This paper studies how high uncertainty affects corporate bank loans, addressing the important issue of identification. In times of high uncertainty, firms reduce their credit demand due to delayed investments or a deterioration in credit worthiness. Simultaneously, banks are more exposed to negative shocks to their balance sheet, reducing credit supply. To isolate the uncertainty effect from the credit supply effect, we employ matched bank-firm loan data covering all loans extended by all financial intermediaries to listed firms in Korea, a bank-centered economy. Our empirical results reveal that a failure to control for credit supply leads to overestimating the effect of uncertainty on bank loans. In terms of the transmission channel of uncertainty, we find the evidence of both the real option channel and the financial channel: the negative effect is stronger for firms with a higher degree of investment irreversibility and financially constrained firms. In addition, our findings suggest that larger firms may be predominantly affected by uncertainty shocks through the real option channel rather than the financial channel. In addition, our empirical findings on firm investments align with those on bank loans.

We measure a stock’s exposure to fire sale risk through its ownership links to mutual funds that anticipate significant outflows during periods of systematic outflows from the fund industry. We find that stocks with higher exposure to this risk earn higher average returns: a portfolio that buys (shorts) stocks with the highest (lowest) exposure outperforms by 3-7% annually. Our findings cannot be explained by several known determinants of average returns and support the ex-ante pricing of the risk of fire sales. We conclude that stocks’ exposures to risks inherited from the constraints of shareholders have important implications for stock prices.

I examine how investors’ search for different types of information affects managers’ reporting decisions. I distinguish investors’ search for information about firm fundamentals (“fundamental search”) from their search for information about managers’ incentives (“incentive search”). Based on a parsimonious model of misreporting, I predict that fundamental search reduces the earnings response coefficient, which reduces managers’ benefits from misreporting, resulting in less misreporting. In contrast, incentive search increases the earnings response coefficient, which increases the benefits from misreporting, resulting in more misreporting. I test these predictions using an empirical technique that classifies EDGAR downloads as fundamental search or incentive search. Consistent with my theoretical predictions, I find that fundamental (incentive) search is negatively (positively) related to the earnings response coefficients and intentional restatements. I confirm my findings in two distinct empirical settings where the costs of information search exogenously changed: the adoption of XBRL and the electronic filing mandate of Form 4s. Collectively, the results show that investors’ information demand can shape managers’ reporting decisions, and its effects can vary depending on the type of information investors search for.

Classical models of voluntary disclosure feature two economic forces: the existence of an adverse selection problem (e.g., a manager possesses some private information) and the cost of ameliorating the problem (e.g., costs associated with disclosure). Traditionally these forces are modelled independently. In this paper, we use a simple model to motivate empirical predictions in a setting where these forces are jointly determined––where greater adverse selection entails greater costs of disclosure. We show that joint determination of these forces generates a pronounced non-linearity in the probability of voluntary disclosure. We find that this non-linearity is empirically descriptive of multiple measures of voluntary disclosure in two distinct empirical settings that are commonly thought to feature both private information and proprietary costs: capital investments and sales to major customers.

The paper develops an asymptotically valid F-test that is robust to spatial autocorrelation in a GMM framework. The validity of the F-test is established under mild conditions that can accommodate a wide range of spatial processes. The proposed F-test is very easy to implement, as critical values are from a standard F-distribution. The F-test achieves triple robustness: it is asymptotically valid regardless of the spatial autocorrelation, the sampling region, and the limiting behavior of the smoothing parameter. Simulation also shows that the F-test has good size and power properties in finite samples.

Media as a whole has been shown to play an important role as an information source, information intermediary, and monitor of public firms, but much less is known about whether local newspapers play a similar role. We attempt to shed light on this issue, and we investigate if and how firms respond to changes in the local newspaper industry, where closures and layoffs have become the norm. Compared to a sample of matched control firms, we find that following newspaper closures and large industry layoffs, nearby public companies boost dividend payouts. This result follows from prior research suggesting that investors pressure managers to increase dividends in response to growing agency problems. Cross-sectional analyses confirm that our results are driven by geographically-concentrated firms that rely more heavily on local newspapers as a monitor and information source. Our findings suggest that local newspapers play an important role as an information intermediary and monitor of public firms, and that the disappearance of local newspapers exacerbates agency problems in nearby firms that tend to be remedied by higher dividends.