Abstract We find weak governance is a primary reason investors react negatively to the announcement of seasoned equity offerings (SEOs). Using a difference-in-differences approach, we find investors worry about nonproductive use of SEO proceeds when external pressure for good governance lifts due to an external shock. Investors react negatively only when treated firms raise funds to increase capital investments. Market reaction is more negative when issuers have prior records of value-reducing acquisitions and weaker managerial wealth sensitivity to shareholder value. The magnitudes of these governance effects are surprisingly large, explaining most of the previously documented negative market reactions to primary SEOs.

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This article considers a two-sided search market where firms and workers are paired to bargain over a unit surplus. The matching market serves as an endogenous outside option for the agents. The market includes inflexible commitment types who demand a constant portion of any match surplus. The frequency of such types is determined in equilibrium.An equilibrium where there are significant delays in reaching an agreement and where negotiations occasionally break down on the equilibrium path is constructed. Such an equilibrium exists and commitment types affect bargaining dynamics even if the equilibrium frequency of such types is negligible. If the inflows of firms and workers into the market are symmetric, then bargaining involves two-sided reputation building and reputation concerns lead to delays and inefficiency. Access to the market exacerbates bargaining inefficiencies caused by inflexible types. If the inflows of workers and firms are sufficiently asymmetric, then bargaining involves one-sided reputation and commitment types determine the terms of trade.

The SEED schools, which combine a “No Excuses” charter model with a 5-day-a-week boarding program, are America’s only urban public boarding schools for the poor. We provide the first causal estimate of the impact of attending SEED schools on academic achievement, with the goal of understanding whether changing a student’s environment is an effective strategy to increase achievement among the poor. Using admission lotteries, we show that attending a SEED school increases achievement by 0.211 standard deviation in reading and 0.229 standard deviation in math per year. However, subgroup analyses show that the effects may be driven by female students.

ABSTRACT We use changes in the value of a firm's real estate assets as an exogenous change in a firm's financing capacity to examine (1) the relation between reporting quality and financing and investment conditional on this change, and (2) firms’ reporting quality responses to the change in financing capacity. We find that financing and investment by firms with higher reporting quality is less affected by changes in real estate values than are financing and investment by firms with lower reporting quality. Further, firms increase reporting quality in response to decreases in financing capacity. Our findings contribute to the literature on reporting quality and investment, and on the determinants of reporting quality choices.

This article uses variation in access to a targeted lending program to estimate whether firms are credit constrained. While both constrained and unconstrained firms may be willing to absorb all the directed credit that they can get (because it may be cheaper than other sources of credit), constrained firms will use it to expand production, while unconstrained firms will primarily use it as a substitute for other borrowing. We apply these observations to firms in India that became eligible for directed credit as a result of a policy change in 1998, and lost eligibility as a result of the reversal of this reform in 2000, and to smaller firms that were already eligible for the preferential credit before 1998 and remained eligible in 2000. Comparing the trends in the sales and the profits of these two groups of firms, we show that there is no evidence that directed credit is being used as a substitute for other forms of credit. Instead, the credit was used to finance more production–there was a large acceleration in the rate of growth of sales and profits for these firms in 1998, and a corresponding decline in 2000. There was no change in trends around either date for the small firms. We conclude that many of the firms must have been severely credit constrained, and that the marginal rate of return to capital was very high for these firms.

We use the revealed preference method to derive a model of individual decision making when the endowment of an agent provides a reference point that may influence her choices. This model generalizes the classical rational choice model, which views choice as a consequence of “utility maximization”. Instead, our model sees choice as arising from “psychologically constrained utility maximization”, where the constraints are induced by one's initial endowment. In particular, this model produces status quo bias as a natural consequence (but not necessarily the endowment effect). A range of economic applications identify the predictive and explanatory strength of the model. In particular, we demonstrate that the status quo bias phenomenon reduces the size of the substitution effect in problems of consumption choice.