I analyze the relevance of debt composition (secured versus unsecured) for the association between collateral and investment. I study a negative shock to the cost and availability of unsecured debt. A decrease in the share of unsecured debt leads to a reduction in investment. The substitution toward secured debt results in asset encumbrance, higher interest rates, and the presence of covenants. The minimization of financing costs is one mechanism through which the priority composition of debt impacts investment. The results complement evidence on the collateral channel with a novel focus on debt structure.

We challenge the theorized trade-off between risk management and investment due to collateral constraints. We compile a unique dataset of derivative transactions and collateral for U.S. public firms. Exploiting exogenous variation in cash-collateral, we observe significant effects on hedging but no impact on investment. Variations in PPE-collateral, instead, impact investment but show no association with hedging. Our findings suggest that a firm’s assets should not be seen as interchangeable; they rather play distinct roles in the collateralization process.

This study analyzes meetings of firms with policymakers at the European Commission (EC). Meetings with Commissioners are associated with positive abnormal equity returns for U.S. firms. Firms of the European Union (EU), however, do not experience significant value increases. We identify regulatory outcomes as a channel that can rationalize this difference in value effects of political access. U.S. firms with meetings are more likely to receive favorable decisions in their EC merger decisions than their EU peers. The results suggest that cross-border political access can alleviate uncertainties and alleged discriminatory behavior of regulators in foreign markets.

By means of a difference-in-differences approach on the volatility of stock returns (σ-DID), we investigate the effect that hedging has on corporate risk. Examining the relation between hedging and the idiosyncratic variance of stock returns, we show that when new commodity derivatives are introduced in the Chicago Mercantile Exchange (CME), firms with exposure to the commodities experience up to a 40% drop in the idiosyncratic variance of stock returns. The effect is persistent over time and it is associated with real effects: firms that hedge more also experience an increase in profit margins, investment, access to credit lines, and a drop in cash holdings. Our results establish a direct link between corporate risk management policies and stock return behavior.