This paper examines apparent fraud among securitized nonagency loans using three indicators: unreported second liens, owner occupancy misreporting, and appraisal overstatements. We find that around 48% of loans exhibited at least one indicator of misrepresentation. Surprisingly, misreporting is similar in both low and full documentation loans and is associated with a 51% higher likelihood of delinquency. Two-thirds of loans with unreported second liens had the same originator issuing both the first and second lien. Misrepresentations in MBS pools can explain substantial cross-sectional differences in future losses. Losses were predictable and initiating from apparent fraud by MBS underwriters and loan originators.

Do tightenings of bank lending standards permanently reduce bank lending? We construct a measure of a bank’s level of lending standards using micro-data from the sample of banks participating in the Eurosystem Bank Lending Survey in The Netherlands and show that this level measure affects business lending. The level effect is statistically robust and economically relevant; a one point tightening reduces a bank’s quarterly growth rate of business lending by about half a percentage point until bank lending standards are eased. This level effect of bank lending standards helps to explain low bank lending growth after a period of prolonged tightening as well as high bank lending growth in a period of prolonged easing. As such, the analysis provides another potential indicator for macroprudential policy.

We present a real options model of a firm’s make-or-buy decision under demand uncertainty. “Making” is subject to decreasing returns to scale, fixed costs, and capital investment. “Buying” happens at a fixed price and requires no investment. Three distinct procurement regimes endogenously arise: buying, making, or concurrent sourcing for, respectively, low, intermediate, and high demand. Capital constraints encourage buying or concurrent sourcing. Operating leverage peaks when the firm switches between buying and making, and it is lowest (and negative) at the switch between making and concurrent sourcing. This non-monotonic pattern mirrors and drives the behavior of the firm’s beta.

This paper provides a structural approach to testing investment equations based on the log-likelihood function of a nonlinear investment rule. The analysis integrates the predictions of the q -theory for the commonly studied active region of investment and provides new inferences on how real and financing frictions affect the probability that a firm invests. The empirical findings are consistent with the macro-finance literature suggesting that q -theory models with nonconvex investment frictions better explain the data. I also find that both real and financing costs of investment are related to the capital intensity of the industry in which firms operate.

Corporate boards are the focal points for strategy and investment related firm decisions, and hence they embody the key features of production and management. In this paper, using a unique dataset of listed firms, we examine the determinants of board diversity based on directors' nationalities and ask whether the presence of foreign directors on boards contributes in some way to firm governance and performance. Our results show that boards containing diverse nationalities are positively and significantly associated with shareholder heterogeneity and the firm's international market operations. Nationality diversity is also positively related to operating performance. Moreover, as we find, institutions relating to investor engagement play an important role in influencing the nature and consequences of board diversity.

We provide evidence that sophisticated investors like short sellers, option traders, and financial institutions are more informed when trading stocks of companies with more connected board members. For firms with large director networks, the annualized return difference between the highest and lowest quintile of informed trading ranges from 4% to 7.2% compared to the same return difference in firms with less connected directors. Sophisticated investors better predict outcomes of upcoming earnings surprises and firm-specific news sentiment for companies with more connected directors. Changes in board connectedness are positively associated with changes in measures of adverse selection.

This paper argues that several of the poor labor market outcomes observed in the Great Recession can be traced back to a change in the demand pattern for skilled workers that started with the tech bust of 2000. In particular, we show that around the year 2000, the demand for cognitive tasks underwent a reversal. In response, high-skilled workers moved down the occupational ladder and increasingly displaced lower-educated workers in less skill-intensive jobs. While these effects were present before the financial crisis of 2008, they became more obvious after jobs associated with the housing bubble disappeared.

Chile is unusual in having long-term experience with nationwide school vouchers. A key criticism of school voucher systems is that they make it easier for private schools to attract better teachers to the detriment of public schools. This paper uses longitudinal data from Chile to estimate a discrete choice dynamic programming (DCDP) model of teacher and nonteacher labor supply decisions and to explore how wage policies affect the composition of the teacher labor force in public and private schools. In the model, individuals first decide whether to get a teaching degree and then choose annually from among five work/home sector alternatives. Empirical results show that private voucher schools attract better teachers than public schools. However, the existence of the private voucher sector also draws higher-productivity individuals into the teaching profession.

From 1998 to 2011, U.S. firms held more cash on average (but not at the median) than similar foreign firms (foreign twins) did. The average difference in cash holdings does not increase after 2008, and it is driven by highly R&D-intensive U.S. firms. Because there are almost no similarly R&D-intensive foreign firms, mean comparisons involving these U.S. firms are not reliable. Without these U.S. firms, neither U.S. multinational firms nor purely domestic U.S. firms hold more cash than their foreign twins do. Country characteristics have negligible explanatory power for differences in cash holdings between U.S. firms and their foreign twins.

When assessing a fund manager's skill, sophisticated investors will consider all factors (priced and unpriced) that explain cross-sectional variation in fund performance. We investigate which factors investors attend to by analyzing mutual fund flows as a function of recent returns decomposed into alpha and factor-related returns. Surprisingly, investors attend most to market risk (beta) when evaluating funds and treat returns attributable to size, value, momentum, and industry factors as alpha. Using proxies for investor sophistication (wealth, distribution channels, and periods of high investor sentiment), we find that more sophisticated investors use more sophisticated benchmarks when evaluating fund performance.