Abstract The presence of shadow banks in corporate term loan syndicates adversely affects credit lines’ liquidity provision, despite shadow banks not directly funding credit lines. Within the same syndicated loan deal, shadow banks attract not only riskier borrowers but also fewer banks as co-lenders, both in the term loan and in the credit line. Furthermore, credit lines in deals funded by shadow banks, compared to those without shadow bank participation, are smaller, with shorter maturities, and lower drawdown rates. Overall, our results highlight that syndicated loan deals with a strong presence of shadow banks offer borrowers lower liquidity protection. JEL G21, G22, G23

This essay reviews seven books from the past dozen years by social scientists examining the economic impact of artificial intelligence (AI). These works offer valuable insights—AI as cheap prediction, architectural barriers to adoption, data as an economic asset, implementation challenges. However, they offer little guidance when it comes to the transformative scenarios considered plausible by many AI researchers. Economists have made great progress in explaining how to use AI within existing production functions, who benefits, and why; what remains needed is rigorous advice to policymakers concerned about rapid increases in labor churn, scientific development, labor–capital shifts, or existential risk. (JEL C45, C80, D83, O31, O36)

Abstract We examine the impact of auditors’ reputation impairments on their private-client market share to explore how conducting low-quality audits affects auditors’ broader client portfolios. Prior evidence implies that an audit office loses public-client market share after a client announces a restatement. However, auditors’ private clients may be less concerned about auditor reputation and quality, given that they have lower agency costs and their financial statement users are often creditors that can rely on direct monitoring to narrow information asymmetry. Also, differences between public and private company audits cast doubt on whether public-client restatements are relevant to private clients. We find that the private-client market share of a Big Four audit office falls by, on average, 5 percent the year after a public client announces a restatement. This evidence suggests that Big Four offices cannot simply replace lost public-client revenue with private-client revenue after suffering reputation damage.

Abstract We study the long-term impact of limited attention on belief formation. To this end, we propose a rank-dependent model of inattentive learning, building on principles from the behavioral science literature. We provide explicit formulas for the distorted limiting beliefs and the asymptotic variance that characterizes the speed of learning. In our model, agents who pay excessive attention to extreme observations end up learning a distorted version of the true data-generating process which puts too much weight on the tails of the distribution. We show how the implications of our model can be linked to empirically documented phenomena such as skewness-seeking behavior and the coexistence of over- and underreaction to incoming information depending on the context. Limited attention can thus have long-lasting impacts on the beliefs agents form.

Abstract We investigate whether green innovators voluntarily provide innovation disclosure to reduce processing costs for stakeholders and gain green-specific disclosure benefits. We observe that green patenting firms provide more innovation disclosure in conference calls than do other innovating peers, controlling for patent value. Using a patent-call unit of analysis, we also provide within-firm evidence that managers highlight their green inventions more on conference calls relative to their other inventions. Green innovators provide more innovation disclosure when the costs of processing patent information are higher and anticipated disclosure benefits are greater. We find some evidence that innovation disclosure is positively associated with green fund ownership and stronger market responses to conference calls as well as proxies for ESG-related reputation. Our findings highlight both capital market and social capital benefits as motivating forces for voluntary innovation disclosure and suggest the nature of a firm’s innovations can impact its information environment.

Despite surging environmental laws, how their enforcement influences banks' management of climate risks remains underexplored.Using the Brazilian Amazon as a laboratory, we examine the impact of a shock to environmental law enforcement capacity on bank management of risks arising from deforestation-a significant but understudied climate risk.After enforcement declined, Brazilian banks significantly altered their priorities to more short-term profitability over longerterm risk concerns.Banks greatly increased lending to agribusinesses engaged in deforestation and actively shifted resources to regions with higher deforestation potential.Results suggest that without rigorous enforcement, banks may fail to fully internalize deforestation risks, despite existing environmental laws.