We present a theory of risk capital and of how tax and other costs of risk capital should be allocated in a financial firm. Risk capital is equity investment that backs obligations to creditors and other liability holders and maintains the firm׳s credit quality. Credit quality is measured by the ratio of the value of the firm׳s option to default to the default-free value of its liabilities. Marginal default values provide a full and unique allocation of risk capital. Efficient capital allocations maintain credit quality and preclude risk shifting. Our theory leads to an adjusted present value (APV) criterion for making investment and contracting decisions. We set out implications for risk management and corporate finance.

The COVID-19 pandemic can be considered the third major shock to have hit the United States and the global economy in the first two decades of this century. First, we experienced the September 11, 2001, terror attacks, then the 2008-2009 Financial Crisis, and now the COVID-19 pandemic. Each of these crises confronted the global economy, and the financial system in particular, with different challenges, with the COVID-19 crisis likely to be the worst. According to the World Bank (2020), the global economy is expected to shrink by 5.2% this year, representing the deepest global recession since the Second World War.

In August 2019, the Business Roundtable, one of the most recognizable lobbyist groups of the business community, issued the “Statement on the Purpose of a Corporation.” Signatures, 181 in total and mostly from CEOs of Corporate America, backed the one-page declaration that concludes with the following: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country” (Business Roundtable 2019). In his annual letter to shareholders in 2020, Jamie Dimon, chairman and CEO of JP Morgan Chase, reflects on the “fraying” of the “American dream” and on how banks and firms can work together to address an emerging economic scenario in which people and entire communities are being left behind. He argues that “successful businesses can literally and figuratively “drive by” our worst problems (think inner cities) and still thrive” (Dimon 2020). There is a strong argument to be made that firms and banks have a unique role to play in solving many of society’s challenges through skills training, community development, and infrastructure investments, among others. The above sentiments may sound reminiscent of “stakeholder capitalism,” the main criticism of which is that any corporate purpose other than maximizing shareholder value ends up producing lack of focus, agency conflicts and, possibly, corruption. CEOs may become self-appointed arbiters of social values leading to their own benefits disguised under some vague idea of corporate purpose. The countervailing argument made by Larry Fink (2019), CEO of BlackRock, is that “… in fact, profits and purpose are inextricably linked.” These were the themes and questions that the Editorial Board of the Review of Corporate Finance Studies discussed as we decided to make good on our commitment to continue with the idea of Registered Reports on a permanent, rather than ad hoc, basis. We started this initiative in 2021 on the theme of “Discrimination, Disparities, and Diversity in Finance.” We decided to continue this initiative with the theme of “Finance for the Greater Good” to reflect the wider debate taking place in society on the role of corporations and financial markets and whether, in fact, economic institutions are contributing to the problems or to the solutions. While we agree that these are big questions that go to the heart of the corporate finance and financial intermediation fields, we see a relative scarcity of papers on these important topics in finance journals. One reason could be that scholars think of this area as too risky a field to venture into. The topic may be politically charged or may not appeal to editors. With the choice of this theme for Registered Reports, we wanted to establish clearly that we believe that the topic is very important, and we were willing to contribute to inspire more research in this area. Through the Registered Reports initiative, we want to transfer some of the publication risk from authors to us as editors. The initiative is structured as a two-stage process. In the first stage, the editorial review team carefully reviews each proposal. Proposals that survive the first stage are then offered an in-principle acceptance for publication in the Review of Corporate Finance Studies before the final results are known, as long as authors work diligently on the comments made by the reviewers and write papers that meet high academic standards. We received thirty-three proposals that responded to our call on the theme of “Finance for the Greater Good.” We chose seven of them to continue to the second stage. The proposals were first presented and widely discussed during the 2022 RCFS Winter Conference. Over more than a year, each of these seven Reports morphed, after much work by the authors and the review team, into the impactful papers appearing in this volume. Our gratitude and appreciation go to the reviewers who worked so avidly and with deep commitment with the authors on this special issue. We hope that the success of this second initiative will encourage more academics to research such socially important themes. Human-induced climate change has become one of the most pressing concerns faced by humankind. The Biden Administration has listed climate change as a central issue for foreign policy, national security, and financial markets. The need to make significant economic changes to respond to and combat the devastating effects of climate change is fast becoming imperative, even though disagreement at the political level about the need for change persists. A less discussed theme strictly related to climate change is the challenge economies will face in transitioning to new energy sources as policies are introduced to reduce emissions