[The asset allocation of defined benefit pension plans is a setting where both risk-shifting and risk-management incentives are likely be present. Empirically, firms with poorly funded pension plans and weak credit ratings allocate a greater share of pension fund assets to safer securities such as government debt and cash, whereas firms with well-funded pension plans and strong credit ratings invest more heavily in equity. These relations hold both in pooled regressions and within firms and plans over time. The incentive to limit costly financial distress plays a considerably larger role than risk shifting in explaining variation in pension fund investment policy among firms in the United States.]

The asset allocation of defined benefit pension plans is a setting where both risk shifting and risk management incentives are likely be present. Empirically, firms with poorly funded pension plans and weak credit ratings allocate a greater share of pension fund assets to safer securities such as government debt and cash, whereas firms with well-funded pension plans and strong credit ratings invest more heavily in equity. These relations hold both in the cross-section and within firms and plans over time. The incentive to limit costly financial distress plays a considerably larger role than risk shifting in explaining variation in pension fund investment policy among U.S. firms.

I exploit sharply nonlinear funding rules for defined benefit pension plans in order to identify the dependence of corporate investment on internal financial resources in a large sample. Capital expenditures decline with mandatory contributions to DB pension plans, even when controlling for correlations between the pension funding status itself and the firm's unobserved investment opportunities. The effect is particularly evident among firms that face financing constraints based on observable variables such as credit ratings. Investment also displays strong negative correlations with the part of mandatory contributions resulting solely from unexpected asset market movements.

Better measurement of the output produced and capital employed by firms substantially improves the ability to explain capital structure variation in the cross section. For every firm, we construct the set of other firms producing the same output using the set of product market competitors listed in the firm’s public Securities and Exchange Commission filings. In addition, we improve measurement of capital structure by explicitly accounting for leased capital. These two steps increase the explanatory power of the average capital structure of other firms producing similar output on a firm’s capital structure by 50% compared to using only the average unadjusted debt ratio of other firms in the same three-digit Standard Industrial Classification (SIC) code. We provide evidence that the large explanatory power of the capital structure of other firms producing similar output is related to the assets used in the production process. Our findings suggest that what a firm produces and the assets used in production are the most important determinants of capital structure in the cross section.

[Using a novel dataset that records individual debt issues on the balance sheets of public firms, we demonstrate that traditional capital structure studies that ignore debt heterogeneity miss substantial capital structure variation. Relative to high-credit-quality firms, lowcredit-quality firms are more likely to have a multi-tiered capital structure consisting of both secured bank debt with tight covenants and subordinated non-bank debt with loose covenants. We discuss the extent to which these findings are consistent with existing theoretical models of debt structure in which firms simultaneously use multiple debt types to reduce incentive conflicts.]

Using a novel dataset that records individual debt issues on the balance sheets of public firms, we demonstrate that traditional capital structure studies that ignore debt heterogeneity miss substantial capital structure variation. Relative to high-credit-quality firms, low-credit-quality firms are more likely to have a multi-tiered capital structure consisting of both secured bank debt with tight covenants and subordinated non-bank debt with loose covenants. We discuss the extent to which these findings are consistent with existing theoretical models of debt structure in which firms simultaneously use multiple debt types to reduce incentive conflicts.

Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension funds, where overweighting amounts to 9.8% of aggregate private-equity investments and 16.5% for the average limited partner. Public pension funds' in-state investments achieve performance that is lower by two to four percentage points than both their own similar out-of-state investments and similar investments in their state by out-of-state investors. Overweighting in home-state investments by public pension funds is greater in venture capital and real estate than in buyout funds. States with political climates characterized by more self-dealing invest a larger share of their portfolio in local investments, although a given local investment performs only as poorly in these states as in other states. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.

[Institutional investors exhibit substantial home-state bias in private equity. This effect is particularly pronounced for public pension funds, where overweighting amounts to 9.8% of aggregate private-equity investments and 16.5% for the average limited partner. Public pension funds' in-state investments achieve performance that is lower by two to four percentage points than both their own similar out-of-state investments and similar investments in their state by out-of-state investors. Overweighting in home-state investments by public pension funds is greater in venture capital and real estate than in buyout funds. States with political climates characterized by more self-dealing invest a larger share of their portfolio in local investments, although a given local investment performs only as poorly in these states as in other states. Relative to the performance of the rest of the private equity universe, overweighting and underperformance in local investments reduce public pension fund resources by $1.2 billion per year.]

We examine characteristics of the 400 wealthiest individuals in the United States over the past three decades as tabulated by Forbes Magazine, and analyze which theories of increasing inequality are most consistent with these data. The people of the Forbes 400 in recent years did not grow up as advantaged as in decades past. They are more likely to have started their businesses and to have grown up upper-middle class, not wealthy. Today's Forbes 400 were able to access education while young, and apply their skills to the most scalable industries: technology, finance, and mass retail. Most of the change occurred by 2001.

The return expectations of public pension funds are positively related to cross-sectional differences in past performance. This positive relation operates through the expected risk premium, rather than the expected risk-free rate or inflation rate. Pension funds act on their beliefs and adjust their portfolio composition accordingly. Persistent investment skills, risk taking, efforts to reduce costly rebalancing, and fiscal incentives from unfunded liabilities cannot fully explain the reliance of expectations on past performance. The results are consistent with extrapolative expectations, since the dependence on past returns is greater when executives have personally experienced longer performance histories with the fund.