Employee treatment is an important but challenging element of corporate environmental, social, and governance policies. Satisfying employee needs can increase corporate productivity, but is also costly to shareholders. Using unique data of Chinese publicly listed firms, we show that having satisfied employees is valuable to the firm. Specifically, firms with higher employee satisfaction scores withstand COVID-19 better, in terms of stock market performance. Such an effect is more pronounced for firms with more intangible assets and in knowledge-based industries. Moreover, higher employee satisfaction scores predict better operating performance. While not fully revealed in tranquil times, the effect of employee satisfaction is materialized when the firms experience negative shocks, such as COVID-19. Our findings suggest that firms can do well in crisis periods by doing good in normal times.

[We examine whether "rating shopping" or "rating catering" is a more accurate characterization of rating agency interactions regarding collateralized debt obligations (CDOs). Although investors paid a premium for dual ratings, AAA CDO tranches rated by both Moody's and S&P defaulted more frequently than tranches rated by only one of them, which is inconsistent with pure rating shopping. Rating agencies made upward adjustments beyond their model when their competitor had more lenient assumptions. Finally, consistent with rating catering, S&P's and Moody's adjustments and disagreements at security issuance were reflected in subsequent rating downgrades, suggesting that adjustments were harmful.]

This paper provides the first empirical evidence of the externalities of credit default swaps (CDS). We find that a firm's leverage is lower when a larger proportion of its revenue is derived from CDS-referenced customers. This finding is robust to alternative samples and measures, placebo tests, and the selection of customers by suppliers. Moreover, firms affected by customer CDS trading issue equity to lower leverage, and their equity issuance costs are lower. These findings are consistent with the view that CDS trading on customers improves the information environment for suppliers. Therefore, while many firms are not directly linked to CDS trading, CDS trading on their customers has spillover effects on these firms’ financial policies.

The green bond market has been growing rapidly worldwide since its debut in 2007. We present the first empirical study on the announcement returns and real effects of green bond issuance by firms in 28 countries during 2007–2017. After compiling a comprehensive international green bond dataset, we document that stock prices positively respond to green bond issuance. However, we do not find a consistently significant premium for green bonds, suggesting that the positive stock returns around green bond announcements are not fully driven by the lower cost of debt. Nevertheless, we show that institutional ownership, especially from domestic institutions, increases after the firm issues green bonds. Moreover, stock liquidity significantly improves upon the issuance of green bonds. Overall, our findings suggest that the firm's issuance of green bonds is beneficial to its existing shareholders.

Do labor characteristics matter to corporate decisions? We answer this question by examining whether firms consider the risk attitude of rank-and-file employees in investing the pension assets of defined benefit plans. We construct a direct measure of employees' risk attitude from their defined contribution pension portfolio allocations. We find that firms with more risk-averse employees exhibit higher sensitivity to their own default risk in their defined benefit pension investment. The reduction in pension risk taking induced by sponsor risk is more pronounced for low R&D firms, and in the period with stringent pension regulation. We further show that sponsors consider employees' risk aversion in making pension investment decisions regardless of the power of labor union. Overall, our findings suggest that firms incorporate employees' risk attitude into corporate policies.

The suitability of complex financial products for household investors is an important issue in light of consumer financial protection. The U.S. Dodd–Frank Act, for instance, mandates that distributors check suitability when selling structured products to retail investors. However, little empirical evidence exists on such transactions. Using data from Hong Kong, we find that investors purchase 8% more structured products, on average, when the suitability is not checked. The effect of suitability checks is more pronounced for less financially literate investors. Moreover, investors tend to buy products with lower risk-adjusted returns when product suitability is not checked.

We show that firms grow faster than their industry rivals if there are credit default swaps (CDS) referencing their debt. Using multiple approaches to addressing endogeneity concerns including synthetic difference-in-differences and novel instrumental variables, we find the product market effects of CDS likely to be causal. We provide evidence for two mechanisms driving the CDS effects: the reduction of creditor monitoring and the elevation of shareholder risk-taking. A detailed analysis of product market dynamics reveals that CDS firms achieve faster growth by reducing markups, developing new products, and encroaching on rivals' product space. Over the long run, these strategies increase industry concentration and help profitability growth. Consistent with the classic predation theories, our findings suggest that financial innovations that change incentive problems in financial contracting can have real effects on product market outcomes.

This study empirically examines the impact of the interaction between market and default risk on corporate credit spreads. Using credit default swap (CDS) spreads, we find that average credit spreads decrease in GDP growth rate, but increase in GDP growth volatility and jump risk in the equity market. At the market level, investor sentiment is the most important determinant of credit spreads. At the firm level, credit spreads generally rise with cash flow volatility and beta, with the effect of cash flow beta varying with market conditions. We identify implied volatility as the most significant determinant of default risk among firm-level characteristics. Overall, a major portion of individual credit spreads is accounted for by firm-level determinants of default risk, while macroeconomic variables are directly responsible for a lesser portion.

The rise of credit default swaps (CDS) provides creditors with a market-based approach to obtaining protection, but it can also affect lenders' monitoring of the borrowers. We find that after CDS begin trading on a given firm, new loans to that firm are less likely to require collateral and have less strict financial covenants, even controlling for endogeneity. The effects are stronger when lenders have easier access to CDS, for safer firms, credit lines, and performance-based covenants. Our evidence is consistent with the theory that the introduction of CDS trading makes loan contracting more effective for better quality borrowers.