This study examines how a firm's corporate legal structure may affect its borrowing costs. Corporate legal structure refers to the legal fragmentation of a firm into multiple, separately incorporated entities. This fragmentation is bound to be a factor when lenders determine the pricing of debt and design of contract terms because they can enter into legally enforceable agreements only with specific legal entities. Using a sample of private loans to parent companies in the United States, I find that a more complex corporate legal structure is associated with higher loan spread. The findings are robust to several firm and loan characteristics and are incremental to the effects of other forms of organizational structure, namely business and geographic diversification. Subsequent evidence suggests that the effect of a corporate legal structure on borrowing costs is, at least partly, explained by recovery risk.

We examine how lenders design contracts to account for transitory and permanent cash flow shocks facing borrowers. We find that volatile transitory cash flow shocks are associated with fewer liquidity covenants, indicating financial flexibility that enables firms to survive liquidity crunches. The opposite is true for volatile permanent cash flow, suggesting that borrowers’ economic fundamentals are important credit risk factors. Subsequent analyses show that borrowers exposed to transitory (permanent) shocks face less (more) severe credit consequences following poor performance. Overall, we show that transitory and permanent cash flow shocks have significant and opposite effects on debt contract covenant design.

We study the mispricing information present in the target prices of US and international analysts. We hypothesize that asymmetry in the value-relevance of the information that managers supply to analysts, combined with asymmetry in the incentives facing analysts to curry favor with managers, leads to analyst-claimed undervaluation being more predictive of future stock returns than analyst-claimed overvaluation. Our empirical tests isolate analyst-claimed mispricing by first removing analysts’ estimates of the cost of equity from the returns implied by target prices and then separating analyst-claimed undervaluation from overvaluation. We find that target prices only predict future returns (at 16 cents to 18 cents on the dollar) when analysts claim undervaluation, not when they claim overvaluation. We also observe that analyst-claimed undervaluation predicts future returns more strongly after firms experience low returns and when macro-driven valuation uncertainty is low.

We examine the influence of peer firms on trade credit policies of listed firms in the United States. We posit and find evidence that firms mimic their peers in formulating trade credit policies. The findings are more pronounced for firms that operate in highly competitive product markets and an uncertain information environment. Our results show that firms not only mimic peers in similar circumstances but also imitate their more and less successful peers. We find that the benefits of mimicking peers' trade credit policies increase initially, but for firms that already maintain high levels of trade credit, these benefits diminish faster as the intensity of mimicking increases. Our results are robust to different methods of selecting peers, sampling, different proxies, and estimation techniques.

Despite the rising use of environmental, social, and governance (ESG) ratings, there is substantial disagreement across rating agencies regarding what rating to give to individual firms. As what drives this disagreement is unclear, we examine whether a firm's ESG disclosure helps explain some of this disagreement. We predict and find that greater ESG disclosure actually leads to greater ESG rating disagreement. These findings hold using firm fixed effects and using a difference-in-differences design with mandatory ESG disclosure shocks. We also find that raters disagree more about ESG outcome metrics than input metrics (policies), and that disclosure appears to amplify disagreement more for outcomes. Last, we examine consequences of ESG disagreement and find that greater ESG disagreement is associated with higher return volatility, larger absolute price movements, and a lower likelihood of issuing external financing. Overall, our findings highlight that ESG disclosure generally exacerbates ESG rating disagreement rather than resolves it. Data Availability: The data used in this study are publicly available from the sources cited in the text.