We provide the first in-depth examination of exchange-traded funds (ETFs) within actively managed mutual fund (AMMF) portfolios to better understand why AMMFs make substantial investments in passive ETFs. We examine the association between holding ETF positions and AMMF performance, as well as indirect measures of performance, including market timing, flow management, and cash holdings. We find that over one-third of AMMFs take an ETF position between 2004 and 2015. Our results indicate that AMMFs allocating large portions of their portfolio to ETFs perform worse, by between 0.41% and 1.63% annually using various performance measures. These AMMFs also exhibit worse market timing and hold more cash. In contrast, AMMFs that hold ETFs in small amounts have similar characteristics to non-user AMMFs. Therefore, the act of holding an ETF does not signal inferior ability, however, taking large ETF positions does.

We examine the effect of the full set of bank capital regulations (capital stringency) on loan growth, using bank-level data for a maximum of 125 countries over the period 1998–2011. Contrary to standard theoretical considerations, we find that overall capital stringency only has a weak negative effect on loan growth. In fact, this effect is completely offset if banks hold moderately high levels of capital. Interestingly, the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities. In contrast, compliance with Basel guidelines in using Basel- and credit-risk weights has a much less potent effect on loan growth.

We study managers’ interventions in financial reporting by examining working capital deficits, measured as current ratios less than 1.0. Current ratios represent important balance sheet liquidity indicators to lenders and creditors, and have an identifiable and naturally occurring reference point at 1.0, analogous to the profit/loss income statement reference point. We find that distributions of reported current ratios of both U.S. and non‐U.S. firms exhibit a discontinuity at 1.0. For U.S. firms, we find that the discontinuity increases with exogenous increases in the cost of credit in the economy, and that determinants of the likelihood to achieve a given current ratio are diagnostic precisely at the 1.0 discontinuity location but not at other nearby locations in the current ratio distribution. U.S. firms that avoid working capital deficits report lower proportions of inventory and higher proportions of accounts receivable in current assets and, when credit is tight, higher proportions of cash, consistent with managers increasing sales volume so as to capitalize profit margins and thereby increase current assets. For non‐U.S. firms, the discontinuity is more pronounced for observations from common law countries, a proxy for jurisdictions where financial reports are more intended to provide decision‐useful information. The evidence suggests that managers intervene to achieve a balance sheet reporting objective that stems from stakeholder use of reference points.

Independent technological glitches forced two separate trading halts on different U.S. exchanges during the week of July 6, 2015. During each halt, all other exchanges remained open. We exploit exogenous variation provided by this unprecedented coincidence, in conjunction with a proprietary data set, to identify the causal impact of Designated Market Maker (DMM) participation on liquidity. When the voluntary liquidity providers on one exchange were removed, liquidity remained unchanged; when DMMs were removed, liquidity decreased market-wide. We find evidence consistent with the idea that these DMMs, despite facing only mild formal obligations, significantly improve liquidity in the modern electronic marketplace.

Energy-efficient technologies offer considerable promise for reducing the financial costs and environmental damages associated with energy use, but it has long been observed that these technologies may not be adopted by individuals and firms to the degree that might be justified, even on a purely financial basis. We survey the relevant literature on this “energy-efficiency gap” by presenting two complementary frameworks. First, we divide potential explanations for the energy-efficiency gap into three categories: market failures, behavioral explanations, and model and measurement errors. Second, we organize previous research in terms of the fundamental elements of cost-minimizing energy-efficiency decisions. This provides a decomposition that organizes thinking around four questions. First, are product offerings and pricing economically efficient? Second, are energy operating costs inefficiently priced and/or understood? Third, are product choices cost minimizing in present value terms? Fourth, do other costs inhibit more energy-efficient decisions? We synthesize academic research on these questions, with an emphasis on recent empirical findings, and offer suggestions for future research.

This study evaluates the relation between hostile takeovers and 17 takeover laws from 1965 to 2014. Using a data set of largely exogenous legal changes, we find that certain takeover laws, such as poison pill and business combination laws, have no discernible impact on hostile activity, while others such as fair price laws have reduced hostile takeovers. We construct a Takeover Index from the laws and find that higher takeover protection is associated with lower firm value, consistent with entrenchment and agency costs. However, conditional on a bid, firms with more protection achieve higher premiums, consistent with increased bargaining power.

We investigate whether a borrower's media coverage influences the syndicated loan origination and participation decisions of informationally disadvantaged lenders, loan syndicate structures, and interest spreads. In syndicated loan deals, information asymmetries can exist between lenders that have a relationship with a borrower and less informed, nonrelationship lenders competing to serve as lead arranger on a syndicated loan, and also between lead arrangers and less informed syndicate participants. Theory suggests that the aggressiveness with which less informed lenders compete for a loan deal increases in the sentiment of public information signals about a borrower. We extend this theory to syndicated loans and hypothesize that the likelihood of less informed lenders serving as the lead arranger or joining a loan syndicate is increasing in the sentiment of media-initiated, borrower-specific articles published prior to loan origination. We find that as media sentiment increases (1) outside, nonrelationship lenders have a higher probability of originating loans; (2) syndicate participants are less likely to have a previous relationship with the borrower or lead bank; (3) lead banks retain a lower percentage of loans; and (4) loan spreads decrease.

We study competition in matching markets with random heterogeneous preferences and an unequal number of agents on either side. First, we show that even the slightest imbalance yields an essentially unique stable matching. Second, we give a tight description of stable outcomes, showing that matching markets are extremely competitive. Each agent on the short side of the market is matched with one of his top choices, and each agent on the long side either is unmatched or does almost no better than being matched with a random partner. Our results suggest that any matching market is likely to have a small core, explaining why small cores are empirically ubiquitous.