and other harmful activities. For example, reaching the objective of “net zero” will entail significant costs, not only at the country level but also for firms and households. The natural question to ask is precisely regarding the costs and risks that will arise from the transition mechanisms put in place to change economic activities. The required transition is already generating real effects on economic mobility and access to financial services of affected communities, calling for policy interventions to minimize economic and social costs. Ding Du and Stephen A. Karolyi address this question, specifically how climate policies and technological innovation affect local communities, in the paper “Energy Transitions and Household Finance: Evidence from U.S. Coal Mining.” The authors focus on the coal mining industry, to investigate how local communities could be affected as energy sources move away from fossil fuels (Du and Karolyi 2022). This exercise could serve as a template to help us understand the impacts generated by energy transitions in the future. Several federal policies were introduced in 2011, when a nationwide shift in external factors affected coal production. The authors use these changes as the laboratory to investigate the economic outcomes in coal-producing communities. The paper finds evidence of economically significant and adverse effects of coal transition on households in communities that rely on coal mining as a major source of economic activity: employment, wages, migration, and mortgage applications in coal mining communities have been negatively affected by the shift away from coal. The authors find not only direct effects on coal industry employees but also spillover effects to other parts of communities outside the energy sector. These effects, beyond being important in and of themselves, help us understand the political challenge in obtaining citizens’ approval for environmentally conscious policies. An important headwind may be households’ lack of support given the heavy economic costs they may be burdened with. What can finance do to help find a solution? Access to finance should be one mechanism attenuating these negative effects; that is, financial resources will be required to lubricate the transition from coal mining to other activities, while minimizing social costs. The paper finds evidence confirming this hypothesis: employment and wage losses are found to be largest in those communities with low economic mobility and limited access to financial services. Finance providers, whether through equity or debt instruments, should be in a good position to scrutinize corporate investments with an eye on their environmental impact and nudge companies to change investment policies that are deleterious for the environment. There is no evidence so far that equity holders have any significant ability to change corporate policies through disinvestment. But what about banks that are the main source of debt financing for many firms? Banks should be in a stronger position than equity holders to affect firm policies, such as ESG investments, through their monitoring and ability to observe both soft and hard information. More specifically, to the extent that borrowers’ ESG-related risks have a spillover effect on firms’ credit standing, banks will have an incentive to monitor and thus influence firm decisions. The paper “Can Banks Save Mountains,” by David Haushalter, Joseph J. Henry, and Peter Iliev, investigates this question in the context of bank policies aimed at limiting, and sometimes eliminating, debt funding for so-called “mountaintop removal” (MTR) mining. MTR, that became widespread in the industry in the early 2000s, has attracted attention as an especially destructive form of mining with very significant, nefarious effects on the environment. Starting in 2008, banks lending to firms that carried out MTR mining began unilaterally adopting policies to curtail such lending. The authors use a difference-in-differences approach to examine the effect on lending to coal companies engaged in MTR activities, defined as those that control at least one MTR mine, arising from a bank decision to adopt policies to curtail such lending (Haushalter, Henry, and Iliev 2023). The main result is that there was no statistically significant change in banks’ lending behavior to MTR companies following the adoption of policies aimed at restricting such lending, whether one looks at bank loan counts, overall loan amounts, or MTR loans as a fraction of bank loans. The authors extend their analysis along several directions in terms of understanding which bank MTR policy may be the most effective to reduce lending. The authors find that, whether one looks at policies aimed at limiting loans to coal corporations with substantial MTR activity, policies that limit funding to specific MTR projects, or policies that should introduce enhanced diligence, the result is always the same: none of these policies leads to a reduction in lending to MTR borrowers. Overall, the evidence provided in this paper suggests a clear element of greenwashing in the case of banks unilaterally adopting policies that should limit lending to certain environmental-detrimental activities. One takeaway is that banks’ lending practices should be closely monitored to determine the true effectiveness of such policies. Central banks have been repeatedly brought into the debate mostly from the perspective of how climate change can influence financial stability. Perhaps the link between the two may be seen as tenuous. An often forgotten, but important dimension, is what central bankers can do to reach the goal of sustainable investing within the very large portfolios they hold. While the literature has looked at the potential impact of disinvestments from polluting sectors made by institutional investors, so far no research has been carried out on the effects of policy makers’ (in this case, central banks’) portfolio decisions. The importance of such a