Data-driven lending relies on the calibration of models using training periods. We find that this type of lending is not resilient in the presence of economic conditions that are materially different from those experienced during the training period. Using data from a small business fintech lending platform, we document that the small business credit supply collapsed during the COVID-19 crisis of March 2020 even though the demand for loans doubled relative to pre-pandemic levels. As the month progressed, most lenders significantly reduced or halted their lending activities, likely due to the heightened risk of model miscalibration under the new economic conditions

The 2020 CARES Act directed large cash payments to households. We analyze households’ spending responses using data from a Fintech nonprofit, exploring heterogeneity by income, recent income declines, and liquidity as well as linked survey responses about economic expectations. Households respond rapidly to payments, with spending increasing by about $0.14 per dollar during the first week and plateauing around 0.25–0.30 over 3 months. In contrast to previous stimulus programs, we see little response of durables spending. Households with lower incomes, greater income declines, and less liquidity display stronger responses whereas households that expect employment losses and benefit cuts display weaker responses

We study the nature and effects of cultural biases in choice under risk and uncertainty by comparing peer-to-peer loans the same individuals ( lenders ) make alone and after observing robo-advised suggestions. When unassisted, lenders are more likely to choose co-ethnic borrowers, facing 8% higher defaults and 7.3pp lower returns. Robo-advising does not affect diversification but reduces lending to high-risk co-ethnic borrowers. Lenders in locations with high inter-ethnic animus drive the results, even when borrowers reside elsewhere. Biased beliefs explain these results better than a conscious taste for discrimination: lenders rarely override robo-advised matches to ethnicities they discriminated against when unassisted.

Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, and business professionals.

We study gender differences in on-time loan payment responsiveness to collection mechanisms using randomized dunning text messages sent to 17,545 FinTech borrowers. Reminder text messages significantly reduce delinquency rates relative to a no-message control, with messages incorporating social or financial incentives proving more effective. Women are more responsive to social pressure, while men are more sensitive to financial incentives. These results are robust to observable control variables and matching methods. Channel analyses indicate that gender differences in responsiveness to the existence and size of the incentive explain the observed gender differences under the social incentive treatment. However, only gender differences in sensitivity to the existence of incentives explain the gender difference in financial incentive treatments. These findings inform practitioners and policymakers that some seemingly gender-neutral practices may create unintended gender disparities in financial markets

We analyze the information content of a digital footprint—that is, information that users leave online simply by accessing or registering on a Web site—for predicting consumer default. We show that even simple, easily accessible variables from a digital footprint match the information content of credit bureau scores. A digital footprint complements rather than substitutes for credit bureau information and affects access to credit and reduces default rates. We discuss the implications for financial intermediaries’ business models, access to credit for the unbanked, and the behavior of consumers, firms, and regulators in the digital sphere

Financial markets have a central role in allocating resources in modern economies. One of the main functions of financial markets is the discovery of information. This information in turn helps guide decisions in the real side of the economy. The literature on the “feedback effect” of financial markets explores this channel. Empirical work tries to identify the informational feedback from markets to corporate decisions. Theoretical work explores implications that this feedback effect has for the equilibrium in financial markets and for economic efficiency. Current trends in information technology under the FinTech revolution change the nature of information processing in financial markets and so may change the nature of the feedback effect. In this article, I review the main themes of this developing literature and connect them to the current information revolution. I also discuss directions for future research

We show that following the legalization of same-sex marriage across US states, mortgage applications from same-sex borrowers are more likely to be denied relative to a matched sample of different-sex borrowers. Our findings are robust to using a stacked regression design and several approaches to account for compositional changes in the pool of mortgage applicants around same-sex legalization. FinTech lenders, which rely less on human loan officers, experience no change in the denial gap. Our results highlight information frictions between loan officers and same-sex borrowers as one channel for the increased denial gap between same-sex and different-sex applications

