We evaluate the effects of environmental regulation on corporate innovation and real outcomes. Exploiting plant-level regulatory shocks induced by the 1990 Clean Air Act Amendments, we identify firms’ exposure to stricter environmental standards based on whether their plants emit newly regulated pollutants in counties designated as nonattainment. We show that firms more heavily exposed to the regulatory shock increase green innovation, including green process and green product patents, with no corresponding changes in nongreen patenting. The innovation-enhancing effects are concentrated among firms in industries with low external finance dependence and are stronger in areas with more intensive environmental enforcement. In addition, employment declines in response to the regulatory shock, and the effects are more pronounced among firms relying heavily on external finance. Overall, the results support the Porter hypothesis while highlighting the roles of financial capacity and enforcement intensity in shaping firms’ innovation and labor responses to environmental regulation.

Exploiting exogenous variations in corporate ratings due to sovereign credit downgrades and sovereign ceiling policies, we assess how firms respond to a reduction in credit ratings. We find that firms bounded by the sovereign ceiling significantly increase information production in response to a sovereign downgrade. The effects are stronger for firms relying more heavily on external finance and operating in a more opaque environment. Enhanced information production, in turn, affects firms’ subsequent access to bond markets. These findings suggest that firms actively manage information environments to maintain access to public debt markets.

Does the structure of financial systems influence the employment respo0nse to adverse shocks? Using (a) county-industry employment data differentiated by firm size and (b) high-frequency county employment data differentiated by income, we find that employment at small firms, employment of low-income workers, and overall employment fell less in counties with higher proportions of small banks in response to the pandemic. Furthermore, small banks lend more to small businesses than large banks, above and beyond government-guaranteed PPP loans. Evidence suggests that small banks cushioned small firms and low-income workers from the adverse effects of the pandemic.

We evaluate how a positive, technology-driven shock to bank liquidity affects small business dynamics across different size distributions. We first show that banks receiving positive liquidity shocks increase lending to relatively larger SMEs, not to the smallest firms. This finding is consistent with the view that a positive liquidity shock enhances bank charter values, thereby reducing risk-taking incentives. Moreover, such disproportionate credit allocation leads to a crowding-out effect on micro firms. When larger SMEs grow faster and exit less because of better access to credit, their expansion stifles the development of micro firms, whose access to credit remains unchanged.

In this article, we evaluate the effect of managerial entrenchment on corporate information production using the voting outcomes of shareholder-initiated proposals intended to mitigate managerial entrenchment. We focus on the proposals that are passed or rejected by a small margin of votes, which generate plausibly exogenous variations in managerial entrenchment. We find that a reduction in managerial entrenchment enhances corporate information production. The effects are stronger for firms with greater information asymmetries and severer agency frictions. Overall, the evidence is consistent with the view that reducing managerial entrenchment enhances corporate disclosure by aligning the incentives of managers and shareholders.

Are firms more resilient to systemic banking crises in economies with higher levels of social trust? Using firm-level data in 34 countries from 1990 through 2011, we find that liquidity-dependent firms in high-trust countries obtain more trade credit and suffer smaller drops in profits and employment during banking crises than similar firms in low-trust economies. The results are consistent with the view that when banking crises block the normal bank-lending channel, greater social trust facilitates access to informal finance, cushioning the effects of these crises on corporate profits and employment.

Do stock markets act as a spare tire during banking crises, providing an alternative corporate financing channel and mitigating the economic severity of these crises? Using firm-level data in 36 countries from 1990 through 2011, we find that the adverse consequences of banking crises on equity issuances, firm profitability, employment, and investment efficiency are smaller in countries with stronger shareholder protection laws. These findings are not explained by the development of stock markets or financial institutions prior to the crises, the severity of the banking crisis, or overall economic, legal, and institutional development.

We evaluate the connection between corporate characteristics and the reaction of stock returns to COVID-19 cases using data on more than 6,700 firms across 61 economies. The pandemic-induced drop in stock returns was milder among firms with stronger pre-2020 finances (more cash and undrawn credit, less total and short-term debt, and larger profits), less exposure to COVID-19 through global supply chains and customer locations, more corporate social responsibility activities, and less entrenched executives. Furthermore, the stock returns of firms controlled by families (especially through direct holdings and with non-family managers), large corporations, and governments performed better, and those with greater ownership by hedge funds and other asset management companies performed worse. Stock markets positively price small amounts of managerial ownership but negatively price high levels of managerial ownership during the pandemic.

Why did banks experience massive deposit inflows during the pandemic? We discover that deposit interest rates at bank branches in counties with higher COVID-19 infection rates fell by more than rates at branches—even branches of the same bank—in counties with lower infection rates. Credit drawdowns, national policies, such as the Payment Protection Program, and a flight-to-safety do not account for these cross-branch changes in deposit rates. Evidence suggests that higher local COVID-19 infection rates are associated with households’ greater anxiety about future job and income losses, anxiety that induces households to reduce spending and increase deposits.

We investigate how communication within banks affects small business lending. Using travel times between a bank’s headquarters and its branches to proxy for the costs of communicating soft information, we exploit shocks to these travel times—the introduction of new airline routes—to evaluate the impact of within-bank communication costs on small business loans. We find that reducing headquarters-branch travel time boosts small business lending in the branch’s county. Several extensions suggest that new airline routes facilitate in-person communications that boost small-firm lending.