This article examines how product innovations led to inflation inequality in the United States from 2004 to 2015. Using scanner data from the retail sector, I find that annual inflation for retail products was 0.661 (std. err. 0.0535) percentage points higher for the bottom income quintile relative to the top income quintile. When including changes in product variety over time, this difference increases to 0.8846 (std. err. 0.0739) percentage points a year. In CEX-CPI data covering the full consumption basket, the annual inflation difference is 0.368 (std. err. 0.0502) percentage points. I investigate the following hypothesis: (i) the relative demand for products consumed by high-income households increased because of growth and rising inequality; (ii) in response, firms introduced more new products catering to such households; (iii) as a result, the prices of continuing products in these market segments fell due to increased competitive pressure. Using a shift-share research design, I find causal evidence that increasing relative demand leads to increasing product variety and lower inflation for continuing products. A calibration indicates that the hypothesized channel accounts for a large fraction (over 50%) of observed inflation inequality

This field study investigates an empirical setting where the introduction of new formal results controls—stretch targets for productivity that are seemingly unachievable with current process efficiencies—is associated with high productivity gains over extended periods of time. Contrary to findings from the prior management accounting research, employees meet the targets by being creative and risk-taking in continuously innovating processes, despite the pressure induced by high target-level difficulty. Mobilizing self-determination theory, we argue that a specific interrelation of personnel and cultural control with results control supports internalization of the latter by employees. In this situation, employees perceive the high performance required by the results control assimilated into their own values, which facilitates the autonomous motivation necessary for their creativity. Our findings contribute to the literature by identifying the conditions, and discovering the mechanisms, that enhance the efficacy of stretch targets

Entrants and incumbents can create new products and displace the products of competitors. Incumbents can also improve their existing products. How much of aggregate productivity growth occurs through each of these channels? Using data from the U.S. Longitudinal Business Database on all nonfarm private businesses from 1983 to 2013, we arrive at three main conclusions: First, most growth appears to come from incumbents. We infer this from the modest employment share of entering firms (defined as those less than 5 years old). Second, most growth seems to occur through improvements of existing varieties rather than creation of brand new varieties. Third, own‐product improvements by incumbents appear to be more important than creative destruction. We infer this because the distribution of job creation and destruction has thinner tails than implied by a model with a dominant role for creative destruction.

This paper examines external financing of small and growth firms using a regulatory experiment in the US microcap market. The paper focuses on a new financing method for entrepreneurial firms – small public offerings under Regulation A, which was significantly expanded by 2015 amendments. Regulation A offerings serve as a financing alternative for issuers that seek public capital but are unable to conduct a traditional registered public offering. Compared to small registered public offerings, Regulation A involves fewer requirements and draws smaller, younger companies, often raising capital without intermediaries or on a best efforts basis. Regulation A companies raise less capital on average after accounting for their historical financials. The use of Regulation A increased significantly following the 2015 shock, particularly in market segments that had more private placements and traditional public offerings. Different types of issuers are pursuing Regulation A and registered offerings, and Regulation A does not appear to draw issuers away from traditional public offerings.

We show that the relation between aggregate investment and Tobin’s q has become remarkably tight in recent years, contrasting with earlier times. We connect this change with the growing empirical dispersion in Tobin’s q, which we show both in the cross-section and the time series. To study the source of this dispersion, we augment a standard investment model with two distinct mechanisms related to firms’ research activities: innovations and learning. Both innovation jumps in cash flows and the frequent updating of beliefs about future cash flows endogenously amplify volatility in the firm’s value function. Perhaps counterintuitively, the investment-q regression works better for research-intensive industries, a growing segment of the economy, despite their greater stock of intangible assets. We confirm the model’s predictions in the data, and we disentangle the results from measurement error in q

Credit `default swaps (CDS) represent a major innovation in debt markets, allowing lenders to transfer credit risk to a counterparty by paying a premium. Shan, Tang, and Winton (2019) explore whether the availability of CDS affects the monitoring incentives of lenders. Their paper finds that CDS leads to looser loan terms (less collateral and looser covenants), consistent with a reduction in monitoring incentives. I examine several aspects of their study, including whether loan provisions and CDS should serve the same purpose, and differences between CDS and non-CDS borrowers. In total, although the authors present empirical evidence consistent with their prediction, the sample selection and research design potentially limit the generalizability of the authors’ results

Some firms create innovative financial debt and equity products to attract specific investor tastes (i.e., non-monetary preferences unrelated to expected cash flows). Innovations can be costly, but they may also widen a firm's investor base, leading to a reduction in the cost of capital. Prior research is inconclusive about whether tailoring financial products to meet specific investor tastes affects asset pricing, which I posit stems from a lack of consensus on which assets satisfy a particular taste. My research design, however, avoids this ambiguity by testing the relation between asset pricing and an objectively identified investor taste—a taste for Shariah-compliant investments, which is satisfied via Islamic Finance. Using Malaysian data, I estimate price differences between conventional and Shariah-compliant bonds over an eight-year period (2005 to 2013). I find that an investor taste for Shariah-compliant bonds significantly affects bond pricing. These results hold even after controlling for issuer and issuance characteristics, including differences in covenant types, as well as the possibility that price and demand may be simultaneously determined. I also find evidence that investors with a taste for Shariah-compliant bonds have a significantly different demand distribution than investors without this taste, corroborating my assertion that a preference for Shariah-compliant investments is a distinct taste. Overall, my results are consistent with investors taste affecting the cost of capital

This paper revisits the relationship between debt and growth from a vantage point that considers the totality of private and public debt. We exploit quarter-long timing lags inherent in the response of borrowing to innovations in output to identify the effects of debt on growth in a panel vector autoregressive model. We verify that debt accumulation is negatively related to output growth, with a one standard deviation innovation in the former leading to a 0.2 percentage-point contraction in the latter. This result is robust to the inclusion of exogenous variables in the system, alternative measures of the endogenous variables, and varying temporal treatments. We also find variations depending on the type of debt accumulated, the specific subset of countries considered, and the channels along which debt expansion operates

We investigate the Dead Hand Proxy Put, a contractual innovation in corporate debt agreements that may impact hedge fund activism. We find the provision principally in loans, not bonds, and provide evidence linking the adoption of the provision to hedge fund activism. Furthermore, controlling for endogeneity, we find that the provision significantly reduces the cost of loans. Bondholder wealth also increases. Moreover, cross-sectional analysis of share returns reveals that the provision is positively associated with repeat banking relationships and negatively associated with free cash flow problems, suggesting a cost-benefit tradeoff

This paper introduces a new out-of-sample forecasting methodology for monthly market returns using the variance risk premium (VRP) that is both statistically and economically significant. This methodology is motivated by the ‘beta representation,’ which implies that the market risk premium is related to the price of variance risk by the variance risk exposure. Hence, when the slope of the contemporaneous regression of market returns on variance innovation is larger, future returns are more sharply related to the current VRP. Also, predictions are more accurate when market returns are highly correlated to variance shocks