We show that a large number of firms adopt poison pills during periods of market turmoil. Specifically, during the coronavirus pandemic, many firms adopted poison pills following declines in valuations, and stock prices increased upon the announcement of firms’ poison pill adoption. Stock price increases are driven by (1) firms in which activist shareholders acquire ownership stakes and (2) firms in industries that had high exposure to the crisis. Likewise, we find a positive reaction to pills with provisions directed at stalling activists’ interventions. Our results suggest that crisis pills that target potentially disruptive ownership changes may benefit current shareholders. (JEL G30, G32, G34, G38, E32) Received August 14, 2020; editorial decision October 23, 2020 by Editor Andrew Ellul.

Little is known about whether people make good choices when facing important decisions. This article reports on a large-scale randomized field experiment in which research subjects having difficulty making a decision flipped a coin to help determine their choice. For important decisions (e.g. quitting a job or ending a relationship), individuals who are told by the coin toss to make a change are more likely to make a change, more satisfied with their decisions, and happier six months later than those whose coin toss instructed maintaining the status quo. This finding suggests that people may be excessively cautious when facing life-changing choices.

We document persistent superior trading performance among a subset of individual investors. Investors classified in the top performance decile in the first half of our sample subsequently earn risk-adjusted returns of about 6% per year. These returns are not confined to stocks in which the investors are likely to have inside information, nor are they driven by illiquid stocks. Our results suggest that skilled individual investors exploit market inefficiencies (or perhaps conditional risk premiums) to earn abnormal profits, above and beyond any profits available from well-known strategies based on size, value, momentum, or earnings announcements. (JEL G11, G14, G40, G51) Received: October 11, 2020 Editorial decision: January 4, 2021 Editor: Jeffrey Pontiff

A unique dataset of post-IPO thrifts with heterogeneous initial insider ownership allows us to use revealed preferences to determine the level of ownership insiders believe to be optimal. We find strong evidence that insider ownership converges to the 20% to 30% range, whether insiders begin with diffuse or concentrated ownership. This range of ownership has been found consistent with entrenchment and control in the literature. Our results are robust to a battery of variables related to insider ownership such as moral hazard, adverse selection, market timing, insider characteristics, and firm characteristics. Furthermore, we find that managers with diffuse ownership accumulate shares most aggressively during the period of regulatory anti-takeover protection, consistent with an entrenchment motive. We find that managers with above-average pay are more likely to seek higher ownership, consistent with the existence of private benefits of control. Finally, we find that insider ownership determines equity issuance, leverage, and share liquidity in ways consistent with expected accumulation or reduction in insider ownership for control purposes.

In November 2011, the Financial Stability Board, in collaboration with the International Monetary Fund, published a list of 29 "systemically important financial institutions" (SIFIs, now referred to as "globally systemically important banks" or G-SIBs), institutions whose failure, by virtue of "their size, complexity, and systemic interconnectedness", could have dramatic negative consequences for the global financial system. While "size" and "interconnectedness" have been the subject of much quantitative analysis, less attention has been paid to measuring "complexity." Yet without a consistent way to measure complexity, there is little guarantee that the designated SIFIs capture the complexity that the FSB is concerned about, and little hope of mitigating the consequences that the FSB warns of. In this paper we propose the structure of an individual firm's majority-control hierarchy as a proxy for institutional complexity. We demonstrate as a proof-of-concept how this method might be used by bank supervisors, particularly the Federal Reserve under its authority as consolidated supervisor, using a data set containing information on the majority-control hierarchies of many of the designated SIFIs. Our mathematical intrafirm network representation (and various associated metrics we propose) provides a uniform way to compare firms with often very disparate organizational structures – one that is distinct from a simple size comparison.

I study how private communication among competitors affects their public disclosures. Theory suggests that competing firms can use public disclosure to coordinate, and predicts less public disclosure when there is more private communication. Using data on strategic alliances, I predict and find that firms that enter strategic alliances with competitors reduce their public disclosure, and that the reduction is more pronounced for alliances that allow for more private communication.

In this article, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a “fresh start” for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.

We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk‐taking and market structure. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks as well as non‐bank lenders. Banks face idiosyncratic funding shocks in addition to aggregate shocks which affect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks' buffer stock of capital. We show that the model predictions are consistent with untargeted business cycle properties, the bank lending channel, and empirical studies of the role of concentration on financial stability. We find that regulatory policies can have an important impact on banking market structure, which, along with selection effects, can generate changes in allocative efficiency and stability.

We examine the long-lasting effects of the 2007 real estate price collapse on small business credit supply. Banks affected by the decline in real estate prices systematically contracted their credit to small firms. At the same time, regional and local banks, many of which were unaffected by the initial shock, increased small business lending to nearby borrowers and opportunistically expanded their branch networks, making gains in market share that persisted for the following decade. Although the net effect of the contraction in credit was negative, we show that opportunistic expansion tied to permanent market changes is an important offsetting force that dampened the negative effect on small firms during the GFC and its aftermath.

I study the empirical importance of debt overhang using a unique data set on resource extraction firms that provides ex ante measures of investment opportunities and important variation in terms of a firm’s obligations. In particular, unsecured reclamation liabilities create overhang that is costly to resolve and induces firms to forgo and postpone positive NPV investments. Traditional debt, in contrast, imposes few overhang-related investment distortions. These results show that (a) the overhang problem is potentially large and more broadly applies to firms’ nondebt liabilities and (b) overhang problems associated with traditional debt can be avoided through contracting and debt composition.