question is self-evident, considering the size of the equity holding in central banks’ portfolios and the message that can be sent to the investment community. If politicians want central bankers to intervene more with financial institutions to promote more climate-friendly lending policies, then citizens will also want to know what central bankers are doing in their own operational and portfolio decisions. From economic and policy points of views, this question presents interesting possibilities, as well as various challenges, given central bankers’ predicament in this field. Central bankers’ role as guardians of financial stability means that they will be held accountable if they do not internalize the citizens’ climate change concerns. This said, central banks do not (yet) have a climate- or ESG-centered mandate but rather monetary policy and financial stability mandates. Reconciling these two objectives is particularly difficult, especially when considering reputation risk. Rüdiger Fahlenbrach and Eric Jondeau address this question in the paper “Greening the Swiss National Bank's Portfolio.” The authors use the equity portfolio of the Swiss National Bank (SNB) as a laboratory to examine the various possibilities open to the SNB to reach a more climate-centered investment approach, and the limitations that central bankers face in carrying out this task (Fahlenbrach and Jondeau 2023). The paper, first, develops a framework for the different strategies that central bankers could follow to limit the exposure to activities that generate carbon emissions while maintaining existing policy mandates. The authors then proceed to quantify the impact of adopting a more carbon-conscious portfolio investment approach on the portfolio’s carbon footprint and performance. The paper shows that the best-in-class exclusion strategies are particularly suited for central banks to carry out environmental-friendly investment policies within the mandate given to central banks. The authors show that using a straightforward portfolio strategy would significantly decrease the SNB’s portfolio’s carbon footprint, without any significant impact on the portfolio’s performance, and with negligible costs. The strategy discussed and developed by the authors has several advantages, particularly it does not discriminate between economic sectors, keeps diversification in place, and limits the SNB to political pressure. One of financial technology’s (FinTech) promises is the “democratization” of the investment management industry, together with improvements in financial inclusion, and a more level playing field for investors. There is evidence that FinTech can reduce discrimination in mortgage markets, facilitate the calculation of credit scoring for opaque borrowers, and improve minority business owners’ access to financial products. This said, the ability of FinTech to deliver on the promise of a more level playing field also depends on investors’ degree of financial sophistication. Better data and more profitable trading strategies may arise from the abilities of more sophisticated investors using FinTech to its full extent but the same cannot be said for less sophisticated financial investors. In the paper “Fintech, Investor Sophistication and Financial Portfolio Choices,” Leonardo Gambacorta, Romina Gambacorta, and Roxana Mihet explore the question of how the interaction between advances in FinTech and investors’ sophistication levels are associated with the composition and performance of households’ financial portfolios. To do so, the authors use standard portfolio theory and test the hypotheses using novel micro-level Italian households’ data (the Bank of Italy’s Survey on Household Income and Wealth) over the period from 2004 to 2020 (Gambacorta, Gambacorta, and Mihet 2023). The heterogeneity across investors’ level of sophistication is proxied for by their financial literacy and access to FinTech. The paper’s empirical approach is to investigate realized rates of return and the portfolio composition of investors with different levels of financial literacy, while controlling for households’ risk aversion, age, gender, and access to remote banking, together with time and region fixed The main result the importance of investors’ financial sophistication for the full benefits of FinTech to be In fact, the between the portfolio composition of risky and the performance of sophisticated investors are found to with taking place in the FinTech sector. the advances we have over the two in FinTech could have and not portfolio return between sophisticated and less sophisticated investors. 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This is an interesting even though there are several challenges in such an to other the effect is on a of We in a in which in and financial markets is households are from social is and is the same we are business all over the their role in society and see potential in the ability of corporations and banks to contribute to the to the most pressing The papers in this of the Review of Corporate Finance Studies all to how corporations and banks can be a to improve and the limitations to their abilities as We hope that these papers help to new research on the important theme of “Finance for the Greater Good.”

We study how non-financial multinational companies propagate economic declines from their subsidiaries located in countries experiencing an economic downturn to subsidiaries in countries not experiencing one. We find that investment is 18% lower in subsidiaries of these parents relative to the same-industry, same-country subsidiaries of parents that are headquartered in the same parent country but do not have a subsidiary in a country experiencing an economic downturn. The employment growth rate in the affected subsidiaries is zero or negative while it is 1.4% in the subsidiaries of unaffected parents. The aggregate industry-level sales and employment are also negatively impacted in the countries of the affected subsidiaries.

