Knowledge that Transforms

Environmental, social, and governance (ESG) funds have heterogeneous incentives to engage with portfolio firms. If funds view ESG as a value driver, then these incentives will affect funds’ behavior and thus their impact on firms. We compare ESG funds with similar levels of ESG investments but different incentives to engage. Funds with higher incentives to engage, that is, committed ESG funds, conduct more ESG-related information acquisition, pursue longer term investment strategies, engage more intensely on ESG issues, and have greater real impacts. Moreover, committed ESG funds have outperformed other ESG funds within subportfolios with higher and more effective ESG engagement.

We propose an equilibrium corporate bond pricing model that accommodates the heterogeneity in institutional investors’ preferences and mandates in an empirically tractable way. Our model, estimated on rich holdings data, quantifies investors’ preferences and demand elasticities, with inelastic insurers focusing on the investment-grade segment, and elastic mutual funds substituting across ratings groups. The model offers a novel quantitative perspective of the effect of recent trends in institutional ownership on equilibrium credit spreads and the funding costs of corporations. Overall, our model emphasizes the composition of institutional demand as an important state variable for corporate bond pricing.

This paper investigates the impact of introducing junior unsecured loans (i.e., FinTech loans) into the small business lending market. Using French administrative data, we find that firms experience a 13% increase in bank credit after receiving a FinTech loan. We use propensity score matching procedures and a shift-share instrument to account for credit demand. The credit increase only occurs when FinTech borrowers invest in new assets, and Fintech borrowers are subsequently more likely to pledge collateral to banks. This suggests that firms use FinTech loans to acquire assets that they then pledge to banks, thereby increasing total borrowing capacity.

We measure popular sentiment toward finance by applying a large language model to millions of books published in eight countries over hundreds of years. We extensively validate this measure both internally and externally. We document persistent differences in finance sentiment across countries despite ample time-series variation. Books written in the languages of more capitalist countries discuss finance in a more positive context. Finance sentiment is correlated with survey-based measures of financial market participation and income inequality. Finance sentiment declines one year before rather than after financial crises. Positive shocks to finance sentiment are followed by higher output and credit growth.

We conduct the first large-scale study of how different stakeholder groups assess corporate culture and quantify the economic implications of those differences. We employ generative AI to analyze analyst reports, call transcripts, and employee reviews, and organize the extracted information into a knowledge graph that links a culture type to its perceived causes and effects. We demonstrate that the divergence in different stakeholder groups' assessment of culture aligns with their distinct roles and economic incentives. Moreover, we show that analysts' culture analyses are incorporated into stock recommendations and target prices, and investors react to divergence in stakeholders' assessment of culture.

ABSTRACT We present results from a field experiment that introduced digital payroll accounts to unbanked factory workers to examine how inexperienced consumers learn to use a new financial technology. We find that exposure to payroll accounts leads to increased account use, accelerated learning, and avoidance of common consumer protection risks. Those receiving electronic wage payments gradually build trust in the technology, learn to use accounts without assistance, and avoid illicit fees. Using experimental variation in assignment to bank versus mobile money accounts, we show that these impacts are concentrated in mobile money accounts, the newer, more complex, and less trusted financial technology.

ABSTRACT We introduce a simple measure of informed trading risk, , the residual to liquidity quote‐improvement‐to‐deterioration ratio times . When facing with increased informed trading risk, liquidity providers compete less to provide liquidity, reducing their undercutting activity. Reductions in undercutting leave footprints in trade and quote data that are captured by . Unlike prior measures, is easy to construct, can be computed intraday, and is orthogonal to liquidity. The measure outperforms prominent existing alternatives in reflecting the extent of information asymmetry before earnings announcements, predicting unscheduled press releases, and identifying informed trading spillovers around them.

ABSTRACT We study the asset allocation and investment performance of U.S. private foundations that support the charitable sector. Large foundations generated positive risk‐adjusted returns before 2008, driven by early access to private equity and venture capital funds, but have underperformed since. The median foundation underperforms by more than 100 bps. Foundations with concentrated stock holdings achieve higher returns but assume more risk. Due to the constraints imposed by the 5% minimum spending rule and accommodating monetary policy, foundations increase risk‐taking and reach for yield. Over time, a conservative asset allocation decreases real wealth, reducing charitable giving.