Does distrust in politically affiliated media induce a bias in investor beliefs? We study the acquisition of Dow Jones & Co. by News Corporation in 2007 as a shock to the political affiliation of Dow Jones outlets. Following the acquisition, the prices of Republican- (Democrat-) aligned stocks become less sensitive to favorable (unfavorable) Dow Jones Newswires (DJNW) sentiment, consistent with the market attaching less credibility to a politically affiliated source. There is, however, no evidence of change in DJNW sentiment, coverage, or language about Republican/Democrat stocks, suggesting a loss of stock price informativeness. Consistent with this view, a portfolio exploiting the attenuated reaction to DJNW news earns abnormal returns following 2007.

We study information substitutability in the financial market through a quasi-natural experiment: the pandemictriggered lockdown that has hampered people's physical interactions hence the ability to collect, process, and transmit interaction-based information. Exploiting the cross-sectional and time-series variations of lockdown and its implications on proximate investment, we investigate how the difficulty of collecting information through physical interactions has prompted a switch to electronic interactions including synchronous interactions such as virtual meetings and asynchronous ones like collecting information from the internet. We show that local-investing funds (LIFs) that mostly relied on physical interactions to access information before the pandemic had even worse performance than other funds, though the difference in performance was insignificant before the lockdown. Moreover, LIFs rebalance portfolios toward faraway stocks due to portfolio diversification and risk reduction. These findings indicate that physical-interaction-based and electronic-based information is not fully substitutable. We also show that the advantages of human-interaction-based information originate mainly from physical contacts, primarily in cafés, restaurants, bars, and fitness centers; and the virtual world based on Zoom/Skype/Team can provide a buffer but cannot substitute personal meetings in generating sufficient information.

We examine the relationship between shareholder leverage constraints and corporate risk-taking, focusing on its impact on debtholders. Our findings show that mutual fund leverage constraints are related to more risk-taking activities of portfolio companies, inducing higher credit risk and greater risk-shifting concerns for the firms’ debtholders. In response, the debtholders raise borrowing costs and tighten lending conditions. These effects intensify for firms facing higher levels of conflict between debtholders and shareholders and when mutual funds exert greater influence over firms. Econometric analyses, including instrumental variable specifications and asset management company mergers, support a causal interpretation.

Using the near universe of online job postings from 2007 to 2021, we construct a firm-level metric of labor market power. We find that firms with higher labor market power tend to have higher financial leverage. Our findings are not driven by product market competition or correlated labor market characteristics. The evidence is less pronounced among firms hiring in occupations with high labor mobility and skill transferability. To establish causality, we exploit the establishment of Amazon HQ2 in Crystal City as a shock to the labor market power of local firms and show consistent findings with our baseline results.

Can social norms give rise to distorted information in China? We observe that China’s leading social norm related to alcohol consumption and social drinking enhances earnings management. An analysis of toxic alcohol scandals supports a causal interpretation. Further evidence suggests that the influence of alcohol may come from the negative externality that it creates, which is propagated by corporate leaders and cannot be attenuated by market-oriented institutions. Our results reveal a social norm externality that may have important normative implications.