Most empirical studies estimate the impact of fire sales either without the benefit of market prices from frequent trades, as with aircraft sales, or without observing transaction prices, as with the forced sales of equity securities by mutual funds facing outflows. We observe both by studying firms’ sales of minority equity stakes in publicly listed third parties. We estimate the distressed sale discount to be about 8% while controlling for liquidity and for industry, or about double the 4% estimated for equity sales by distressed mutual funds. The discount becomes 13–14% if the stake sold is more than 5% of the firm or is sold as a block. Prices recover after distressed sales.

Abstract Analyzing hand-collected credit agreements for a sample of middle-market firms over 2010–2015, we find that one-third of all loans are directly extended by nonbank financial intermediaries. Two-thirds of such nonbank lending can be attributed to bank regulations that constrain banks’ ability to lend to unprofitable and highly levered borrowers. Firms with negative EBITDA and debt/EBITDA greater than six are 32% and 15% more likely to borrow from nonbanks. These firms pay significantly higher interest rates, especially following the 2013 leveraged loan guidance revisions. Nonbank borrowers also receive different nonprice terms compared to firms borrowing from banks. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

In 1964, U.S. President Lyndon Johnson signed the Civil Rights Act, making discrimination on the basis of sex, race, religion, or national origin illegal. Much has been achieved since then to reduce disparities and discrimination in financial markets and the corporate world, yet some of these practices persist. Why is that? After almost sixty years of “equal-opportunity statements” inserted in job advertisements across America and other countries, are companies preventing discrimination and aiming to foster diversity? And are lenders seriously addressing the disparities in the supply of credit observed between different racial groups? These were the questions that the Editorial Board of the Review of Corporate Finance Studies discussed as we decided to make good on our commitment to introduce the idea of Registered Reports on a permanent, rather than ad hoc, basis. It was the summer of 2020, and in the midst of the first wave of the Covid-19 pandemic, the United States also experienced an intense debate on racial disparities following the tragic death of George Floyd. We felt we had to contribute through our responsibilities as editors and encourage academic work on the theme of “Discrimination, Disparities, and Diversity in Finance.” We wanted this subject to be the first topic of our annual initiative in the form of Registered Reports. While we all agree that discrimination should be removed for markets to function more efficiently, and diversity should be fostered to address other market failures, we see a relative scarcity of papers on this important topic in finance journals. One reason could be that scholars think of this area as too risky a field to venture into. For example, they may feel that the topic may be politically charged or may not appeal to editors, or there may not be enough high-quality referees working in the area. With the choice of this theme for Registered Reports, we wanted to establish clearly that we believe that the topic is very important and we were willing to contribute to inspire more research in this area. Through the Registered Reports initiative, we hope to transfer some of the risk from authors to us as the editors. The initiative is structured as a two-stage process. In the first stage, the editorial review team carefully reviews each proposal. Proposals that survive the first stage are then offered an in-principle acceptance for publication in the Review of Corporate Finance Studies before the final results are known, as long as authors work diligently on the comments made by the reviewers and write papers that meet high academic standards. We received thirty-two proposals and chose eight of them to continue to the second stage. The proposals were first presented, and widely discussed, during the 2021 RCFS Winter Conference. Over almost a year, each of these eight Reports morphed, after much work by the authors and the reviewers, into the impactful papers we were hoping for. Our gratitude and appreciation go to the eight reviewers who worked so avidly and with deep commitment in turning the initial Reports into full-fledged, quality papers. The papers you will read in this volume are those that were chosen and have made it to the publication stage. We hope that the success of this first initiative will encourage more academics to research such socially important themes and that Registered Reports on other themes will be as successful in the future. Wealth inequality has widened significantly in the United States over the past few decades. One way that wealth is built is through homeownership. Expanding homeownership among low-income and minority groups is seen as an important public policy in the United States to tackle the wealth gap. But how important is homeownership in reducing wealth inequality? Ashleigh Eldemire, Kimberly F. Luchtenberg, and Matthew M. Wynter investigate this very important question in their paper “Does Homeownership Reduce Wealth Disparities for Low-income and Minority Households?” The authors use the U.S. Department of Housing and Urban Development’s (HUD) Housing Choice Voucher (HCV) program as the laboratory to answer the question. The program provides eligible low-income households assistance with either rental payments or mortgage payments and homeownership expenses. In their analysis, the authors trace the changes in wealth outcomes of low-income households that went