Knowledge that Transforms

Using a data set of public procurement auctions and registered shareholders of all bidding firms in Singapore, we study the effects of ownership networks on prices and efficiency in product markets. We find participating bidders with common owners or common owners’ owners are more likely to submit identical bids, and the identical bids are associated with higher contract prices. Our structural estimates suggest removing ownership network effects improves a procurer’s cost efficiency. Our findings are robust to falsification tests, bid rounding concerns, placebo tests using other common stakeholder relationships, and weighting based on a machine-learning prediction of the auction format.

We model credibility challenges financial regulators often face when disclosing bank stress test results. Since disclosures influence banks’ risk-taking and depositors’ withdrawal decisions, regulators may have incentives to misreport. We show that regulators can reveal results credibly through imprecise disclosures to both banks and depositors. The regulator reveals only the range or the interval in which the result lies. Crucially, our findings indicate that stress test results can be disclosed credibly without assuming that the regulator is committed to truthful disclosure.

Downstream customer firms’ bargaining power can lead to suboptimal diversification in upstream suppliers’ innovation when customers cannot commit to a long-term relationship. After the revelation of financial fraud by a major customer, suppliers surprisingly outperform a control group in terms of sales growth, Tobin’s q, and survival likelihood over a 10-year period. Our results suggest that, before a fraud revelation, supplier managers’ short decision horizons and aversion to short-term risk enable influential customers to demand relation-specific innovation, leading to suboptimal diversification. When customer importance weakens, suppliers engage in riskier and novel innovation, thereby stimulating sales growth.

We study the relationship between managerial ownership and firm performance in a unique private firm setting. The simplicity of the ownership structure and nature of our sample firms help isolate the incentive-aligning effect of managerial ownership from the influence of other effects. We find that managerial ownership is positively associated with firm performance. This positive association is concave but not reversed as ownership increases, indicating a diminishing effect of ownership on performance. We use unique features of the data to further mitigate endogeneity concerns. Our findings support managerial ownership as an effective incentive-aligning tool in the absence of managerial entrenchment.

This paper investigates share price reactions and corporate responses to a set of policy changes regarding binding say-on-pay in Switzerland. The cross-section of stock price reactions indicates a trade-off: On the one hand, binding votes on executive compensation amounts, especially when conducted retrospectively, can help reduce agency costs by enhancing the alignment of management and shareholder interests. On the other hand, retrospective binding votes entail costs, for example, by distorting executives’ incentives for extracontractual, firm-specific investments. Corporate responses to the policy changes also reflect these trade-offs. Overall, our findings suggest that stronger and more direct shareholder power may not always be in the best interests of the shareholders themselves.

Does AI make firms vulnerable or resilient to cyberrisk? We develop a firm-year measure of AI intensity for U.S. listed firms using patents and 10-K business descriptions. A 1-standard-deviation increase in cyberrisk reduces patenting by 25%–30% for non-AI firms, with larger declines in data-intensive technologies. Frontier AI firms are much less affected, and their valuations rise when cyberrisk is high. This resilience does not extend to firms that adopt external AI tools without internal AI innovation. The evidence fits two channels: cyberrisk raises the cost of data-intensive innovation, and internal AI development builds organizational capacity to sustain innovation under cyberrisk.

We model mortgage refinancing as a bargaining game involving the borrowing household, the incumbent lender, and outside banks. We show that bargaining can provide a competitive advantage to the incumbent bank. In equilibrium, the borrower’s ability to refinance depends on the incumbent bank’s cost (dis)advantage relative to locally present competing banks and on the average creditworthiness of borrowers in the relevant market. It is also driven by borrower impatience and switching costs. We find empirical support for the key predictions of our model in an administrative data set covering the universe of mortgages in Belgium.

About 37% of Chinese listed firms have medical expertise, as measured by the existence of senior executives with a medical degree or medical-industry experience. Using the COVID-19 outbreak in China as a natural experiment, we find that the stock returns of firms with medical expertise, excluding those within the healthcare and pharmaceutical industry, are significantly higher than those without. The positive impact is more pronounced if a CEO or Chairman has medical expertise and if the firm is not state-owned. Overall, this study underlines the importance of diversified executive human capital on firm performance through disentangling macro shocks.

We present causal evidence on the effect of boardroom networks on firm value. We exploit a ban on interlocking directorates of Italian financial and insurance companies as exogenous variation and show that firms that lose centrality in the network experience negative abnormal returns around the announcement date. The key driver of our results is the role of boardroom connections in reducing asymmetric information. We find stronger effects for firms with fewer business partners and less experienced directors. Finally, we show that network centrality has a positive effect on directors’ compensation, providing evidence of rent sharing, and liquidity.

This paper investigates the effects of housing wealth shocks on workers’ career decisions related to job quality and long-term career outcomes. Using a novel data set of career histories in the film industry, we find that homeowners facing greater house price declines reduce participation in high-quality projects but increase involvement in low-quality films. Conversely, renters are not affected by these shocks. Consistent with individuals using home equity during job searches, these shocks have a greater impact on homeowners who extracted home equity during the housing boom. Moreover, house price declines from the housing crisis affect long-term career paths.