I examine how the investment behavior of bond mutual funds affects corporate financing decisions. Mutual funds that hold a firm’s existing bonds have a high propensity to acquire additional new issuances from the same firm. I utilize this stylized fact to construct a firm-specific bond capital supply measure by aggregating flows from a firm’s existing bondholders. Firms with a higher flow-driven capital supply are more likely to issue bonds, enjoy lower yields, and substitute away from equity financing and bank loans. Information acquisition costs and underwriter relationship likely contribute to the impact of flow-driven capital supply.

We provide novel evidence that arbitrageurs use exchange-traded funds (ETFs) as an avenue to circumvent short-sale constraints at the stock level. Using a large sample of U.S. equity ETF holdings, we document that shorting activity on ETFs rises with the difficulty of shorting underlying stocks. Stocks heavily shorted via their holding ETFs underperform those that are lightly shorted. The return predictability of ETF shorting is distinct from stock-level shorting measures and is concentrated among stocks that face severe arbitrage constraints. These findings suggest that ETFs allow arbitrageurs to target overpriced stocks that are otherwise difficult to short.

Investments in international fixed‐income securities are exposed to significant currency risks. We collect novel data on currency derivatives used by U.S. international fixed‐income funds. We document that while 90% of funds use currency forwards, they hedge, on average, only 18% of their currency exposure. Funds' currency forward positions differ substantially based on risk management demands related to portfolio currency exposure, return‐enhancement motives such as currency momentum and carry trade, and strategic considerations related to past performance and fund clientele. Funds that hedge their currency risk exhibit lower return variability, but do not generate inferior abnormal returns.

This article studies how the three-way interaction among shareholders, creditors, and managers shapes firms’ executive compensation. Firms with a higher ownership share by “dual holders”—institutional investors that simultaneously hold equity and bond of the company—adopt a less risk-inducing compensation structure: less stock options and more inside debt. Exploiting financial institution mergers that increase or decrease dual ownership for portfolio companies, we identify a causal link between dual ownership and CEO compensation policies. Mutual fund proxy voting data suggest that shareholder voting is an important channel for dual holders to implement less convex contracts.

We find that long‐term institutional investors tilt their portfolios toward firms with better Environmental, Social, and Governance (ESG) profiles, in the cross sections of both institutional investor portfolios and the ownership of firms. We test whether several theoretically motivated mechanisms can explain this relationship. Our results that long‐term investors exhibit patience with firms around poor earnings announcements, but quickly sell portfolio firms after negative ES incidents, support the view that long‐ and short‐term investors evaluate information differently. Our evidence shows that limits‐to‐arbitrage play a role, as we find that investors' ESG tilt weakens following regulatory shocks that shorten their horizon.