from getting housing assistance for tenancy to becoming homeowners. This empirical strategy takes care of unobservable factors across households that could affect wealth accumulation, while allowing wealth outcomes to vary by race. The authors find that on average low-income households gain $3.3K in wealth as homeowners compared to being renters. Less wealth accumulation for minority-headed households is observed, consistent with recent results showing that homeownership does not reduce racial gaps in wealth. There is also evidence pointing to increased labor supply following the transition to homeownership, but even here there is a disparity across different segments: minority households have comparable incomes but show lower workforce participation rates. Neighborhood selection is a very important channel that can explain why minority-headed households end up with lower wealth outcomes. The other two channels are the financial fragility of the household and the timing of the home purchase. Academic literature has specifically identified racial and ethnic disparities in residential mortgage lending as two important dimensions that need to be addressed. Various studies provide evidence that minorities face the combination of higher probabilities of being denied a mortgage and a higher cost of capital when they do get credit. In “Racial Disparities in Mortgage Lending: New Evidence Based on Processing Time,” Bin Wei and Feng Zhao investigate the time to process a loan application, a dimension about which very little is known. Delays in processing applications can introduce unnecessary uncertainty into the process of purchasing a home or refinancing an existing mortgage loan. Using HMDA data from 2001 through 2006, the authors find that loan applications by Black borrowers take longer to process than applications by White, Hispanic, or Asian borrowers. In fact, including lender fixed effects widens the racial gap, doubling the gap between Black and White borrowers from 1.8 days to 3.4 days. This is an important result because it implies differential treatment of minority and White borrowers by the same lender. The gap is especially large on loans sold to GSEs (government-sponsored enterprises), being as large as 7.2 days over the 2001–03 period. In contrast, loans sold to private-label securitizers often required little to no documentation and were processed almost a day faster when the borrower was Black. As migration across countries and continents has continued to rise, societies must ask whether these new members of their communities are suffering from lower access to finance due to a trust gap arising from cultural differences. There is ample evidence showing that cultural differences have an important effect on economic outcomes, and they do so through two different channels. First, there could be a dislike toward counterparties who have a different cultural background, akin to taste-based discrimination. Second, cultural differences could give rise to informational frictions, reminiscent of statistical discrimination. Identifying and disentangling these two channels empirically is very hard. In “Cultural Diversities, Lending Relationships and the Cost of Credit: Evidence from Migration,” Giorgio Albareto, Maddalena Galardo, Paolo Emilio Mistrulli, and Bianca Sorvillo study how cultural differences affect the functioning of credit markets. Specifically, they investigate whether migrants to Italy pay more for credit than natives after controlling for several factors that could otherwise have an impact on credit supply. Using granular data, the authors find that, on average, migrants pay 36 basis points more for credit relative to natives. There is cross-sectional heterogeneity across different migrant groups: migrants from Asia pay the highest rates, while migrants from other European Union countries pay the lowest ones. While interesting, these results on their own cannot help us conclude whether the mechanism generating them is taste-based or statistical discrimination. To do so, the authors track the interest rates charged to subsequent loans as the borrower-lender relationship matures over time. In a long-term relationship, a lender should be able to obtain both soft and hard information about the borrower. However, if loan officers practice taste-based discrimination against borrowers with a culturally different background than their own, interest rate differentials on repeat loans would not be affected by the additional information collected by a lender. The results are more consistent with statistical discrimination: the interest rate differential between migrants and natives narrows as the borrower-lender relationship evolves over time. Gender disparities in labor market outcomes persist and are not explained by differences in human capital. To remove such disparities, we need to understand the sources of women’s differential labor market outcomes. Recent developments in the literature point to three potential factors: gender differences in preferences, work structures that can differentially affect men versus women, and bias. Research on women’s labor outcomes typically addresses only one explanation at a time, resulting in limited conclusions. Further, the largest differences arise within occupations rather than between occupations. These limitations are addressed by Renée Adams and Michelle Lowry in their paper “What’s Good for Women Is Good for Science: Evidence from the American Finance Association.” In this work, the authors investigate the importance of multiple factors simultaneously in explaining why the work experiences of females and males differ. To do so, the authors conduct a within-occupation analysis based on a survey with the American Finance Association (AFA) to assess the professional culture in finance