[Do macroeconomic conditions affect firms' abilities to raise capital? If so, how do they affect the manner in which the capital is raised? Using a large sample of publicly traded debt issues, seasoned equity offers, bank loans, and private placements of equity and debt, we find that a borrower's credit quality significantly affects its ability to raise capital during macroeconomic downturns. For noninvestment-grade borrowers, capital raising tends to be procyclical, while for investment-grade borrowers, it is countercyclical. Poor market conditions also affect the structure of securities offered, shifting them toward shorter maturities and more security. Overall, our results suggest that macroeconomic conditions influence the securities that firms issue to raise capital, the way in which these securities are structured, and indeed firms' ability to raise capital at all.]

We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R&D investment. The effect is stronger for politically sensitive and high-tech industries.The results are robust to different proxies for political uncertainty shocks. As predicted by models of investment under uncertainty, the real effects of political uncertainty critically depend on the type of the investment. JEL G18, G38, O31, O32

The risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in anticipation of lawsuits and not a consequence of plaintiffs targeting firms with high cash levels. The market value of cash is lower for firms exposed to litigation risk. Corporate investment decisions are also affected by litigation risk, as firms reduce capital expenditures in response. Our results are robust to endogeneity concerns and possible spurious temporal effects.

Firms modify their payout policy in anticipation of future litigation costs. We examine a comprehensive sample of U.S. corporate lawsuits and find that firms facing significant litigation risk pay lower dividends, and in some cases omit dividends while distributing more cash through share repurchases. Litigation risk changes the distribution of payouts but not the total payout yield as the increase in share repurchases offsets the decrease in dividends. Cash-poor firms cut share repurchases when settlement costs are incurred. The results suggest that firms at a higher risk of litigation increase their payout flexibility.

We document cycles in corporate investment corresponding with the timing of national elections around the world. During election years, firms reduce investment expenditures by an average of 4.8% relative to nonelection years, controlling for growth opportunities and economic conditions. The magnitude of the investment cycles varies with different country and election characteristics. We investigate several potential explanations and find evidence supporting the hypothesis that political uncertainty leads firms to reduce investment expenditures until the electoral uncertainty is resolved. These findings suggest that political uncertainty is an important channel through which the political process affects real economic outcomes.

We investigate how lender default shocks impact corporate investment. Lenders with recent default experience write stricter loan contracts, especially to borrowers with pre-existing relationships, leading to a reduction in real investment for all borrowing firms. The decline in investment is more pronounced when agency problems with creditors like asset substitution and claim dilution are higher. Moreover, the decline in investment is not attributable to more frequent covenant violations or to market conditions. The evidence highlights the role of supply-side frictions through the asset side of lenders’ balance sheets on corporate investment and how agency problems may act as mechanisms.

We examine whether bilateral investment treaties (BITs), an external governance mechanism, stimulate cross-border mergers by protecting the property rights of foreign acquirers. Exploiting the staggered adoption and bilateral nature of the treaties, we find that BITs have a large positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. The increase is driven by deals flowing from developed economies to developing economies and is concentrated in target countries with medium levels of political risk. The results suggest BITs are effective in expanding the global market for corporate control, particularly in the developing world.

Do macroeconomic conditions affect firms' abilities to raise capital? If so, how do they affect the manner in which the capital is raised? Using a large sample of publicly traded debt issues, seasoned equity offers, bank loans, and private placements of equity and debt, we find that a borrower's credit quality significantly affects its ability to raise capital during macroeconomic downturns. For noninvestment-grade borrowers, capital raising tends to be procyclical, while for investment-grade borrowers, it is countercyclical. Poor market conditions also affect the structure of securities offered, shifting them toward shorter maturities and more security. Overall, our results suggest that macroeconomic conditions influence the securities that firms issue to raise capital, the way in which these securities are structured, and indeed firms' ability to raise capital at all.