We examine whether performance reporting leads to inconsistent enforcement at the Securities and Exchange Commission (SEC). In a sample of over 13,000 SEC enforcement actions, we show that SEC staff respond to performance-reporting pressures and file more enforcement actions in September, the final month of the SEC's fiscal year, than in any other month. The increase in case volume in September is not fully explained by staff filing more procedural cases or accelerating case filings. Instead, SEC staff pursue less complex cases and agree to more lenient financial and non-financial sanctions to increase case volume in September. We attempt to rule out alternative explanations for our results, including natural SEC workflow and resource constraints. Overall, our findings suggest that performance reporting creates agency conflicts that lead to regulatory inconsistency within the fiscal year.

Abstract We confirm prior evidence that bonds on average are offered at prices below their immediate post-offer secondary market prices. However, in cases where banks lead–manage their own bond offerings the underpricing is significantly less as compared with other non-self-marketed offerings. These findings are robust across various matched samples and selection models. Our results suggest that the bond offering process is characterized by substantive agency conflicts between shareholders of corporations (issuers) and underwriters.

In this study, we examine how personality attributes and a coordinated compensation design jointly contribute to complementarity in the CEO–CFO dyad. Drawing on regulatory focus theory, we propose that the combination of a CEO with a promotion focus and a CFO with a prevention focus benefits firms. In such a dyad, promotion-focused CEOs bring creativity, speed, and eagerness to advancement, whereas prevention-focused CFOs attend to vigilance, helping to keep promotion-focused CEOs grounded. We further argue that the effectiveness of this CEO–CFO dyad depends on promotion-focused CEOs being open to critical advice from prevention-focused CFOs. To make CEOs more amenable to CFOs' advice, we suggest similar compensation plans that foreground common objectives. We empirically test our arguments by focusing on the CEO–CFO dyad's influence on investment spending and firm performance in a longitudinal sample covering more than 10,000 firm years. Our results indicate a positive association between CEO promotion focus and investment spending, as well as firm performance. We further find that CFO prevention focus weakens the association between CEO promotion focus and investment spending, but strengthens the association with firm performance. These moderating influences of CFO prevention focus are more pronounced for higher compensation similarity in the CEO–CFO dyad. In sum, our findings exemplify that deliberately considering CEO and CFO personality attributes and their compensation design jointly strengthens the functioning of the CEO–CFO dyad.

Abstract During the first half of 2020, the difference in savings from mortgage refinancing between high- and low-income borrowers was 10 times higher than before. This was the result of two factors: high-income borrowers increased their refinancing activity more than otherwise comparable low-income borrowers and, conditional on refinancing, they captured slightly larger improvements in interest rates. Refinancing inequality increases with the severity of the COVID-19 pandemic and is characterized by an underrepresentation of low-income borrowers in the pool of applications. We estimate a difference of $5 billion in savings between the top income quintile and the rest of the market.

We survey the uses of combinatorial auctions that have been deployed in practice, giving emphasis to their key representational and economic aspects. In addition, we discuss behavioral economics considerations on both the bidder and auctioneer sides of the market, and the interrelated topics of simplicity and trust, highlighting key opportunities for future work. (JEL D44, D91)

We survey corporate managers of both guiding and non-guiding firms. We find that managers of firms that provide guidance say that they: (1) primarily provide guidance to satisfy analyst and investor demands and manage analysts’ earnings expectations; (2) are relatively unconcerned about proprietary or litigation costs (managers of non-guiding firms are more likely to see litigation risk as a concern); (3) predominantly issue guidance that is conservative relative to their internal expectations; (4) are concerned that guidance induces analysts and investors to focus on the short-term but not that it induces managers themselves to make myopic decisions internally. We also find that managers are miscalibrated about the accuracy of their guidance and that significant quantities of guidance that managers say their firms issue are not captured by conventional sources. We offer several other new insights relevant to the voluntary disclosure literature.

This study investigates, via two experiments, the effects of target transparency, which reflects employees' knowledge about each other's targets in an organization, on managers' target setting decisions. We also investigate whether this effect depends on the need for help among employees. We predict and find that target transparency and need for help interact to influence managers' target setting decisions. Target transparency increases target levels when the need for help is low, but not when it is high. Further, target transparency leads managers to differentiate less between individual employee targets. This reduction is greater when the need for help is high than when it is low. Additional analyses support our theory by revealing that managers strategically set targets in a way that is consistent with an intention to motivate both effort at the individual level and help among employees when such are needed. Our results help explain anecdotal evidence of why companies that value help among employees often make targets transparent throughout the entire organization.

We present evidence that clawback adoptions, by dissuading accruals management, motivate managers to shift capital investment mix from R&D to capex to preserve earnings-based compensation, thereby lowering capital investment efficiency. These effects are more pronounced for firms prone to financial misreporting, which is consistent with board incentives to adopt clawbacks, and with managerial incentives to substitute real for accruals-based earnings management to preserve performance-based compensation. Path analyses lend support to performance-based compensation serving as a channel through which clawback adoptions influence capital investment mix and efficiency. These findings extend and reinterpret prior findings and are timely given the Security and Exchange Commission's newly issued Rule 10D-1 that makes clawback provision adoptions a condition for U.S. exchange listings and explicitly requested “comment on any effect the proposed requirements may have on efficiency, competition, and capital formation.”

We use unique features of the private credit market to examine if and how currency risk impacts firms' financing and whether currency risk is a priced systematic risk at the firm level. We find that currency exposure has a large impact on loan spreads. Decomposing loan spreads, we find that exposure increases the expected default loss premium and that internationalization, growth opportunities, and relationship intensify exposure's impact. Further, exposure exacerbates firms' financing risk by increasing the need for collateral, reducing loan maturity, inducing monitoring and covenant intensity, and influencing syndicate structure. However, exposure does not affect the expected return premium in loan spreads; hence, currency risk does not appear priced in the classical sense and, therefore, should not affect the “true” cost of debt. Our findings imply that while managers should be concerned about exposure's impact on their access to, and terms of, bank financing, they should not adjust hurdle rates on account of exposure when assessing investment projects.

Abstract We investigate the impact of firm‐level political risk on loan contracting. We find that firm‐level political risk is positively associated with bank loan cost and that this effect is stronger for firms experiencing increased operational uncertainty and higher default risks. Firm‐level political risk also leads to more unfavorable non‐pricing loan terms. To alleviate endogeneity concerns, we use an instrumental variable approach and placebo tests. We further find that political connections and relationship‐based borrowing can attenuate the adverse effect of firm‐level political risk on loan contracting.