academia. The authors first show that among academics in finance, job satisfaction is significantly lower among women than men. Importantly, they find no significant gender differences in preferences, so this factor cannot explain women’s worse career experiences. This is a surprising result because conventional narratives have always referred to this dimension as a potential explanation. Women report less leisure time and greater childcare responsibilities, and they report having experienced bias to a greater extent. There is an important role that institutions and policy can play in correcting gender discrimination: addressing poor individual experiences and improving culture, for example, by encouraging unconscious bias training. These findings from the academic environment have implications for the broader finance industry as well. The gender pay gap is one glaring example of discrimination. Various public policies have been proposed to address this market failure. One such example is banning the employee’s salary history to limit the perpetuation of previous discrimination. Some states have adopted salary history bans with that explicit objective in mind. In the presence of salary history bans, employers cannot request and utilize a job candidate’s previous salary information. However, such bans have a possible unintended consequence: preventing potential employers from being able to observe worker productivity—that is, blocking the information channel. The question is, then, whether this unintended consequence induces costs that will end up making salary bans counterproductive. This question is addressed in the paper “Hidden Performance: Salary History Bans and Gender Pay Gap” by Jesse Davis, Paige Ouimet, and Xinxin Wang. The authors explore this question by estimating the causal impact of salary history bans on wages using a panel dataset of wage data for public-sector employees. The authors obtained the data from Freedom of Information Act requests. They focus on public-sector employees for many reasons, including maximizing the sample of salary history bans, and the consideration that the information channel should have a greater impact among public-sector workers because of greater employment protection. The paper contains two important results: salary history bans lead to a decrease in new-hire wages, and they have minimal effects on the gender pay gap. Wages of new hires are 3% lower following the introduction of the salary history ban, consistent with the information channel. The authors expect the impact of increased uncertainty, arising from the ban, to be of particular importance when labor market protections are present. In fact, the paper finds stronger wage reductions among new hires when more of the workers are unionized. Overall, these results are consistent with the view that limiting access to an informative signal of worker quality, even though it may be biased, has important and surprising implications for wages and the gender pay gap. Fostering diversity implies inclusiveness and support of LGBTQ communities. LGBTQ issues have been the subject of deep and polarized debates in the wider society. Corporations, being an integral component of society, need to make important choices on this polarizing topic. It should be no surprise that the corporate world has produced examples of firms that have been open about their support for the LGBTQ community, while others have publicly opposed same-sex marriage and stripped benefits from same-sex partners of their employees. Others still may have decided to sit on the fence. What are the factors that determine corporate LGBTQ policies, and what drives changes in these policies? Tanja Artiga González, Paul Calluzzo, G. Nathan Dong, and Georg D. Granic study this question in “Determinants of LGBTQ Corporate Policies.” The paper’s objective is the identification of the different factors explaining LGBTQ-related corporate policies and the divergent choices made by corporations on this issue. The authors argue that the divisive nature of the societal debate around LGBTQ rights makes LGBTQ-centered corporate commitments and engagements quite distinct from other corporate social responsibility (CSR) policies adopted by firms. LGBTQ engagement could be described as more sensitive and controversial than many other conventional CSR activities. Such engagement can also potentially generate dissatisfaction among the wider stakeholder base of corporations. In the paper, the authors capture corporate LGBTQ policy using the Corporate Equality Index (CEI), a measure developed by the Human Rights Campaign that is based on four main criteria: nondiscrimination policies, internal education and accountability, public commitment, and equitable benefits. The paper finds that large, young, and profitable firms have higher CEI scores. Firms with highly educated workers, those that operate in more liberal political environments, and those that primarily serve retail customers tend to have higher CEI scores. Further, a firm’s LGBTQ policies respond to pressure from shareholders through LGBTQ-related proposals. Finance in the form of philanthropic giving is also important for social change inspired by the nonprofit sector. This topic merits research of its own because the nonprofit sector also faces issues with lack of representation and biased systems. Donor-advised funds (DAFs), important vehicles for philanthropic giving in the United States, have grown significantly in the recent past and continue to do so. For example, Fidelity Charitable, a DAF, is the largest charity in the United States, receiving $9 billion in contributions in 2019 alone. DAFs are different from traditional charities because of the inherent flexibility contained in their structures. Of particular importance is the possibility