Manipulation of hard information has been at the center of a wave of investigations into fraudulent bank behavior, such as mis-selling of mortgages and rigging of London Interbank Offered Rate and Foreign Exchange rates. Despite these prominent cases, little is known as to why employees manipulate hard information. Using almost a quarter million retail loan applications, we show that loan officers who face volume-based incentives significantly manipulate ratings even in settings where ratings are computed using hard information only. Manipulation is widespread across loan officers, with low-performing loan officers manipulating more toward the end of the year. These incentives have a first-order effect on bank profitability, reducing return on equity by 1.5 percentage points. We conclude that reliance on hard information does not overcome loan officer agency problems, and it is important for banks and regulators to take manipulation of hard information into account when using hard information for risk assessment and regulation.

This paper analyzes the effect that the U.S. Supreme Court's landmark decision on Citizens United vs. FEC had on corporate political activism. The decision opened the door for corporate treasuries to engage in independent political spending. Politically connected firms have lower announcement returns at the ruling than non-connected firms. The estimates suggest that the value of a political connection decreases by $6.9 million. To evaluate the effect of Citizens United on corporate political activism, we explore the fact that Citizens United also lifts bans on independent political spending in states where such bans existed. After the ruling, firms headquartered in states where bans are lifted have fewer state-level connections relative to firms in other states. Overall, our evidence supports the hypothesis that independent political spending crowds out political connections. We do not find any significant crowding-out effects of independent political expenditures on lobbying activity, executive contributions, and political action committees (PAC) contributions.