This article studies the impact of retail investors on stock liquidity during the COVID-19 pandemic lockdown in spring 2020. Retail trading exhibits a sharp increase, especially among stocks with high COVID-19–related media coverage. Retail trading attenuated the rise in illiquidity by roughly 40% but less so for high-media-attention stocks. Causality is addressed using the staggered implementation of the stay-at-home advisory across U.S. states. The results highlight that ample free time and access to financial markets facilitated by fintech innovations to trading platforms are significant determinants of retail-investor stock market participation

In August 2019, the Business Roundtable, one of the most recognizable lobbyist groups of the business community, issued the “Statement on the Purpose of a Corporation.” Signatures, 181 in total and mostly from CEOs of Corporate America, backed the one-page declaration that concludes with the following: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country” (Business Roundtable 2019). In his annual letter to shareholders in 2020, Jamie Dimon, chairman and CEO of JP Morgan Chase, reflects on the “fraying” of the “American dream” and on how banks and firms can work together to address an emerging economic scenario in which people and entire communities are being left behind. He argues that “successful businesses can literally and figuratively “drive by” our worst problems (think inner cities) and still thrive” (Dimon 2020). There is a strong argument to be made that firms and banks have a unique role to play in solving many of society’s challenges through skills training, community development, and infrastructure investments, among others. The above sentiments may sound reminiscent of “stakeholder capitalism,” the main criticism of which is that any corporate purpose other than maximizing shareholder value ends up producing lack of focus, agency conflicts and, possibly, corruption. CEOs may become self-appointed arbiters of social values leading to their own benefits disguised under some vague idea of corporate purpose. The countervailing argument made by Larry Fink (2019), CEO of BlackRock, is that “… in fact, profits and purpose are inextricably linked.” These were the themes and questions that the Editorial Board of the Review of Corporate Finance Studies discussed as we decided to make good on our commitment to continue with the idea of Registered Reports on a permanent, rather than ad hoc, basis. We started this initiative in 2021 on the theme of “Discrimination, Disparities, and Diversity in Finance.” We decided to continue this initiative with the theme of “Finance for the Greater Good” to reflect the wider debate taking place in society on the role of corporations and financial markets and whether, in fact, economic institutions are contributing to the problems or to the solutions. While we agree that these are big questions that go to the heart of the corporate finance and financial intermediation fields, we see a relative scarcity of papers on these important topics in finance journals. One reason could be that scholars think of this area as too risky a field to venture into. The topic may be politically charged or may not appeal to editors. With the choice of this theme for Registered Reports, we wanted to establish clearly that we believe that the topic is very important, and we were willing to contribute to inspire more research in this area. Through the Registered Reports initiative, we want to transfer some of the publication risk from authors to us as editors. The initiative is structured as a two-stage process. In the first stage, the editorial review team carefully reviews each proposal. Proposals that survive the first stage are then offered an in-principle acceptance for publication in the Review of Corporate Finance Studies before the final results are known, as long as authors work diligently on the comments made by the reviewers and write papers that meet high academic standards. We received thirty-three proposals that responded to our call on the theme of “Finance for the Greater Good.” We chose seven of them to continue to the second stage. The proposals were first presented and widely discussed during the 2022 RCFS Winter Conference. Over more than a year, each of these seven Reports morphed, after much work by the authors and the review team, into the impactful papers appearing in this volume. Our gratitude and appreciation go to the reviewers who worked so avidly and with deep commitment with the authors on this special issue. We hope that the success of this second initiative will encourage more academics to research such socially important themes. Human-induced climate change has become one of the most pressing concerns faced by humankind. The Biden Administration has listed climate change as a central issue for foreign policy, national security, and financial markets. The need to make significant economic changes to respond to and combat the devastating effects of climate change is fast becoming imperative, even though disagreement at the political level about the need for change persists. A less discussed theme strictly related to climate change is the challenge economies will face in transitioning to new energy sources as policies are introduced to reduce emissions and other harmful activities. For example, reaching the objective of “net zero” will entail significant costs, not only at the country level but also for firms and households. The natural question to ask is precisely