I. Customary dynamic analysis, 489. — II. Alternative dynamic system, 492.— III. Concluding remarks, 493.

I. The model, 97. — II. The equations of change: Free currency interflow and the “Rybczynski” effect, 99. — III. Comparative statics and comparative systems, 104. — IV. Concluding remarks, 107. — Appendix: The case of perfect mobility of capital, 109.

Investment-cash flow sensitivity has declined and disappeared, even during the 2007–2009 credit crunch. If one believes that financial constraints have not disappeared, then investment-cash flow sensitivity cannot be a good measure of financial constraints. The decline and disappearance are robust to considerations of R&D and cash reserves, and across groups of firms. The information content in cash flow regarding investment opportunities has declined, but measurement error in Tobin's q does not completely explain the patterns in investment-cash flow sensitivity. The decline and disappearance cannot be explained by changes in sample composition, corporate governance, or market power—and remain a puzzle.

[The average cash holdings of Chinese-listed firms decreased significantly after the split share structure reform in China, which specified a process that allowed previously nontradable shares held by controlling shareholders to be freely tradable on the exchanges. The reduction in cash holdings is greater for firms with weaker governance and firms facing more financial constraints prior to the reform. The reform also significantly reduced the average corporate savings rate, as measured by cash-to-cash-flow sensitivity. These findings are consistent with the premise that the reform removed a significant market friction, which led to better incentive alignment between controlling shareholders and minority shareholders and relaxed financial constraints. Additional analyses show that the reform affects firms' cash management policies, investment decisions, dividend payout policies, and financing choices differently in private firms than in state-owned enterprises.]

This article documents a new set of stylized facts on how pricing moments depend on product age and emphasizes how this heterogeneity is crucial for the amplification of nominal shocks to the real economy. Exploiting information from a unique panel containing billions of transactions in the US consumer goods sector, we show that our empirical findings are consistent with a narrative in which firms face demand uncertainty and learn through prices. Such a mechanism of active learning from prices can strongly influence an economy’s aggregate price level and can thus be important for assessing the degree of monetary non-neutrality. To quantify this, we build a general equilibrium menu cost model with active learning and exogenous entry that features heterogeneity in pricing moments over the life cycle of products. Under this setup, firms engage in active learning to deal with uncertainty on their demand curves. Firms choose prices not only to maximize static profits but also to create signals to obtain valuable information on their demand. In the calibrated version of our model, the cumulative real effects of a nominal shock are approximately three times as large compared to a standard price-setting model. The main intuition behind this result is that active learning weakens the selection effect. Price changes are mainly determined by forces of active learning and, hence, become more orthogonal to aggregate shocks, which reduces the aggregate price flexibility of the economy.

We develop an estimator for publication bias-adjusted returns and apply it to 156 published long-short portfolios. Our adjustment uses only in-sample data and provides sharper inferences than out-of-sample tests. Bias-adjusted returns are only 12.3% smaller than in-sample returns with a standard error of 1.7 percentage points. The small bias comes from the dispersion of returns across predictors, which is too large to be explained by data-mined noise. The bias is much smaller than post-publication decay (p-value ¡.0001), suggesting mispricing is important. Our results offer a different perspective about recent papers that find most published predictors are likely false.

Policy makers and researchers are concerned that the expected credit loss (ECL) approach may exacerbate procyclicality. Using administrative loan‐level and firm‐level data in China, we find that banks adopting the ECL model reduced their credit supply and became more prudent in lending decisions after the onset of the COVID‐19 pandemic, compared to banks using the incurred credit loss (ICL) approach. Our findings are more pronounced for banks that experienced greater loan loss provisions induced by ECL and for firms with higher credit risk. The credit contraction persisted throughout our sample period. We further document that firms more exposed to ECL banks experienced larger reductions in loans, assets, liabilities, and revenue after the pandemic began than those more exposed to ICL banks. These findings support the conjecture that the ECL approach may exacerbate procyclicality.

This paper examines how climate risk transparency influences house prices and credit supply. I contend that inadequate property-level climate risk disclosures induce homebuyers to demand a risk aversion discount on house prices, creating a potential market for lemons. Employing a stacked difference-in-differences design, I find that flood risk disclosure laws, by enhancing dwelling-specific flood risk transparency, raise house prices on average by 7.6%. Results strengthen in states with stricter disclosure requirements. Exploiting within-state heterogeneity and controlling for housing market trends, I find that the effects persist and intensify in regions with higher aggregate exposure to flood risk, greater information frictions, and more attention to climate risks. Conversely, the effectiveness of flood risk disclosure laws attenuates in regions where households are less concerned about climate change. Additionally, less sophisticated lenders extend credit to financially constrained borrowers in response to the laws but experience lower profitability.

When does a common group identity improve efficiency in coordination games? To answer this question, we propose a group-contingent social preference model and derive conditions under which social identity changes equilibrium selection. We test our predictions in the minimum-effort game in the laboratory under parameter configurations which lead to an inefficient low-effort equilibrium for subjects with no group identity. For those with a salient group identity, consistent with our theory, we find that learning leads to ingroup coordination to the efficient high-effort equilibrium. Additionally, our theoretical framework reconciles findings from a number of coordination game experiments.