Knowledge that Transforms

We examine disasters caused by individual firms with severe environmental impacts. These disasters trigger industry-wide demand for corporate social responsibility (CSR). We analyze whether affected firms respond by adopting substantive or symbolic CSR measures. We find that firms increase overall CSR performance through improvements in diversity and human rights rather than decreasing environmental concerns. This suggests firms prioritize symbolic CSR to legitimize their operations rather than substantive measures to mitigate environmental harm. We also document diverging costs and welfare effects. On average, substantive CSR actions are costlier and cause lower margins but avoid divestments by ESG-oriented funds while improving long-term credit ratings. Some of these benefits of substantive actions also accrue through symbolic actions at a lower cost.

This study examines the factors driving corporate headquarters shutdown decisions among S&P 500 firms during the early months of the Covid-19 pandemic. Using mobile phone data to estimate shutdown timing, we find that financial flexibility and CEO characteristics, such as pay duration, overconfidence, power, age or gender, do not influence shutdown decisions. Instead, work-from-home adaptability, local shelter-in-place mandates, and political alignment emerge as critical drivers. Democratic-leaning firms, particularly those led by Democratic-leaning CEOs, shut down significantly earlier than their counterparts. These findings highlight the importance of political and regulatory dynamics in shaping corporate responses during crises.

This paper examines how political connections shape media bias and contribute to regulatory noncompliance in China's capital markets. Using a large sample of news articles on publicly listed non-state-owned enterprises (non-SOEs), we find that politically connected firms receive significantly more favorable media coverage than their unconnected peers. A difference-in-differences analysis exploiting a regulatory shock—China's Rule 18 anti-corruption regulation—that forced politically connected directors to resign confirms the link between political ties and biased reporting. Around corporate scandals, politically connected firms face softer media scrutiny, weakening reputational penalties. Critically, we show that this media shielding effect increases the likelihood of repeated regulatory violations. These findings highlight the social costs of the “scandal-covering” role of political connections, which not only distort the information environment but also undermine regulatory deterrence and market discipline.

We investigate how shareholder litigation rights impact CEO turnover decisions and board oversight. We exploit an unexpected court ruling that increased hurdles for shareholders of Ninth Circuit firms to initiate securities class action lawsuits. After the ruling, the sensitivity of forced CEO turnover to performance decreases for firms in the Ninth Circuit. Additionally, board independence declines and directors of Ninth Circuit firms attend fewer meetings and hold more external board positions after the decision. These effects are exacerbated in firms that lack monitoring from institutional shareholders. For firms dependent on shareholder litigation, the reduction in litigation rights was economically significant and led to a 9.72 % decline in firm value.

Angel investing offers experienced entrepreneurs an opportunity to contribute to entrepreneurial ecosystems , with prior entrepreneurial experience believed to enhance an individual's ability to evaluate and nurture startups. This has led to expectations that angel investors with entrepreneurial backgrounds possess superior selection and treatment capabilities. However, our research challenges this assumption, documenting that angels with entrepreneurial backgrounds underperform relative to those with other upper echelon backgrounds, such as former venture capitalists. We explain these results through two key channels: the entrepreneurial learning channel, which suggests that former entrepreneurs may struggle to generalize their past experiences across different investment contexts, and the professional networks channel, which highlights the importance of syndication in venture capital.

Using rich data on familial background of US mutual fund managers, this paper sheds light on the formation of risk preferences by investigating birth order effects. Consistent with sensation-seeking behavior, we find that managers who are born later in the sibling hierarchy take more risks but perform worse relative to lower-birth-order managers. Later-born managers take more extreme style bets, hold more lottery stocks, churn their portfolios more, and engage in more civil and regulatory violations. These birth-order effects are more pronounced when parental resources are limited and age spacing is lower between siblings, suggesting sibling rivalry as a potential mechanism.

Can voluntary market-based initiatives effectively promote greener credit allocation? Our paper addresses this question by assessing the role of self-declared environmentally conscious bank shareholders, specifically those endorsing the UN Principles for Responsible Investment, in shaping the sustainability of bank loan portfolios. For our analysis, we utilize a comprehensive dataset that includes information on syndicated loans, firm-level emissions, and both bank and firm ownership and financial data. Controlling for loan demand, at the bank–firm level, we find no evidence of an association between a higher ownership stake by eco-conscious bank shareholders and shifts in banks’ loan allocation strategies between firms with low and high emissions. At the firm-level, we find that lending relationships with banks characterized by greater eco-conscious ownership are not associated with significantly improved environmental performance among borrower firms. Our analysis reveals that banks are treated differently by investors compared to non-financial firms, likely due to regulatory requirements and their unique governance structures, which might explain the observed lack of influence of eco-conscious bank shareholders. Our findings thus indicate the potential limitations of relying on self-declared eco-conscious bank shareholders to guide banks toward environmentally sustainable credit allocation.

Going public reduces information asymmetry between a firm’s incumbent and potential new lenders. However, we show that while loan spreads are lower in post-IPO loans due to increased lender competition, the likelihood of having interest-increasing performance-pricing, which automatically increases spreads if firm performance deteriorates, is substantially heightened, only for loans from new lenders. This indicates that new lenders remain skeptical despite a more “level playing field.” Newly public firms need to commit to performance-sensitive debt to convince outside lenders, despite gaining a credible mechanism to disseminate information to them. Pricing grids do get amended more often ex-post for such loans, reflecting a lender learning process. Newly public firms are indeed still more likely to obtain loans from new lenders post-IPO. Our results suggest that performance pricing can serve to address the remaining information gap with new lenders beyond hard-information disclosure, allowing firms to better diversify their lender base.

This paper demonstrates that firms receiving above-industry-average support in their “say-on-pay” (SoP) votes engage in more M&A transactions in the subsequent year. Our empirical findings suggest that high levels of SoP voting support may boost managerial confidence, thereby stimulating increased pursuit of acquisitions. Moreover, we observe that managers garnering higher SoP vote support are more likely to secure shareholders' backing in M&A votes, receive higher compensation in successful deals, and face a reduced likelihood of forced turnover following unsuccessful deals. Additionally, we find that both short-term and long-term M&A performance significantly improves in deals announced by managers receiving higher SoP voting support. These findings contribute to our understanding of the relation between shareholder support for CEOs and firm investment.

We investigate the impact of anti-corruption regulations on corporate investment by leveraging the implementation of global financial disclosure laws. Our findings reveal that, subsequent to the adoption of these laws, there is a reduction in the rate of corporate investment, alongside an enhancement in investment efficiency. This suggests that anti-corruption policies serve to curb firms’ excessive investment, which is often fueled by government subsidies in corrupt environments. Our analysis provides valuable insights into the advantages of anti-corruption laws and carries significant policy implications.