regarding the costs and risks that will arise from the transition mechanisms put in place to change economic activities. The required transition is already generating real effects on economic mobility and access to financial services of affected communities, calling for policy interventions to minimize economic and social costs. Ding Du and Stephen A. Karolyi address this question, specifically how climate policies and technological innovation affect local communities, in the paper “Energy Transitions and Household Finance: Evidence from U.S. Coal Mining.” The authors focus on the coal mining industry, to investigate how local communities could be affected as energy sources move away from fossil fuels (Du and Karolyi 2022). This exercise could serve as a template to help us understand the impacts generated by energy transitions in the future. Several federal policies were introduced in 2011, when a nationwide shift in external factors affected coal production. The authors use these changes as the laboratory to investigate the economic outcomes in coal-producing communities. The paper finds evidence of economically significant and adverse effects of coal transition on households in communities that rely on coal mining as a major source of economic activity: employment, wages, migration, and mortgage applications in coal mining communities have been negatively affected by the shift away from coal. The authors find not only direct effects on coal industry employees but also spillover effects to other parts of communities outside the energy sector. These effects, beyond being important in and of themselves, help us understand the political challenge in obtaining citizens’ approval for environmentally conscious policies. An important headwind may be households’ lack of support given the heavy economic costs they may be burdened with. What can finance do to help find a solution? Access to finance should be one mechanism attenuating these negative effects; that is, financial resources will be required to lubricate the transition from coal mining to other activities, while minimizing social costs. The paper finds evidence confirming this hypothesis: employment and wage losses are found to be largest in those communities with low economic mobility and limited access to financial services. Finance providers, whether through equity or debt instruments, should be in a good position to scrutinize corporate investments with an eye on their environmental impact and nudge companies to change investment policies that are deleterious for the environment. There is no evidence so far that equity holders have any significant ability to change corporate policies through disinvestment. But what about banks that are the main source of debt financing for many firms? Banks should be in a stronger position than equity holders to affect firm policies, such as ESG investments, through their monitoring and ability to observe both soft and hard information. More specifically, to the extent that borrowers’ ESG-related risks have a spillover effect on firms’ credit standing, banks will have an incentive to monitor and thus influence firm decisions. The paper “Can Banks Save Mountains,” by David Haushalter, Joseph J. Henry, and Peter Iliev, investigates this question in the context of bank policies aimed at limiting, and sometimes eliminating, debt funding for so-called “mountaintop removal” (MTR) mining. MTR, that became widespread in the industry in the early 2000s, has attracted attention as an especially destructive form of mining with very significant, nefarious effects on the environment. Starting in 2008, banks lending to firms that carried out MTR mining began unilaterally adopting policies to curtail such lending. The authors use a difference-in-differences approach to examine the effect on lending to coal companies engaged in MTR activities, defined as those that control at least one MTR mine, arising from a bank decision to adopt policies to curtail such lending (Haushalter, Henry, and Iliev 2023). The main result is that there was no statistically significant change in banks’ lending behavior to MTR companies following the adoption of policies aimed at restricting such lending, whether one looks at bank loan counts, overall loan amounts, or MTR loans as a fraction of bank loans. The authors extend their analysis along several directions in terms of understanding which bank MTR policy may be the most effective to reduce lending. The authors find that, whether one looks at policies aimed at limiting loans to coal corporations with substantial MTR activity, policies that limit funding to specific MTR projects, or policies that should introduce enhanced diligence, the result is always the same: none of these policies leads to a reduction in lending to MTR borrowers. Overall, the evidence provided in this paper suggests a clear element of greenwashing in the case of banks unilaterally adopting policies that should limit lending to certain environmental-detrimental activities. One takeaway is that banks’ lending practices should be closely monitored to determine the true effectiveness of such policies. Central banks have been repeatedly brought into the debate mostly from the perspective of how climate change can influence financial stability. Perhaps the link between the two may be seen as tenuous. An often forgotten, but important dimension, is what central bankers can do to reach the goal of sustainable investing within the very large portfolios they hold. While the literature