The Great Recession and the financial crisis of 2007–09 prompted calls for fundamental reforms of economic theory. The role of theory in economics and in recent economic events is considered in light of two recent books: the sociologist Richard Swedberg's The Art of Social Theory and the economist André Orléan's The Empire of Value: A New Foundation for Economics.

This review essay reviews the volume edited by Owen Humpage, Current Federal Reserve Policy under the Lens of Economic History: Essays to Commemorate the Federal Reserve System’s Centennial, and provides a broader perspective on central-banking issues. The papers in the Humpage volume address various aspects of central banking history, money, and private banking, with a focus on putting recent Fed policies in perspective. The topics covered include the role of the central bank as lender of last resort, the effects of open-market operations versus central-bank lending, central-bank independence, the political economy of monetary unions, financial crises, the effects of unconventional monetary policies, commodity monies, and the Canadian financial system as a natural experiment.

Using US Department of Justice data on local political corruption, I find that firms in more corrupt areas hold less cash and have greater leverage than firms in less corrupt areas. The results are robust to including a range of controls and to using an instrumental variable approach, two alternative survey measures of corruption, and propensity score matching. Further, the association between corruption and leverage is largest among firms that operate primarily around their headquarters. Overall, the evidence is consistent with the hypothesis that firms manage liquidity downward and debt obligations upward to limit expropriation by corrupt local officials.

This article examines how corporate reliance on budgets is affected by major changes in the economic environment. We combine survey and archival data from the economic crisis that began in 2008. The results indicate that budgeting became more important for planning and resource allocation but less important for performance evaluation in companies affected more strongly by the 2008 economic crisis. Additional evidence from interviews and data gathered in a focus group further illustrate these results and show the changes organizations have introduced to respond to the economic crisis. Taken together, and contrary to more general conclusions from the literature such as an overall increase or decrease in the importance of budgeting, we find that companies emphasize certain budgeting functions over others during economic crises.

There are persistent differences in self-reported subjective well-being across US metropolitan areas, and residents of declining cities appear less happy than others. Yet some people continue to move to these areas, and newer residents appear to be as unhappy as longer-term residents. While historical data on happiness are limited, the available facts suggest that cities that are now declining were also unhappy in their more prosperous past. These facts support the view that individuals do not maximize happiness alone but include it in the utility function along with other arguments. People may trade off happiness against other competing objectives.

This study analyzes the relation between chief executive officer (CEO) personal risk-taking, corporate risk-taking, and total firm risk. We find evidence that CEOs who possess private pilot licenses (our proxy for personal risk-taking) are associated with riskier firms. Firms led by pilot CEOs have higher equity return volatility, beyond the amount explained by compensation components that financially reward risk-taking. We trace the source of the elevated firm risk to specific corporate policies, including leverage and acquisition activity. Our results suggest that nonpecuniary risk preferences revealed outside the scope of the firm have implications for project selection and various corporate policies.

We quantify the linkages among banks’ equity performance and indicators of sovereign stress by using panel GMM to estimate a three-equation system that examines the impact of sovereign stress, as reflected in both sovereign spreads and sovereign ratings, on bank share prices. We use data for a panel of five euro-area stressed countries. Our findings indicate that a recursive relationship between sovereigns and banks operated during the euro-area crisis. Specifically, for the five crisis countries considered shocks to sovereign spreads fed-through to sovereign ratings, which affected commercial banks’ equity-prices. Our results also point to the importance of using levels of equity prices – rather than rates of return – in measuring banks’ performance. The use of levels allows us to derive the determinants of long-run equity prices.

Over the last two decades, share repurchases have emerged as the dominant payout channel, offering a more flexible means of returning excess cash to investors. However, little is known about the costs associated with payout-related financial flexibility. Using a unique identification strategy, we document a significant cost. We find that actual repurchase investments underperform hypothetical investments that mechanically smooth repurchase dollars through time by approximately two percentage points per year on average. This cost of financial flexibility is correlated with earnings management, managerial entrenchment, and less institutional monitoring.

Charter takeovers are traditional public schools restarted as charter schools. We develop a grandfathering instrument for takeover attendance that compares students at schools designated for takeover with a matched sample of students attending similar schools not yet taken over. Grandfathering estimates from New Orleans show substantial gains from takeover enrollment. In Boston, grandfathered students see achievement gains at least as large as the gains for students assigned charter seats in lotteries. A non-charter Boston turnaround intervention that had much in common with the takeover strategy generated gains as large as those seen for takeovers, while other more modest turnaround interventions yielded smaller effects.