This paper examines the role of peer firm disclosures in shaping corporate research and development (R&D) investments. Drawing on models of two‐stage R&D races, I hypothesize that a firm could be either deterred or encouraged by peer disclosure of interim R&D success, depending on peer firms’ R&D strength in the race. Using granular, project‐level data on clinical trials in the drug development process, I find that a firm's R&D investments in a specific therapeutic area are deterred by disclosures of early‐phase trial initiation from strong rivals in the same area but encouraged by disclosures from weak rivals. Cross‐sectional analyses show that focal firm strength and disclosure relevance moderate the effects of peer firm disclosure. Overall, my evidence suggests that peer firms’ R&D disclosures can have both proprietary costs and deterrence benefits.

We study the market impact of a very successful financial innovation – the SPDR Gold Trust exchange-traded fund (GLD). GLD holds physical gold, and provides traders with a convenient and cost-effective way to gain exposure to gold. We find that after the introduction of GLD, the liquidity of gold company stocks declined, and their adverse-selection risk increased. Over the two-month period after GLD’s introduction, the stocks’ relative effective bid-ask spreads increased by over 15%, while their adverse-selection cost, as measured by the price impact of trades, went up by more than 30%. Gold stocks also experienced significant negative abnormal returns (−12% on average) in the month after GLD started trading. Our findings suggest that GLD attracted traders, especially uninformed traders, away from gold company stocks, and that the resulting negative demand shocks and decrease in the stocks’ liquidity caused their prices to decline. Our results show that existing securities can be seriously adversely affected when a new security enters the market.

It is recognized in the literature that there is a negative relationship between fund performance and fund exit. This paper analyses the performance of 6600 U.S. mutual funds that exited the market in the 2000–2014 period and nearly twice as many U.S. mutual funds that remained operational, to provide evidence on whether the negative exit – performance relationship existed during the 2008 financial crisis. We confirm the general relationship but show that, in contrast to all the other periods, there was no statistically significant exit – performance relationship during the financial crisis. We also show that the impact of expenses and loads on fund exit increased during the crisis. This is consistent with our argument that when some active investors leave the market, the passive ones become important to fund–families, albeit the investors may lose out as a result. We also show that the mergers that occurred in the years following the financial crisis resulted in statistically significantly worse post–merger performance of both the acquirers and of the targets in comparison with their pre–merger performance.

This is a post-peer-review, pre-copyedit version of an article published in Review of Accounting Studies. The final authenticated version is available online at: https://doi.org/10.1007/s11142-014-9295-6

This study investigates experimentally how mutual monitoring affects effort when employees are compensated via rank‐order tournaments. Theory and anecdotal evidence suggest that mutual monitoring may either decrease effort by facilitating collusion or increase effort by stimulating competition. In our first experiment, we find that mutual monitoring increases effort, because participants do not attempt to collude but rather behave competitively. This result leads us to expand our theory and develop hypotheses to predict that the effect of mutual monitoring depends on whether employees have the inclination to collude or compete. Specifically, we predict that mutual monitoring decreases effort when employees are inclined to collude and increases effort when employees are inclined to compete; that is, mutual monitoring will not change the basic inclination created by the workplace setting, but will “turn up the volume” on the effect that such inclination has on effort. Consistent with our predictions, our second experiment finds that mutual monitoring leads to lower effort when participants have a collusive inclination and (eventually) higher effort when they have a competitive inclination. Overall, the results from these two experiments suggest that allowing employees to observe each other's productive effort in tournament incentive settings may have positive or negative consequences for the firm, depending on whether environmental factors predispose employees to collude or compete.

This study explores the association between firm innovation and loan covenant strictness. We find that lenders construct stricter contracts for firms filing more patents, consistent with lenders imposing more oversight on firms when they enter the commercialization stage after having demonstrated their inventiveness. Our results hold under propensity score matching and entropy balancing, and when exploiting the American Inventors Protection Act as a shock affecting unrelated banks’ access to patent filing information. The relationship we document is stronger when the lender has more expertise and for firms with higher default risk. We demonstrate that borrowers’ patent filings are associated with more future R&D and capital investment and with a higher likelihood of their acquiring firms in the industry of their patent filings. Our results are consistent with the theoretical prediction that lenders interpret patent filings as indicative of high inventive potential that requires stricter discipline and oversight by lenders in order to be converted into actual business success, and with them designing debt contract terms accordingly.

We examine changes in bank loan contracts after borrowers experience a nearby local newspaper closure. Compared to a sample of control firms, we find that the closure of a local newspaper leads to higher interest spreads for borrowers. This effect is more pronounced when there are fewer related lenders in the syndicate, when lenders have less prior lending experience in the local area, when the closed local newspapers are associated with increases in misconduct cases, and for institutional lenders who rely more heavily on others for monitoring. In addition, we observe that loan contract amendments become less frequent, while covenant strictness increases following newspaper closures. Our main findings are robust to various research design specifications and are not driven by deteriorating local economic conditions. Our findings suggest that local media still plays a significant role in the debt markets, even as society moves deeper into the internet era.

Unionized workers are entitled to special treatment in bankruptcy court that can be detrimental to other corporate stakeholders, with unsecured creditors standing to lose the most. Using data on union elections, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions depress bondholders’ recovery values as they are assigned seats on creditors’ committees. Received September 19, 2016; editorial decision September 19, 2017 by Editor David Denis.