social practices related to the environment and employee relations. Our study contributes to research on female socialization, heterogeneity in CSR policies, and plausibly exogenous determinants of CEOs’ styles.

Motivated by psychological evidence on limited investor attention and anchoring, we propose two proxies for the degree to which traders under- and overreact to news, namely, the nearness to the Dow 52-week high and the nearness to the Dow historical high, respectively. We find that nearness to the 52-week high positively predicts future aggregate market returns, while nearness to the historical high negatively predicts future market returns. We further show that our proxies contain information about future market returns that is not captured by traditional macroeconomic variables and that our results are robust across G7 countries. Comprehensive Monte Carlo simulations and comparisons with the NYSE/Amex market cap index confirm the significance of these findings.

Our study reveals that financial analysts issue more pessimistic forecasts for their investment banking clients' competitors than for unrelated firms. Our evidence is consistent with this behavior stemming from analysts' strategic incentives rather than their true beliefs. We find that analysts' pessimism for the client's competitors is more pronounced when the client is more important to analysts' brokerage houses, when high uncertainty prevents competitors from detecting analysts' strategic motives, and when analysts' brokerage houses are less prestigious. Additionally, we explore the economic consequences of the pessimism from the perspectives of the covered firms, brokerage houses, and financial analysts. Finally, we consider the impact of the 2003 Global Analyst Research Settlement. Overall, our results demonstrate that issuing pessimistic forecasts for clients' competitors is an understudied channel through which analysts curry favor with their investment banking clients.

We estimate the effects of student loan access on educational attainment and labor market returns in New Zealand. We exploit the introduction of a national policy mandating a 50% pass rate for student loan renewals using a regression discontinuity design. Retaining loan access increases reenrollment for students around the threshold, and a majority eventually graduate with a bachelor's degree within seven years. We find that retaining student loan access leads to large labor market returns for struggling students. The additional debt from further borrowing is small relative to the earnings returns and declines quickly due to faster repayment.

Prior research has pointed to differences in organizational capital as a reason for the persistent performance discrepancies among otherwise similar firms. In this paper, we develop and validate a new measure of organizational capital. Based on over a million crowd‐sourced employee reviews scraped from Glassdoor, we construct the measure of organizational capital at the firm‐year level using the word embedding model and ChatGPT‐generated synthetic reviews. Our measure varies over time in accordance with macro trends, and differs both across and within firms, reflecting firm heterogeneity and major internal changes. We validate our measure by testing empirical predictions of the properties of organizational capital discussed in prior literature. Our findings suggest that this measure captures a slowly evolving intangible asset that is significantly associated with firm performance and top management's influence, aligning with the conceptualization of organizational capital by Dessein and Prat. We further showcase applications of our measure in accounting, economics, finance, and management literature. Taken together, the paper provides implications for various stakeholders who are interested in assessing and managing firms' organizational capital.