This paper investigates the effect of corporate diversification on the pricing of bank-loan contracts. We find that diversified firms have significantly lower loan rates than comparable focused firms, and we find no evidence that diversified firms are subject to more restrictive non-price contract terms pertaining to maturity, collateral requirements, and covenant restrictions. We show that the effect of diversification on the cost of a bank loan is channeled primarily through coinsurance in investment opportunities and cash flows and that the effect is nonlinear: as the extent of corporate diversification grows, the cost-reduction benefit of diversification decreases. Our results indicate that the organizational structure of the firm can alleviate its external financing constraints and that it has an important bearing on the firm’s financing capacity.

We examine the economic determinants of short-sale supply, and its consequences for future stock returns. Lendable supply increases with expected borrowing costs and decreases with financial statement constructs that indicate overvaluation. Although rising loan fees help ease supply constraints, we find shares are still least available when they are most attractive to short sellers. Using a number of firm characteristics, we derive useful instruments for real-time loan supply and demand conditions in the lending market. Further, we show that (1) when lendable supply is binding (non-binding), short-sale supply (demand) is the main predictor of future stock returns, (2) abnormal returns to the short-side of nine well-known market anomalies are attributable solely to “special” stocks, and (3) loan fees significantly reduce the profitability of the short side and several of these anomalies cease to be profitable. Overall our evidence highlights the central role played by the supply of lendable shares in equity price formation and returns prediction.

Successful private equity managers have funds that are often oversubscribed and provide persistent abnormal returns. Why do not successful managers increase fund size or fees? We argue that managers want to attract high-quality entrepreneurs, while entrepreneurs want to match with high-ability managers. However, observing fund performance does not allow entrepreneurs to distinguish a manager’s ability from the quality of firms in the fund’s portfolio. As a consequence, a fund manager may devote unobserved effort to select firms, and keep fund size small to limit the cost of effort, hoping to manipulate entrepreneurs’ beliefs about his ability.

We analyze the relationship between the stance of monetary policy and the implicit risk aversion in European Stock market prices in an international open-economy framework. We use a structural vector autoregression (SVAR) model that incorporates the effect of a factor that reflects the global monetary policy stance. We use shocks in the US Fed monetary policy stance as a proxy of this global factor. Our results indicate mixed evidence depending on whether simultaneity between domestic monetary policy stance and the stock market behavior is taken into full account. When this simultaneity is not allowed we confirm previous evidence found in the literature, extended to the international field: a lax monetary policy, both domestic and global, decreases risk aversion. However, when we take this into account, results indicate that a lax monetary policy increase in the short-run the risk aversion of the domestic representative investor.

This paper analyses the influence of the financial crisis on corporate debt maturity for 39 countries during the period 1995–2012. The results reveal the importance of the dependence of firms on external finance and the banking structure of the countries on debt maturity during the financial crisis. Corporate debt maturity was found to decline during the financial crisis. However, only those firms that were more dependent on external finance before the onset of the financial crisis suffered this reduction. The reduction in corporate debt maturity is the result of a higher average increase in short-term debt than in long-term debt. The financial crisis had a stronger negative effect on corporate debt maturity in countries with less bank concentration, while the debt maturity of larger firms decreased less as a result of the financial crisis than the debt maturity of smaller firms in countries where banks play an important role in the financing of the private sector.

During the 2008 global financial crisis, financial institutions in the United States experienced big losses, and some firms failed. These failures occurred despite the external and internal regulatory mechanisms imposed upon the financial sector aimed at ensuring confidence and stability in the financial system. This study analyzes the impact of macroeconomic and financial stress on the profitability of financial firms. We utilize data from 1980 to 2010 to model firm profitability and stock returns using a panel regression, fixed-effect methodology. Our results show that the profitability of all firms is negatively affected by increases in macroeconomic and financial stress, measured by the National Financial Conditions Index (NFCI) and the Adjusted National Financial Conditions Index (ANFCI), respectively; however financial sector firms have exhibited an increased marginal sensitivity to both stress indexes that began in the 1990s and continued through the financial crisis of 2008. In a further analysis of the financial sector and banks, we show that depository institutions are relatively robust to macroeconomic and financial stress, and financial sector instability is driven by non-depository finance, investment, and real estate firms. Additionally, the largest 33 percent of financial firms and banks exhibit increased sensitivity to macroeconomic stress in the most recent sample. Our results coincide with the risks associated with recent trends in the financial services industry, such as deregulation, global market integration, financial product innovation, and the increasing predominance of non-depository intermediation.

Caught between the end of the National Banking Era and the beginning of the Federal Reserve System, the crisis of 1914 provides an example of a banking panic avoided. We investigate how this outcome was achieved by examining data on the issues of Aldrich-Vreeland emergency currency and clearing house loan certificates to New York City institutions that identify the borrower and the quantity requested for each type of temporary liquidity measure. The extensive provision of temporary credit to a wide array of financial intermediaries was, in our opinion, essential to the successful alleviation of financial distress in 1914. Empirical results indicate an important role for clearing house loan certificates that is distinct from the influence of Aldrich-Vreeland emergency currency issues.

This is a post-peer-review, pre-copyedit version of an article published in Review of Accounting Studies. The final authenticated version is available online at: https://doi.org/10.1007/s11142-014-9295-6

We explore the impact of weather on trading by individual investors. Over a time span of 94 months, we analyze daily trading records of individual investors. Controlling for various investor- and market-specific factors, we find a two-fold effect of weather. We first observe that investor sentiment, as measured by purchases relative to sales, is significantly higher on days with good weather. In addition, we find that retail investors generally trade more on bad weather days. This result is consistent with the notion that retail investors incur an opportunity cost for spending time trading on days with good weather.