In March 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from preexisting credit lines in anticipation of cash flow and financial disruptions stemming from the advent of the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Precrisis financial condition did not constrain large banks’ liquidity supply. Coincident inflows of funds from both the Federal Reserve’s liquidity injection programs and depositors, along with strong preshock bank capital, explain why banks were able to accommodate these liquidity demands. (JEL G21, G28) Received June 7, 2020; editorial decision June 23, 2020 by Editor Isil Erel.

We study the impact of political relations on media coverage. Using a sample of 3,290 American Depository Receipts (ADRs) from 45 countries, we find that deteriorating political relations between the US and an ADR firm's home country induce negative coverage by the US media of the ADR firm. To alleviate endogeneity, we adopt France's and Germany's opposition to the Iraq War and the inauguration of the US president as two shocks to bilateral political relations between the US and foreign countries. In placebo tests, we show no negative effect of political relations on ADR firms’ press releases or non-US media coverage. We further document the three economic mechanisms underlying the impact of political relations on media coverage: US journalists’ country sentiment, a country's popularity among US readers, and the US media's political beliefs. Finally, we document two consequences of negative coverage by the US media: investors respond less to negative news of firms from countries with deteriorating political relations with the US, and negative coverage leads to a greater likelihood of firms terminating their ADRs.

We study the relation between CEO and employee campaign contributions and find that CEO-supported political candidates receive 3 times more money from employees than candidates not supported by the CEO. This relation holds around CEO departures, including plausibly exogenous departures due to retirement or death. Equity returns are significantly higher when CEO-supported candidates win elections than when employee-supported candidates win, suggesting that CEOs’ campaign contributions are more aligned with the interests of shareholders than are employee contributions. Finally, employees whose donations are misaligned with their CEOs’ political preferences are more likely to leave their employer.

Using a sample of 3725 loan facility–years for supplier firms that have financial data on their major customers during the period 1995–2011, this study investigates whether the earnings performance of major customers has effect on the price and nonprice terms of loans to the supplier firms. We find that various contracting terms are more favorable for loans to supplier firms whose major customers have higher return on assets (ROA). More importantly, we find that the effect of major customers’ earning performance on loan contracting terms is weaker for the borrowers with prior loan relationships with banks, while it is stronger for the borrowers that are highly dependent on their major customers. Our results suggest that banks take into account major customers’ earnings performance when contracting with their supplier firms, and the informativeness of customer earnings varies with the nature and strength of the customer–supplier relationships.

Using a sample of borrowing firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes-Oxley Act, this study compares various features of loan contracts between firms with ICW and those without ICW. Our results show the following. First, the loan spread is higher for ICW firms than for non-ICW firms by about 28 basis points, after controlling for other known determinants of loan contract terms. Second, firms with more severe, company-level ICW pay significantly higher loan rates than those with less severe, account-level ICW. Third, lenders impose tighter nonprice terms on firms with ICW than on those without ICW. Fourth, fewer lenders are attracted to loan contracts involving firms with ICW. Finally, our within-firm analyses show that banks increase loan rates charged to ICW firms after their disclosure of internal control problems and that banks reduce loan rates after firms remediate previously reported ICW.

We study whether borrowers' opaque practices, such as tax aggressiveness, are affected by their lenders' engagement in mergers and acquisitions (M&As). Our findings suggest that borrowers' tax aggressiveness is negatively associated with bank mergers as banks increasingly rely on hard information in monitoring and lending practices following mergers. This relationship is more pronounced for borrowers that are more opaque in their information environments and have a greater need for credit, and when banks that have a greater intention to monitor borrowers and rely more on soft-information-based monitoring prior to the mergers. Our study contributes to the growing literature on whether and how bank consolidations affect borrowers' decision making.