In examining the loan contracting implications of SEC investigations, we document that banks charge higher loan spreads when borrowers are under investigation, with the rise in interest rates varying predictably with lender characteristics. Further, our evidence implies that the debt pricing impact of SEC investigations is amplified for borrowers suffering worse credit quality and information asymmetry as well as those relying more on bank loans. These findings suggest that banks perceive increased risk for borrowers under SEC scrutiny while also leveraging their knowledge of the investigations to extract rents. Supplemental analyses reveal tighter nonspread loan terms and a higher likelihood of amending existing loan contracts during SEC investigations. Additionally, the tightening of loan terms reverses for investigations that conclude without enforcement actions. Overall, our research identifies an economic cost of SEC investigations and alerts regulators to these costs when deciding whether to launch an investigation. Data Availability: All data used are available from the sources indicated in the paper

Cyber risk exposes banks to operational disruptions that can trigger runs. A bank chooses its cybersecurity by trading off protection against attacks with remaining resilient if an attack succeeds. Cybersecurity functions as a risk-management decision: it reduces the bank’s exposure to adverse outcomes but entails lower balance-sheet returns. Equilibrium cybersecurity depends on whether failure is driven by insolvency or illiquidity. When failure is insolvency-driven, bank and creditor actions reinforce one another: greater cybersecurity leads to a higher debt burden, which strengthens incentives for protection. When failure is illiquidity-driven, additional cybersecurity lowers the debt burden, eliminating the bank’s private risk–return trade-off. Socially optimal cybersecurity differs from the private choice, and corrective instruments must target either the protection or resilience margins. We extend the model to a system-wide environment in which cybersecurity is a public good, highlighting free-riding and the need for targeted regulation

How do banks contribute to the green economy? Using a unique dataset detailing firms' revenue exposure to green business activities, we present new evidence that firms generating revenue from green products and services are associated with lower syndicated loan spreads. We find that the green revenue effects on loan spreads are attributable to firms' prospects tied to climate change-related opportunities and banks' environmental orientation. Foreign banks subject to mandatory environmental, social, and governance (ESG) disclosure regulations reduce the loan spreads to green revenue firms. We also find suggestive evidence that firms with green revenue tend to file more green patents following loan origination. While banks typically perceive green innovation as riskier and demand higher loan spreads, this effect is offset if a firm also generates green revenue. Collectively, our results highlight the pivotal role that banks play in channeling financial resources toward green business practices

Government regulations on housing flippers target their high capital gains but ignore their risk-sharing function: rational arbitrageurs reduce market return volatility borne by other participants while undertaking high idiosyncratic risk. Regulations that tighten the limits of arbitrage in housing markets can adversely affect market efficiency by blocking this risk-sharing function. Using comprehensive housing transaction records in Hong Kong from 1993 to 2021, we find although flippers obtain higher annual capital gain returns than long-term buyers by 8.76 percentage points, they undertake substantially higher idiosyncratic risk due to its unique downward-sloping term structure. Only experienced flippers, who have at least two prior purchase experiences and constitute less than 20% of the flippers, outperform long-term buyers in risk-adjusted returns. Following the enactment of an anti-speculation policy that decreases the share of flippers by 14.2 percentage points in one year, the market return volatility of the entire housing market increases by 21.9