given to donors to “give now, decide later.” We know very little about DAFs, and what we do know is based on small and hand-collected samples. In “Social Change Through Financial Innovation: Evidence from Donor-Advised Funds,” Jillian Grennan uses a novel dataset on the universe of 4,209 unique DAF sponsors from 2013 to 2018 to explore how DAF characteristics are associated with social progress. The first finding relates to the reason why DAFs have grown so much in the recent past. The paper finds that a number of features can explain such growth: access to modern financial technology tools; focus on diversity, equity, and inclusion in their grant making; and the possibility of liquidity transformation for non-cash gifts. Overall, these features reduce important frictions in charity giving, thus reducing financial constraints in this sector. The paper also finds that some of these features are associated with potential social benefits. A notable example is the positive effect of innovative DAFs on the value-weighted share of grant dollars channeled to charities in high-inequality areas. There is also a positive impact of innovative DAFs on funding for the most efficient charities, and during times of greater need. Overall, these results on DAFs constitute the first type of systematic evidence about such vehicles, and they can help us understand whether such vehicles can promote social change through efficient philanthropic funding. Nudges have long been recognized as devices that can influence individuals to take positive actions. Because they are relatively cheap to implement, effective nudges can be a useful policy tool. But can nudges lead to or even exacerbate differences in outcomes across different groups of people? In “The Disparate Effect of Nudges on Minority Groups,” Maya Haran Rosen and Orly Sade explore this question in the context of the Savings for Every Child Program in Israel. Under this program, launched in 2017, for every child under eighteen the Israeli government deposits some money each month into a savings account. Parents can elect to save additional amounts for the child from their own finances and to make investment choices. After the program was launched, text message nudges were to households from two areas. The authors find that, on the the was effective in participation from However, the from two minority groups in and was only as large as from the The authors show that the for the lower from the minority groups lower less use of trust in the and lower financial However, even for all these there is a gap in the from the minority that cultural effects may also play a The message is that even policies can generate In many we see different groups of different financial and economic outcomes. It is important to understand the to which such outcomes are the result of such as discrimination and a lack of diversity among The papers in this volume of the Review of Corporate Finance Studies all to disparities in different to finance and were developed through the new Registered We hope that these papers help to new research on the important theme of “Discrimination, Disparities, and Diversity in Finance.”

Abstract We study the effects of state-level Paid Family Leave (PFL) laws on US firms across a broad panel of private and public companies. Following PFL adoption, female employee turnover declines, labor productivity increases, and treated firms experience significant improvements in operating performance. These effects are stronger in regions with a larger supply of childbearing-age female labor, among R&D-intensive firms and firms with high intangible capital, consistent with a mechanism in which PFL reduces job separation expectations and encourages investment in firm-specific human capital. Our findings suggest that PFL can generate tangible firm-level benefits by enhancing workforce stability and productivity.

We provide estimates of holdings of highly rated securitization tranches of U.S. bank holding companies before the credit crisis and evaluate hypotheses that have been advanced to explain them. Whereas holdings exceeded Tier 1 capital for some large banks, they were economically trivial for the typical bank. Banks with high holdings were not riskier before the crisis using conventional measures, but they performed poorly during the crisis. We find that holdings of highly rated tranches were correlated with a bank’s securitization activity. Theories unrelated to the securitization activity, such as “bad incentives ” or “bad risk management, ” are not supported in the data. (JEL G01, G21) Holdings of highly rated tranches of securitizations held by U.S. banks were at the heart of the financial crisis of 2007–2008. At least in the early phases of the crisis, the bulk of the assets that were considered to have become toxic by many observers were these securities with subprime and alt-A mortgage collateral. Losses in value led banks to have low capital and forced them to raise more capital, cut back on new loans, and engage in fire sales (see Brunnermeier 2009). The most visible and controversial policy initiative of the U.S. Treasury

Abstract Can algorithms assist firms in their decisions on nominating corporate directors? Directors predicted by algorithms to perform poorly indeed do perform poorly compared to a realistic pool of candidates in out-of-sample tests. Predictably bad directors are more likely to be male, accumulate more directorships, and have larger networks than the directors the algorithm would recommend in their place. Companies with weaker governance structures are more likely to nominate them. Our results suggest that machine learning holds promise for understanding the process by which governance structures are chosen and has potential to help real-world firms improve their governance.