ABSTRACT A significant portion of a merger's purchase price is allocated to goodwill. Currently, goodwill is not amortized but rather tested annually for impairment. When managers of acquiring firms care about earnings, goodwill's accounting treatment can have large effects on future earnings and may influence how much a manager will bid for a target company. We quantify the effects of goodwill accounting by estimating a structural model of corporate takeovers. Our estimates suggest accrual accounting increases buyout premia by an average of approximately 11 percentage points. If firms needed to amortize goodwill over 10 years, we estimate premia would reduce by 4.9 percentage points and M&A volume would shrink by 4.1% or $67 billion per year. Furthermore, the fraction of private equity acquirers would increase by 6.9 percentage points, shifting control over productive assets to the private and financial sector. Our results suggest the accounting treatment for goodwill has a meaningful effect on the market for corporate control.

We study the informational value of trading networks in over-the-counter (OTC) markets. Using detailed transaction-level data from the corporate bond market, we show that investors with larger dealer networks make superior trading decisions before changes in credit fundamentals, resulting in better risk-adjusted performance. We trace these investors’ superior trading decisions to trading connections where dealers are most likely to have access to novel credit-relevant information, supporting the interpretation that these investors obtain private information through their trading networks. Collectively, our evidence highlights the importance of trading relationships for investors’ private information acquisition.

ABSTRACT We document significant increases in bond market liquidity around earnings announcements. These increases are attributed to decreased search and bargaining costs, which arise from the over‐the‐counter (OTC) nature of bond markets and outweigh increases in information asymmetry during these periods. Our evidence traces reductions in search and bargaining costs to two sources around earnings announcements: (1) improved access to dealers and (2) increased participation from institutional investors, who can more easily transact with multiple dealers. Overall, our findings highlight a novel channel through which firm‐specific information affects asset prices.