[This article examines how in a context of limited enforceability of contracts suppliers may have a comparative advantage over banks in lending to customers because they are able to stop the supply of intermediate goods. Suppliers may act also as liquidity providers, insuring against liquidity shocks that could endanger the survival of their customer relationships. The relatively high implicit interest rates of trade credit are the result of insurance and default premiums that are amplified whenever suppliers face a relatively high cost of funds. I explore these effects empirically for a panel of UK firms.]

This article examines how in a context of limited enforceability of contracts suppliers may have a comparative advantage over banks in lending to customers because they are able to stop the supply of intermediate goods. Suppliers may act also as liquidity providers, insuring against liquidity shocks that could endanger the survival of their customer relationships. The relatively high implicit interest rates of trade credit are the result of insurance and default premiums that are amplified whenever suppliers face a relatively high cost of funds. I explore these effects empirically for a panel of UK firms.

We consider borrowers with the opportunity to raise funds from a competitive banking sector that shares information, as well as from other hidden lenders. The presence of hidden lenders allows borrowers to conceal poor results from their banks and, thus, restricts the contracts that can be obtained from the banking sector. In equilibrium, borrowers obtain funds from both the banking sector and ine cient hidden lenders simultaneously, so that dierent types of borrowers cannot be distinguished by banks. This generates cross-subsidies between dierent borrowers that are observationally equivalent to the banking sector. We show that the cheaper the cost of hidden borrowing, the lower is welfare and the lower is the variety of funding arrangements in the banking sector. In particular, while high costs of hidden borrowing allow each dierent (viable) type of borrower to access dierent terms from the banking sector, as the cost of hidden borrowing falls, more and more borrowers face identical terms up to the point where all borrowers who access the banking sector (which may include inecient ones) face identical terms. We generalize the model to allow for partially-hidden lenders and obtain qualitatively similar results.

By considering banks as portfolios of assets in different locations, we study how real estate shocks are transmitted across bank’s business areas, while controlling for local demand shocks and bank location-specific factors. Affected banks substantially alter their loan portfolios: we find evidence of real estate price declines affecting both real estate and non-real-estate types of lending. Banks also roll over and fail to liquidate problematic loans, while accumulating more nonperforming loans. These results provide evidence of internal contagion in real estate shocks within banks.

This article studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We find that import penetration (instrumented with exchange rates and tariffs) leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases within-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases. Finally, higher foreign competition is also associated with a higher demand for talent. These results suggest that increased foreign competition can explain some of the recent trends in compensation structures.

This article estimates the effects of Say-on-Pay (SoP), a policy that increases shareholder “voice” by providing shareholders with a regular vote on executive pay. We apply a regression discontinuity design to the votes on shareholder-sponsored SoP proposals. Adopting SoP leads to large increases in market value (5%) and to improvements in long-term profitability. In contrast, it has limited effects on pay levels and structure. Taken together our results suggest that SoP can be seen as a repeated regular vote of confidence on the CEO and that it serves as a disciplining device.

The Internet has made consumer search easier, with consequences for prices, industry structure, and the kinds of products offered. We provide an industry model with strategic design choices that explores these issues. A polarized market structure results: some firms choose designs aimed at broad-based audiences, while others target narrow niches. We analyze the effect of reduced search costs, finding results consistent with the reported prevalence of niche goods and long-tail and superstar phenomena. In particular, the model suggests that long-tail effects arise when there is a wide range of potential designs, relative to vertical heterogeneity among firms. JEL: D11, D21, D83, L11, L86, M31

This paper studies the effect of product market competition on the compensation packages that firms offer to their executives. We use a panel of US executives in the 1990s and exploit two deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference-in-differences estimates of their effect on (1) total pay, (2) estimated fixed pay and performance-pay sensitivities, and (3) the sensitivity of stock option grants. Our results indicate that the deregulations substantially changed the level and structure of compensation: the variable components of pay increased along with performance-pay sensitivities and, at the same time, the fixed component of pay fell. The overall effect on total pay was small.

We study how managers react to shareholder empowerment that makes votes on shareholder proposals binding. We empirically exploit staggered legislative changes that introduce such empowerment for proposals regarding majority voting in director elections. We find that managers become more responsive to shareholder requirements by initiating majority voting through either management proposals or governance guidelines. This early action crowds out shareholder proposals. Further results suggest compromised implementation: Managers adopt provisions that give them greater control over the channel of implementation and allow them to retain directors who fail in elections. Our results suggest that managers retain substantial discretion to modulate shareholder requirements. This article was partially completed when Wu was at Fudan University. Any errors are attributable solely to the authors.

We study the effects of anti‐takeover provisions (ATPs) on the takeover probability, the takeover premium, and target selection. Voting to remove an ATP increases both the takeover probability and the takeover premium, that is, there is no evidence of a trade‐off between premiums and takeover probabilities. We provide causal estimates based on shareholder proposals to remove ATPs and address the endogenous selection of targets through bounding techniques. The positive premium effect in less protected firms is driven by better bidder‐target matching and merger synergies.