We find that increases in implied market volatility (a proxy for market fear) have a significant impact on returns of bank stocks, above and beyond systematic risk proxied by the expected excess market return during a bad economic regime. Large bank returns are favorably affected by increases in implied market volatility during the crisis, while small banks are adversely affected by increases in implied market volatility. We attribute the different effects among the size-categorized bank portfolios to the perception that large banks are protected by too-big-to-fail policies. Within the sample of small banks, the adverse share price response to increased implied market volatility is more pronounced for banks that rely more heavily on non-traditional sources of funds, use a high proportion of loans in their assets, have a higher level of non-performing assets, and have a relatively low provision for loan losses. The adverse effect of negative innovations in implied market volatility on small bank returns during the crisis is primarily driven by exposure of their loan portfolio to weak economic conditions.

Theory suggests that debt financing, relative to equity financing, makes managers reluctant to part with assets. Our evidence supports this theoretical prediction, revealing that the reluctance to part with a debt financed asset causes two decision errors—(1) participants forego investments that increase firm value and (2) participants accept investments that decrease firm value. When the source of finance is equity, participants are less likely to make either of these costly decision errors. Further, we find that higher unpaid principal accentuates participants' reluctance to part with debt financed assets. Finally, the decision errors stem, in part, from the perception that an asset having a large unpaid principal balance has provided lower past benefits than an otherwise identical asset.

Using an experimental design that exploits exogenous reductions in coverage resulting from brokerage house mergers, we find that a reduction in coverage causes a deterioration in financial reporting quality. The effect of coverage on disclosure is more pronounced for firms with weak shareholder rights, consistent with a substitution effect between analyst monitoring and other corporate governance mechanisms. The effects we uncover using our experimental design are an order of magnitude larger than estimates from ordinary least squares regressions that do not account for the endogeneity of coverage. Overall, our results suggest that security analysts monitor managers and entrenched managers adopt less informative disclosure policies in the absence of such scrutiny.

[We analyze optimal financial contracts when the specificity of investments is endogenous. Specialization decreases the liquidation value of assets, but improves the asset's long-term productivity. While the former is known to make financing more difficult, we show that the latter can ease financing constraints and increase financing capacity by improving an entrepreneur's incentive to repay. The overall impact of specialization on the terms of financing depends on which effect is more important. Specialization decisions interact with the nature of investments, their timing, the need for outside financing, and an entrepreneur's ability to commit to a level of specialization.]

[We provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an "R&D race" with small firms, as they can obtain access to innovation through acquisition. Our model and evidence also show that the R&D responsiveness of firms increases with demand, competition, and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms.]

During the recent financial crisis, corporate borrowing and capital expenditures fall sharply. Most existing research links the two phenomena by arguing that a shock to bank lending (or, more generally, to the corporate credit supply) caused a reduction in capital expenditures. The economic significance of this causal link is tenuous, as we find that (1) bank-dependent firms do not decrease capital expenditures more than matching firms in the first year of the crisis or in the two quarters after Lehman Brother's bankruptcy; (2) firms that are unlevered before the crisis decrease capital expenditures during the crisis as much as matching firms and, proportionately, more than highly levered firms; (3) the decrease in net debt issuance for bank-dependent firms is not greater than for matching firms; (4) the average cumulative decrease in net equity issuance is more than twice the average decrease in net debt issuance from the start of the crisis through March 2009; and (5) bank-dependent firms hoard cash during the crisis compared with unlevered firms.

Does internet use trigger sex crime? We use unique Norwegian data on crime and internet adoption to shed light on this question. A public program with limited funding rolled out broadband access points in 2000--2008, and provides plausibly exogenous variation in internet use. Our instrumental variables estimates show that internet use is associated with a substantial increase in both reports, charges and convictions of rape and other sex crimes. We present a conceptual framework that highlights three mechanisms for how internet use may affect reported sex crime, namely a reporting effect, a matching effect on potential offenders and victims, and a direct effect on sex crime propensity. To investigate the importance of these mechanisms, we use data on individual reporting behaviour, police investigations, and criminal charges and convictions. None of the analyses we perform suggest that the positive relationship between internet use and sex crime is driven by changes in reporting behaviour. Our findings suggest that the direct effect on sex crime propensity is positive and non-negligible, possibly as a result of increased consumption of pornography.

We find an asset pricing anomaly whereby companies have positive abnormal returns in months when they are predicted to issue a dividend. Abnormal returns in predicted dividend months are high relative to other companies and relative to dividend-paying companies in months without a predicted dividend, making risk-based explanations unlikely. The anomaly is as large as the value premium, but less volatile. The premium is consistent with price pressure from dividend-seeking investors. Measures of liquidity and demand for dividends are associated with larger price increases in the period before the ex-day (when there is no news about the dividend) and larger reversals afterward.