Deposit insurance premiums impose costs on banks’ balance sheets, narrowing profit margins and inducing banks to “search for yield.” This paper estimates the effects of deposit insurance premiums on bank portfolio rebalancing using supervisory data and a kink in the insurance premium schedule. We show that deposit insurance premiums weaken banks’ demand for reserves (a liquid asset with no credit risk) and strengthen the supply of short-term interbank loans (a less liquid asset with credit risk). We discuss the implications of these findings for optimal deposit insurance pricing.

Under what conditions will a multinational corporation alter its operations to manage its risk exposure? We show that multinational firms will engage in operational hedging only when both exchange rate uncertainty and demand uncertainty are present. Operational hedging is less important for managing short-term exposures, since demand uncertainty is lower in the short term. Operational hedging is also less important for commodity-based firms, which face price but not quantity uncertainty. When the fixed costs of establishing a plant are low or the variability of the exchange rate is high, a firm may benefit from establishing plants in both the domestic and foreign location. Capacity allocated to the foreign location relative to the domestic location will increase when the variability of foreign demand increases relative to the variability of domestic demand or when the expected profit margin is larger. For firms with plants in both a domestic and foreign location, the foreign currency cash flow generally will not be independent of the exchange rate and consequently the optimal financial hedging policy cannot be implemented with forward contracts alone. We show that the optimal financial hedging policy can be implemented using foreign currency call and put options and forward contracts.

We examine the impact of institutional democracy on firm value through the lens of dividend policies. Using instrumental variables, we find strong evidence that democracy improves dividends in an international sample of 18,410 unique firms across 63 countries over the 1991–2018 period. This effect is more pronounced for firms with high agency costs, or those in countries with weak legal protection for shareholders. Our evidence is robust to alternative measures of democracy and a battery of tests addressing the challenges associated with the instruments. Furthermore, dividends are capitalized at a higher rate in more democratic countries, especially for firms with high growth options. To the extent that investors are willing to pay a premium for firms that distribute more dividends, the democracy-induced dividends add to corporate value beyond the premium associated with shareholder rights-induced dividends. Overall, our results highlight that institutional democracy is an important, yet unexplored, determinant of corporate valuation.

A famous paper by Conrad and Meyer calculates that on the eve of the American Civil War, slave prices were about equal to the present values of the slaves' labor services. They argue that this is evidence for the proposition that ordinary economic forces, without political intervention were not likely to put an end to slavery.I wrote this paper when pretty much the only economics that I knew was 1) how to prove the existence of competitive general equilibrium. 2) how to calculate present values. So the paper does two things. It shows how to apply Arrow-Debreu type existence theory to an economy with slavery. (this involved some technical wrinkles that were not in the existing existence literature.) More importantly, it argues that the calculations of Conrad and Meyer showed only that capital markets for slaves were working pretty well, but were not direcly relevant to the question of whether slavery as an institution was economically viable. To answer the latter question, we need to calculate two things. 1) Does an infant slave have positive present value? [If not, reproduction would be discouraged.] 2) Would a freed adult slave, perhaps because of the better incentives and opportunities for free people, be able to earn more than enough on the labor market to repay his or her market price to a slaveowner. I investigate the latter two questions empirically. The answer to the first question is "Yes". Spotty evidence suggests that the answer to the second question was also often "Yes."

This article studies how early-stage entrepreneurs respond to negative feedback about the quality of their ventures. We use data from new venture competitions, some of which privately inform founders of their relative rank. The empirical strategy compares lower and higher ranked losers across competitions in which they did and did not observe their standing. Receiving negative feedback increases average venture abandonment by 13%. Differences in responsiveness—for example, in venture risk, venture maturity, and signal precision—are consistent with particular theories about entrepreneurship, including the importance of experimentation.

Hedge fund activists have ambiguous relationships with the institutional shareholders in their target firms. While some support their activities, others counter their actions. Due to their relatively small holdings in target firms, activists typically need the cooperation of other institutional shareholders that are willing to influence the activists’ campaign success. We find the presence of “activism-friendly” institutions as owners is associated with an increased probability of being a target, higher long-term stock returns, and higher operating performance. Overall, we provide evidence suggesting the composition of a firm’s ownership has significant effects on hedge fund activists’ decisions and outcomes. (JEL: G13, G23, G34) Received March 12, 2020; editorial decision July 13, 2020 by Editor Andrew Ellul.

Low-income households with proximate access to payday loans exhibit greater economic distress, higher take-up of food assistance benefits, and greater delinquency on child support payments than peers without proximate loan access. These findings suggest that borrowing can exacerbate distress, leading borrowers to use transfer programs and to prioritize payday loan payments over other liabilities like child support. In that way, payday lending produces negative externalities—costs imposed on taxpayers that fund transfer programs and nonresident family members that fail to receive child support. Received August 13, 2014; editorial decision December 5, 2016 by Editor Alexander Ljungqvist.

I study asset price amplification in an asymmetric information model. Entrepreneurs issue debt to finance investments in a physical asset. They have private information about their success probabilities. For a given debt level, higher asset prices require entrepreneurs to invest more of their own funds. This makes bad entrepreneurs more reluctant to mimic good ones; as a result, good entrepreneurs increase their equilibrium leverage and invest more, and this amplifies the initial asset price increase. This model generates predictions about the credit market that are qualitatively consistent with existing evidence. Received April 24, 2015; editorial decision June 15, 2016 by Editor Itay Goldstein.