Using confidential supervisory risk ratings, we document that banks increase risk after going public compared to a control group of banks that filed to go public but withdrew their filings for plausibly exogenous reasons. The increase in risk improves short‐term performance at the expense of long‐term performance. We argue that the increase in risk stems from pressure to maximize short‐term stock prices and earnings once the bank is publicly traded. After going public, banks owned by investors that place greater value on short‐term performance increase risk more, and those managed by CEOs with more short‐term compensation also increase risk more.

Using a regression discontinuity design, we provide evidence that there are sharp and substantial employment cuts following loan covenant violations, when creditors gain rights to accelerate, restructure, or terminate a loan. The cuts are larger at firms with higher financing frictions and with weaker employee bargaining power, and during industry and macroeconomic downturns, when employees have fewer job opportunities. Union elections that create new labor bargaining units lead to higher loan spreads, consistent with creditors requiring compensation when employees gain bargaining power. Overall, binding financial contracts have a large impact on employees and are an amplification mechanism of economic downturns.

Banks use trading as a vehicle to take risk. Using high-frequency regulatory data, we estimate the sensitivity of weekly bank trading profits to aggregate equity, fixed-income, credit, currency, and commodity risk factors. Our estimates imply that U.S. banks had large trading exposures to equity market risk before the Volcker Rule, which they curtailed afterwards. Credit and currency risk exposures were smaller. The results hold up in a quasi-natural experiment that exploits the phased-in introduction of reporting requirements for identification. Total trading-book risk was also curtailed afterwards with material financial stability implications and no evidence of migration to other bank activities.

We document the importance of covenant violations in transmitting bank health to nonfinancial firms. Roughly one‐third of loans in our supervisory data breach a covenant during the 2008 to 2009 period, allowing lenders to force a renegotiation of loan terms or to accelerate repayment of otherwise long‐term credit. Lenders in worse health are more likely to force a reduction in the loan commitment following a violation. The reduction in credit to borrowers who violate a covenant can account for the majority of the cross‐sectional variation in credit supply during the 2008 to 2009 crisis.

We use the deaths of directors and chief executive officers as a natural experiment to generate exogenous variation in the time and resources available to independent directors at interlocked firms. The loss of such key co-employees is an attention shock because it increases the board committee workload only for some interlocked directors—the ‘treatment group’. There is a negative stock market reaction to attention shocks only for treated director-interlocked firms. Interlocking directors׳ busyness, the importance of their board roles, and their degree of independence magnify the treatment effect. Overall, directors׳ busyness is detrimental to board monitoring quality and shareholder value.

During the U.S. housing credit boom, publicly traded banks increased mortgage lending activity and relaxed standards much more than privately held banks. The increase in risk had real effects for a variety of county-level aggregates including employment and consumption. Cross-sectional evidence and a quasi-experiment indicate that the increase in risk stemmed from the institutional ownership and the equity compensation of publicly traded banks, in turn leading banks to place greater weight on short-term equity performance. These results are consistent with the view that a focus on short-term earnings and stock prices amplifies boom–bust credit cycles, in turn leading to real cycles for the aggregate economy.

This paper explores the connection between rising intangible capital and the secular upward trend in U.S. corporate cash holdings. We calibrate a dynamic model with two productive assets—tangible and intangible capital—in which only tangible capital can serve as collateral. We highlight the following points: (i) a shift toward intangible capital shrinks firms' debt capacity and leads them to hold more cash, (ii) the effect accounts for three‐quarters of the observed trend in average cash ratios, and (iii) it also accounts for the upward trend of cash ratios in the cross‐section of small and large firms and in the aggregate.

Fire sales induced by investor redemptions have powerful spillover effects among funds that hold the same assets, hurting peer funds' performance and flows, and leading to further asset sales with negative bond price impact. A one‐standard‐deviation increase in our fire‐sale spillover measure leads to a 45 (90) bp decrease in peer fund returns (flows) and a two percentage point increase in the likelihood of a large bond price drop. The results hold in a regression‐discontinuity design addressing identification concerns. Timing, heterogeneity, instrumental‐variable, and placebo tests further support the price‐impact mechanism. Model‐based counterfactual and stress‐test analyses quantify the financial stability implications.