We document that backfilling in the ExecuComp database introduces a data-conditioning bias that can affect inferences and make replicating previous work difficult. Although backfilling can be advantageous due to greater data coverage, if not addressed, the oversampling of firms with strong managerial incentives and higher subsequent returns leads to a significant upward bias in abnormal compensation, pay-for-performance sensitivity, and the magnitudes of several previously established relations. The bias also can lead to one misinterpreting the appropriate functional form of a relation and whether the data support one compensation theory over another. We offer methods to address this issue.

We estimate a panel error correction model for loan loss provisions, using unique supervisory data on flow of funds into and out of the allowance for loan losses of 25 Dutch banks in the post-2008 crisis period. We find that these banks aim for an allowance of 49% of impaired loans. In the short run, however, the adjustment of the allowance is only 29% of the change in impaired loans. The deviation from the target is made up by (a) larger additions to allowances in subsequent quarters and (b) smaller reversals of allowances when loan losses do not materialize. After one quarter, the adjustment toward the target level is 32%, and after four quarters it is 79%. For individual banks, there are substantial differences in timing of provisioning for bad loan losses.

We examine whether corporate social responsibility (CSR) creates value for seasoned equity issuers. Using a sample of seasoned equity offerings (SEOs) by U.S. companies between 2004 and 2013, we find a positive association between CSR performance and the stock price reaction to SEO announcements. Surprisingly, however, further tests reveal that seasoned equity issuers with high CSR scores tend to have higher post-SEO increases in cash holdings, and lower investments in real assets, than issuers with low CSR scores. Moreover, high-CSR issuers have worse post-SEO operating and stock price performance than low-CSR issuers. Together, our findings suggest that high CSR scores mislead shareholders into attributing value-increasing motives to seasoned equity issues.

We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences—including both expected utility (EU) theory and non-EU models—that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property-insurance data) and research that uses aggregate data (e.g., betting-market data). We conclude by discussing directions for future research. ( JEL C51, D11, D81, D82, D83, G22, I13)

Prominent policy makers assert that managerial short-termism was at the root of the subprime crisis of 2007–2009. Prior scholarly research, however, largely rejects this assertion. Using a more comprehensive measure of Chief Executive Officer (CEO) incentives for short-termism, we uncover evidence that short-termism indeed played a role. Firms whose CEOs were contractually allowed to sell or exercise more of their stock and options holdings sooner had more subprime exposure, a higher probability of financial distress, and lower risk-adjusted stock returns during the crisis, as well as higher fines and settlements for subprime-related fraud.

We use a proprietary data set to test the implications of several asymmetric information models on how short-lived private information affects trading strategies and liquidity provision. Our identification rests on information acquisition before analyst recommendations are publicly announced. We provide the first empirical evidence supporting theoretical predictions that early-informed traders “sell the news” after “buying the rumor.” Further, we find distinct profit-taking patterns across different classes of institutions. Uninformed institutions, but not individuals, emerge as de facto liquidity providers to better-informed institutions. Placebo tests confirm that these trading patterns are unique to situations in which some investors have a short-lived informational advantage.

ABSTRACT We develop a model of monetary policy with two key features: the central bank has private information about its long‐run target rate and is averse to bond market volatility. In this setting, the central bank gradually impounds changes in its target into the policy rate. Such gradualism represents an attempt to not spook the bond market. However, this effort is partially undone in equilibrium, as markets rationally react more to a given move when the central bank moves more gradually. This time‐consistency problem means that society would be better off if the central bank cared less about the bond market.

We consider the estimation methods for the rank of a beta matrix corresponding to a multifactor model and study which method would be appropriate for data with a large number of assets. Our simulation results indicate that a restricted version of Cragg and Donald’s (1997) Bayesian information criterion estimator is quite reliable for such data. We use this estimator to analyze some selected asset pricing models with U.S. stock returns. Our results indicate that the beta matrix from many models fails to have full column rank, suggesting that risk premiums in these models are underidentified.

We provide the first examination of hedge fund boards and their directors. The majority of directorships are held by extremely busy independent directors. These directors are sought by funds because they have more reputational capital at stake, making them independent and credible monitors whose presence can certify fund quality to investors. Busy independent directors are more likely to be hired by high-quality funds, and their departure from the board is associated with investor withdrawals. Moreover, funds with busy independent directors are less likely to commit fraud, abuse discretionary liquidity restrictions, or engage in performance-based risk shifting.

We find new facts that relate the evolution of firm scope to the changing frictions in external capital markets over the last three decades. We find that large, diversified publicly traded firms increase their scope during times of high external capital market frictions, such as in the recent Great Recession. Moreover, during these times firms diversify their investment needs and cash flow across industries. We also find similar phenomena outside diversified public firms. Examining the mergers and acquisitions activity of stand-alone and diversified private firms, we uncover similar patterns. In aggregate data, we find that the composition of mergers shifts from focused to diversifying and back with changes in external market conditions. Our evidence is broadly consistent with the notion that firms diversify their scope in response to tightening in external capital markets.