We study the design of optimal mechanisms when the designer is uncertain both about the form of information held by the agents and also about which equilibrium will be played. The guarantee of a mechanism is its worst performance across all information structures and equilibria. The potential of an information structure is its best performance across all mechanisms and equilibria. We formulate a pair of linear programs, one of which is a lower bound on the maximum guarantee across all mechanisms, and the other of which is an upper bound on the minimum potential across all information structures. In applications to public expenditure, bilateral trade, and optimal auctions, we use the bounding programs to characterize guarantee‐maximizing mechanisms and potential‐minimizing information structures and show that the max guarantee is equal to the min potential.

A profit‐maximizing seller has a single unit of a good to sell. The bidders have a pure common value that is drawn from a distribution that is commonly known. The seller does not know the bidders' beliefs about the value and thinks that beliefs are designed adversarially by Nature to minimize profit. We construct a strong maxmin solution to this joint mechanism design and information design problem, consisting of a mechanism, an information structure, and an equilibrium, such that neither the seller nor Nature can move profit in their respective preferred directions, even if the deviator can select the new equilibrium. The mechanism and information structure solve a family of maxmin mechanism design and minmax information design problems, regardless of how an equilibrium is selected. The maxmin mechanism takes the form of a proportional auction : each bidder submits a one‐dimensional bid, the aggregate allocation and aggregate payment depend on the aggregate bid, and individual allocations and payments are proportional to bids. We report a number of additional properties of the maxmin mechanisms, including what happens as the number of bidders grows large and robustness with respect to the prior over the value.

We empirically examine how venture capitalists adjust coinvestor relationships over time. We identify a fundamental trade-off where the benefits of familiarity are weighed against the opportunity costs of coinvesting with other syndication partners. Using US data, we find that venture capitalists dynamically adjust their relationship intensities by gradually disengaging from overly deep relationships. More centrally networked investors are more cautious with disengaging. In hot investment markets investors disengage more readily from existing relationships, but new relationships forged in hot market are less enduring. Perhaps surprisingly, we find a negative relationship between deeper prior relationships and investment performance.

The U.S. banking sector had nearly 70% fewer banks in 2022 relative to 1989, primarily because of mergers. We develop a methodology to estimate cross-market spillover effects of bank mergers and test whether the operations of incumbents facing consolidating competitors in one market are affected in other markets. We find that nonmerging banks within a market that are one standard deviation more exposed to mergers in other markets increase deposits by 2.1% relative to their less exposed competitors. Our methodology may be applied elsewhere to assess the aggregate impacts of industry consolidation and illustrates challenges with product-based or geographic market definitions.

We examine the effect of disclosing the potential financial impact of sustainability activities (FISA) on investor decisions. We posit and find that the effect is moderated by both companies' financial condition and investors' view on sustainability. Our results suggest that investors with a stakeholder value-maximization view are not sensitive to the FISA disclosure regardless of the company's financial condition. However, investors holding a shareholder expense view exhibit significantly higher investment interest in the presence of a FISA disclosure when the company's financial condition is favorable, but not when it is unfavorable. Additional analysis suggests that the presence of FISA leads to differential belief updates for investors with different ex-ante beliefs about the benefits of sustainability. Our study provides practical insights into the effect of disclosing the financial effects of sustainability activities. It has implications for integrated reporting and the disclosure of the connectivity between sustainability and financial performance proposed by standard setters. It also contributes to the literature on the relevance of non-financial information and investor type to investment decisions.

We study how information disclosure affects financial intermediation when the payoff to the long-term investment is risky. The analysis is based on a business-cycle version of the bank run model wherein a bank provides risk sharing to demand depositors who experience unobservable shocks to their liquidity preferences. The bank pre-commits to the precision of an interim signal regarding the payoff to the long-term investment. We examine the impact of bank disclosure on optimal risk sharing achieved by run-proof, signal-contingent demand-deposit contracts. We show that for utility functions that display non-increasing absolute risk aversion, more informative disclosure improves the ex ante risk sharing provided by financial intermediation.

We introduce a new measure of emerging market sovereign credit risk: the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk‐free rate constructed using cross‐currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign‐currency‐denominated debt, local currency credit spreads have lower means, lower cross‐country correlations, and lower sensitivity to global risk factors. We discuss several major sources of credit spread differentials, including positively correlated credit and currency risk, selective default, capital controls, and various financial market frictions.

We examine firms' financial reporting practices during the missing months that are induced by fiscal year changes and not covered by regular quarters. We find that firms tend to report much lower income for the missing months than for adjacent quarters, mainly by recording higher operating expenses. We also find that managers have various incentives to manage earnings. Executive compensation is not tied to firm performance in the transition period as it is in adjacent fiscal years. Growth firms, firms with poor stock returns, and firms with weak external and internal monitoring tend to manage earnings more. Finally, we find that firms are more likely to meet or beat earnings targets in the subsequent quarter by reporting lower income in the missing months. Investors and analysts perceive the earnings surprise to be less persistent in the quarter after than in the quarter before the missing months. Data Availability: Data are available from sources identified in the paper.

In China's credit markets with financial repression, state-controlled non-financial firms (SOEs) are privileged in gaining access to bank credit, while non-SOEs, especially those small- and medium-sized firms, are disadvantaged. Corporate re-lending emerges as a response wherein the former secure bank loans and then re-lend to the latter. We document the characteristics of inter-corporate loans from a sample of legal cases. We employ four empirical strategies to conduct a forensic study of re-lending by detecting abnormal relations between financial accounts of listed firms. State-controlled companies conduct more re-lending, and firms with better growth opportunities, stronger corporate governance, and more financial constraints engage less. We compare re-lending with entrusted loans and find that firms extending nonaffiliated entrusted loans conduct re-lending actively, while firms offering affiliated entrusted loans do not. We also compare inter-corporate loans with micro-credit company loans in a review of legal cases.