has looked at the potential impact of disinvestments from polluting sectors made by institutional investors, so far no research has been carried out on the effects of policy makers’ (in this case, central banks’) portfolio decisions. The importance of such a question is self-evident, considering the size of the equity holding in central banks’ portfolios and the message that can be sent to the investment community. If politicians want central bankers to intervene more with financial institutions to promote more climate-friendly lending policies, then citizens will also want to know what central bankers are doing in their own operational and portfolio decisions. From economic and policy points of views, this question presents interesting possibilities, as well as various challenges, given central bankers’ predicament in this field. Central bankers’ role as guardians of financial stability means that they will be held accountable if they do not internalize the citizens’ climate change concerns. This said, central banks do not (yet) have a climate- or ESG-centered mandate but rather monetary policy and financial stability mandates. Reconciling these two objectives is particularly difficult, especially when considering reputation risk. Rüdiger Fahlenbrach and Eric Jondeau address this question in the paper “Greening the Swiss National Bank's Portfolio.” The authors use the equity portfolio of the Swiss National Bank (SNB) as a laboratory to examine the various possibilities open to the SNB to reach a more climate-centered investment approach, and the limitations that central bankers face in carrying out this task (Fahlenbrach and Jondeau 2023). The paper, first, develops a framework for the different strategies that central bankers could follow to limit the exposure to activities that generate carbon emissions while maintaining existing policy mandates. The authors then proceed to quantify the impact of adopting a more carbon-conscious portfolio investment approach on the portfolio’s carbon footprint and performance. The paper shows that the best-in-class exclusion strategies are particularly suited for central banks to carry out environmental-friendly investment policies within the mandate given to central banks. The authors show that using a straightforward portfolio strategy would significantly decrease the SNB’s portfolio’s carbon footprint, without any significant impact on the portfolio’s performance, and with negligible costs. The strategy discussed and developed by the authors has several advantages, particularly it does not discriminate between economic sectors, keeps diversification in place, and limits the SNB to political pressure. One of financial technology’s (FinTech) promises is the “democratization” of the investment management industry, together with improvements in financial inclusion, and a more level playing field for investors. There is evidence that FinTech can reduce discrimination in mortgage markets, facilitate the calculation of credit scoring for opaque borrowers, and improve minority business owners’ access to financial products. This said, the ability of FinTech to deliver on the promise of a more level playing field also depends on investors’ degree of financial sophistication. Better data and more profitable trading strategies may arise from the abilities of more sophisticated investors using FinTech to its full extent but the same cannot be said for less sophisticated financial investors. In the paper “Fintech, Investor Sophistication and Financial Portfolio Choices,” Leonardo Gambacorta, Romina Gambacorta, and Roxana Mihet explore the question of how the interaction between advances in FinTech and investors’ sophistication levels are associated with the composition and performance of households’ financial portfolios. To do so, the authors use standard portfolio theory and test the hypotheses using novel micro-level Italian households’ data (the Bank of Italy’s Survey on Household Income and Wealth) over the period from 2004 to 2020 (Gambacorta, Gambacorta, and Mihet 2023). The heterogeneity across investors’ level of sophistication is proxied for by their financial literacy and access to FinTech. The paper’s empirical approach is to investigate realized rates of return and the portfolio composition of investors with different levels of financial literacy, while controlling for households’ risk aversion, age, gender, and access to remote banking, together with time and region fixed The main result the importance of investors’ financial sophistication for the full benefits of FinTech to be In fact, the between the portfolio composition of risky and the performance of sophisticated investors are found to with taking place in the FinTech sector. the advances we have over the two in FinTech could have and not portfolio return between sophisticated and less sophisticated investors. 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This is an interesting even though there are several challenges in such an to other the effect is on a of We in a in which in and financial markets is households are from social is and is the same we are business all over the their role in society and see potential in the ability of corporations and banks to contribute to the to the most pressing The papers in this of the Review of Corporate Finance Studies all to how corporations and banks can be a to improve and the limitations to their abilities as We hope that these papers help to new research on the important theme of “Finance for the Greater Good