Knowledge that Transforms

We study the impact of opioid abuse on real estate prices. We document that opioid death rates and excess prescription rates are negatively associated with house prices. Exploiting the staggered passage of opioid-limiting legislation, we find that a decrease in opioid abuse results in higher county-level house prices. This effect is due to fewer mortgage delinquencies, lower vacancy rates, more home improvement loans, and increased population inflow. Our findings are consistent with improved real estate conditions and a rise in local demand. These results highlight the importance of public health policy in mitigating the economic costs of the opioid epidemic.

We are the first to study the interplay between corporate diversification and debt maturity, both theoretically and empirically. Our models predict that diversification mitigates the debt-overhang problem, making long-term debt more attractive in the presence of rollover costs. Using data on 30,135 firms from 1978 to 2022, we find that multi-division firms have debt maturities at least 1 year longer than stand-alone firms, especially when facing debt overhang. Consistent with our predictions, the excess value of Berger and Ofek (1995) and Mansi and Reeb (2002) increases with debt maturity, suggesting that traditional measures of the diversification discount could be misleading.

We document that firms prefer counties with higher ethnic diversity in locating their interstate investments, especially for those pursuing innovation, seeking to establish service centers, or managing a diverse workforce. We also find some evidence that interstate investment in high ethnic diversity locations results in increased patent applications, sales growth, positive media coverage, and overall operating performance. Taken together, we show that firms prefer to invest in ethnically diverse locations as they recognize the potential benefits of leveraging a diverse labor supply, such as enhancing problem-solving, innovation, and performance. We must recognize that difference is a reason for celebration and growth, rather than a reason for destruction. (Audre Lorde)

This article proposes a theoretical explanation for the positive pre-announcement drift empirically documented ahead of scheduled announcements, using the Federal Open Market Committee (FOMC) meetings as a main example. The framework entails a general equilibrium model of disagreement (differences of opinion), where investors interpret a costly signal differently. Investors optimally decide to stop learning when an announcement is imminent, increasing the risk premium ahead of an announcement. The model jointly rationalizes puzzling empirical evidence by generating i) an upward drift in prices just before scheduled announcements, regardless of the announcement’s content, which coexists with ii) low volatility and iii) low trading volume.

I analyze the effects of bank competition on gender and racial gaps in entrepreneurship. By leveraging interstate bank deregulation from 1994 to 2021, I find that stronger bank competition increases the quantity and quality of banking services offered to minority borrowers. Developing a novel measure of discrimination using narrative information in the complaints filed with the Consumer Financial Protection Bureau, I demonstrate that bank competition reduces discrimination, alleviating the financial constraints of female and minority entrepreneurs. Stronger bank competition also reduces gender and racial gaps in firm performance and business equity accumulation, promoting wealth equality and fostering equitable economic growth.

We study removals of “credit ceilings,” quantitative limits on bank credit supply imposed by many countries until the 1980s. Exploiting differences in loan types affected, we find that these removals predict increases in bank credit, residential investment, house prices, and bank stock prices, followed by reversals, recessions, and banking crises. These effects are separate from those of other financial deregulations. Overall, our results suggest that credit supply shocks do not simply amplify existing fragilities but can initiate economic boom-and-bust cycles on their own.

We examine how team allocation shapes mutual fund managers’ compensation as well as their future productivity and careers. Assignment to a high-quality team lowers immediate compensation but accelerates career development—sharpening investment skill, boosting media visibility, deepening industry and style specialization, and raising future revenue. Team quality also raises promotion odds and explains the steep, tenure-based earnings profile common in asset management. Team allocation therefore acts as a career-steering mechanism embedded in fund-family compensation contracts.

We show that a firm’s financial constraints trigger investment disruptions that propagate through the production network. Propagation effects account for about half of the total investment reduction due to constraints. Network rigidities such as high input specificity and the scarcity of alternative partners amplify these spillovers. Firms mitigate investment disruptions by supporting constrained partners through trade credit or equity stakes. To bolster identification, we employ a Network Regression Discontinuity Design that accounts for spillovers. Our estimates are robust to network measurement error, endogenous selection, and various constraint measures. The results demonstrate that interdependent investments amplify the consequences of capital-market frictions.

This article documents a trend of declining flexibility in share repurchase policies over the last 4 decades. We show that repurchases have become particularly sticky for firms with repurchase programs in place. We also exploit the additional inflexibility within existing repurchase programs to show that repurchase stickiness can have real effects for firms. Using the 2008 financial crisis as a shock to firms’ ability to raise capital, we find that firms with ongoing share repurchase programs ending after Dec. 2007 reduced investment, employment, and R&D spending by more than similar firms with programs ending before the onset of the crisis.

We find that firms enlarge the executive pay gap when executive mobility is constrained by more enforceable noncompete agreements. We interpret this finding as evidence that firms increase tournament incentives to keep executives incentivized after the loss of valuable outside employment options. Consistent with this argument, we observe more significant increases in pay gaps for executives with greater ex ante mobility options. However, shocks reducing enforceability have a weaker, less robust impact on pay gaps, contributing to asymmetric effects. Following restrictions to mobility, equity portfolios that long (short) firms that boost (do not boost) executive pay gaps generate positive alphas.