Abstract We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition. (JEL D43, G21, M42, M49)

Abstract Form 10-K offers a setting for studying how users process complex, multi-layered disclosures: managerial narratives in the main file alongside separate exhibits, such as contracts and certifications, that provide unfiltered detail. Drawing on rational inattention theory, we investigate how users allocate limited attention across these components. Users typically begin with the main file and selectively access exhibits when the main file appears shorter, less readable, or less confident, indicating higher perceived information loss. This pattern strengthens for exhibits that offer more detail on topics discussed in the main file and among institutional investors and time-constrained users. Exhibit access persists beyond the initial filing window and increases around subsequent firm events, especially when external monitoring strengthens and event-related information asymmetry grows. Collectively, our findings underscore the active, discerning nature of user attention in navigating multi-layered disclosures and reveal the often-overlooked informational value of exhibits in Form 10-K.

Abstract Competitive threats motivate firms to use convertible debt because the possibility of future conversion enhances financial flexibility. Consistent with this intuition, we find that the intensity of competitive threats is positively associated with convertible debt financing at both the extensive and intensive margins. By using large tariff reductions as exogenous shocks to competition we show that this relation is likely causal. Convertible debt usage in response to competitive threats strongly depends on a firm’s relative financial and competitive conditions. In addition, firms increase the probability of future conversion by tailoring convertible debt features. (JEL D34, G30, G32, G39)

Abstract We document that climate-triggered institutional portfolio rebalancing affects S&P 500 firms’ cost of equity through climate change price pressure (CCPP). Using a demand-based asset pricing framework, we estimate firm-level CCPP from physical and transition exposures over 2005–2021. A one-standard-deviation intensification of CCPP raises the cost of equity by up to 6% of its average, with banks and insurers as the main drivers. Yet firms do not subsequently improve environmental performance, indicating that the statistically significant effect of CCPP on cost of equity is ineffective to alter corporate behavior. Our CCPP metrics can help policymakers and investors design targeted environmental strategies.

Abstract After medical marijuana legalization (MML) by U.S. states, firms’ cost of equity (COE) decreases, especially for those with more growth opportunities, higher productivity, or a more skilled workforce. This policy change also reduces firm risk and leads to an increase in labor supply through increased labor force participation, employment, hours worked, and net migration. Further, home prices rise after MML, reflecting increased local housing demand due to a growing supply of workers. These findings align with theoretical models that link asset prices to labor markets and suggest that MML can lower firms’ COE by mitigating labor search frictions.

Abstract We investigate the impact of the fiduciary duty of loyalty on corporate culture. Leveraging the staggered state adoption of corporate opportunity waiver (COW) laws as an exogenous fiduciary loyalty decline, we find that COW laws deteriorate corporate culture. This effect operates through increased board overlapping and director busyness and is more pronounced in firms with legal-expert directors, weaker governance, and greater outside opportunities as well as in smaller or younger firms. The results are robust across alternative measures, time frames, legislative events, estimation strategies, etc. Overall, the fiduciary duty of loyalty plays a crucial role in enhancing corporate culture and firm performance. (JEL G34, G38, M14)

This paper develops and tests an equilibrium model of active fund management with ESG considerations. Heterogeneous sustainability preferences lead fund managers to intensify information acquisition on assets across the ESG spectrum, broadening the scope of active management. This information channel enhances price informativeness, lowers discount rates, and increases portfolio deviation from benchmarks. The model predicts a negative and concave ESG-expected return relation, stronger for green assets and weaker for brown assets. Using data on U.S. mutual funds and stocks from 2007–2021, we find supporting evidence based on price informativeness and the implied cost of equity capital.

We examine the relation between mandatory environmental disclosure and corporate green innovation. Adopting a difference-in-differences research design, we find that the adoption of state-level greenhouse gas emissions disclosure mandates is associated with an increase in the quantity of patents related to climate change mitigation/adaptation technologies (i.e., “green innovations”). This increase is stronger among firms with more environmental investors, suggesting investor preferences influence this relation. We also document a positive association between these mandates and firms’ future environmental performance ratings, suggesting a positive externality. However, we find that these mandates are associated with a reduction in future financial performance for some firms, suggesting a potential negative effect on shareholder welfare. Collectively, our results provide new evidence on the real effects of mandatory environmental disclosure and the determinants of green innovation and contribute to the literature on the motivations for green innovation and the literature on corporate disclosure and investment decisions.