Prior research has demonstrated that CEOs learn privileged information from their social connections. Going beyond the importance of the number of social ties in a CEO's social network, this paper studies the value generated from a diverse social environment. We construct an index of social-network heterogeneity (SNH) that captures the extent to which CEOs are connected to people of different demographic attributes and skill sets. We find that higher CEO SNH leads to greater firm value through the channels of better corporate innovation and diversified M&As. Overall, the evidence suggests that CEOs' exposure to human diversity enhances social learning and creates greater growth opportunities for firms.

We propose a novel and easy-to-implement approach to detect potential overbilling based on the hours worked implied by the service codes which physicians submit to Medicare. Using the Medicare Part B Fee- for-Service (FFS) Physician Utilization and Payment Data in 2012 and 2013 released by the Centers for Medicare and Medicaid Services, we construct estimates for physicians' hours spent on Medicare beneficiaries. We find that about 2,300 physicians, representing about 3 percent of those with 20 or more hours of Medicare Part B FFS services, have billed Medicare over 100 hours per week. We consider these implausibly long hours.

We develop a top-down macro stress test that assesses a community bank's ability to withstand a severe and prolonged period of high credit losses. The model groups banks by geography and subjects them to the 90th percentile chargeoff rates that banks experienced between 2008 and 2012. Because of local data limitations, our historical loss approach better reflects patterns of community bank stress than a linear econometric approach that estimates the relationship between macroeconomic conditions and bank performance. We put all U.S. community banks at year-end 2017 through the test and highlight two results. First, banks are much better prepared to withstand an adverse shock than they were on the verge of the financial crisis because banks have shifted away from the riskiest loan types. Second, the Tax Cuts and Jobs Act of 2017 has increased bank insolvency risk from an adverse shock in 2018 because the higher bank capital is more than offset by the weaker automatic stabilizer effect from operating losses.

We show that fund families allocate their most skilled managers to market segments in which manager skill is rewarded best. In efficient markets, even skilled managers cannot generate excess returns. In less efficient markets, skilled managers can exploit inefficiencies and generate higher performance than unskilled managers. Fund families seem to be aware of the relation between skill, efficiency, and performance, and allocate more skilled managers to inefficient markets. They pursue this strategy when hiring new fund managers and when reassigning managers to funds within the family. Overall, we conclude that fund families allocate fund managers in an efficient way.

We present and empirically implement an equilibrium labor market search model where risk-averse workers facing medical expenditure shocks are matched with firms making health insurance coverage decisions. We use our estimated model to evaluate the equilibrium impact of many health care reform proposals, including the 2010 Affordable Care Act (ACA). We use the estimates of the early impact of the ACA as a model validation. We find that income-based subsidies for health insurance premiums are crucial for the sustainability of the ACA, while the ACA can still substantially reduce the uninsured rate without the individual or the employer mandate.

Uncompetitive contests for grades, promotions, retention, and job assignments, which feature lax standards and limited candidate pools, are often criticized for being unmeritocratic. We show that when contestants are strategic, lax standards and exclusivity can make selection more meritocratic. When many contestants compete for a few promotions, strategic contestants adopt high-risk strategies. Risk-taking reduces the correlation between performance and ability. Through reducing the effects of risk-taking, “Peter principle” promotion policies, which entail promoting some contestants that are unlikely to be worthy, can increase the overall correlation between selection and ability and thus further meritocracy.

Nearest neighbor (NN) matching is widely used in observational studies for causal effects. Abadie and Imbens (2006) provided the first large‐sample analysis of NN matching. Their theory focuses on the case with the number of NNs, M fixed. We reveal something new out of their study and show that once allowing M to diverge with the sample size an intrinsic statistic in their analysis constitutes a consistent estimator of the density ratio with regard to covariates across the treated and control groups. Consequently, with a diverging M , the NN matching with Abadie and Imbens' (2011) bias correction yields a doubly robust estimator of the average treatment effect and is semiparametrically efficient if the density functions are sufficiently smooth and the outcome model is consistently estimated. It can thus be viewed as a precursor of the double machine learning estimators.

This paper takes advantage of the dynamic nature of institutional reforms in transition economies and explores the causal effects of those reforms on bank risk. Using a difference-in-difference approach, we show that banks’ financial stability increases substantially after these countries reform their legal institutions, liberalize banking, and restructure corporate governance. We also find that the effects of legal and governance reforms on bank risk may critically depend on the progress of banking reforms. A further examination of alternative risk measures reveals that the increases in financial stability among banks mainly come from the reduction of asset risk. Banks tend to have lower ROA volatility and fewer nonperforming loans after reforming the institutional environment. Finally, we split our sample into foreign and domestic banks and find that the enhancement of financial stability is more pronounced for domestic banks.

Using finite mixture models, we find that financial distress is related to realized return negatively (positively) for one (the other) latent group. The negative (positive) relation concentrates in firms with large negative (positive) realized return; the likelihood for a firm to be in the latent group with a positive relation is negatively related to its price-to-value ratio estimate and mispricing score, both of which measure relative mispricing. The mispricing-correction component of realized return is negative (positive) for overvalued (undervalued) firms and decreases (increases) with corrected overvaluation (undervaluation). Overall, our findings are consistent with the view that mispricing—undervaluation and overvaluation—is larger for firms with higher financial distress. Evident in our findings, an overall negative relation between financial distress and realized return is driven by the negative relation between financial distress and the mispricing-correction component for overvalued firms and, therefore, it is not at odds with the risk-reward paradigm. • The relation between distress and realized return is positive (negative) for undervalued (overvalued) firms. • The negative overall relation between distress and realized return does not contradict the risk-reward paradigm. • Zhuo (June) Cheng acknowledges financial support from Hong Kong SAR Research Grants Council, China (#15506018).