From 2007 to 2016, S&P 500 firms distributed $7 trillion via buybacks and dividends, over 96% of their aggregate net income, prompting claims that “short-termism” is impairing firms’ ability to invest and innovate. We show that, accounting for both direct and indirect equity issuances, net shareholder payouts by all public firms during this period totaled only 41% of net income. And, during this decade, investment substantially increased while cash balances ballooned. In short, S&P 500 shareholder-payout figures cannot provide much basis for the notion that short-termism has been depriving public firms of needed capital. Received September 23, 2018; Editorial decision November 13, 2018; Editor Andrew Ellul

The impact of liquidity-motivated institutional trading on firms’ real decisions is not confined to periods of financial crisis. Firms subject to mutual fund flow-driven selling pressure reduce share issuance and investment, whereas firms experiencing buying pressure do not increase investment, although they issue more equity. Firms under extreme selling pressure cut quarterly investment by 0.075 percentage points of total assets, which is 4.3% of the average quarterly investment in our sample. We also find evidence that the effect is not attributed to managerial learning or catering incentives. Rather, flow-driven trading affects investment mainly through its impact on the financing cost.

We empirically assess industry tournament incentives for CEOs, as measured by the compensation gap between a CEO at one firm and the highest-paid CEO among similar (industry, size) firms. We find that firm performance, firm risk, and the riskiness of firm investment and financial policies are positively associated with the external industry pay gap. The industry tournament effects are stronger when industry, firm, and executive characteristics indicate high CEO mobility and a higher probability of the aspirant executive winning.

The 2005 split-share reform in China mandated the conversion of previously non-tradable stocks into tradable status. The reform was swift and changed investors’ability to trade corporate equities in a US$400 billion market. This paper examines the e¤ects of stock markets on …rms ’ real and …nancial outcomes. It does so exploiting multiple institutional features of the Chinese equity conversion program. We …rst examine a pilot trial conducted at the beginning of the reform, which we are able to replicate using the same data and selection criteria that was used by policy-makers. We also take advantage of the staggered nature of the conversion schedule used in the second phase of the reform, whereby over one thousand …rms converted their shares at di¤erent times within a government-dictated window. These various wrinkles produce counterfactuals against which to gauge the economic importance of secondary equity trading. Using a time-varying treatment estimation approach, we identify increases in corporate pro…tability, investment, value, and productivity as shares start to trade freely in organized exchanges. We also identify changes in …rms’propensity to issue new shares and engage in merger deals, as well as changes in their dividend and capital structure policies. Our …ndings provide new insights on the role of stock markets in shaping corporate activity

Cohen and Wang (2013) (CW2013) provide evidence consistent with market participants perceiving staggered boards to be value reducing. Amihud and Stoyanov (2016) (AS2016) contests these findings, reporting some specifications under which the results are not statistically significant. We show that the results retain their significance under a wide array of robustness tests that address the concerns expressed by AS2016. Our empirical findings reinforce the conclusions of CW2013.

The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings—separated by several weeks and going in opposite directions—that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by presenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.

Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.

The new lease standard (ASC 842) allows firms to keep variable leases off balance sheet, in part based on the assumption that future expenses are difficult to estimate reliably. We show that variable lease expenses are both prevalent and substantial, exhibiting persistence and predictability comparable to operating lease expenses while showing limited sensitivity to revenue changes. These patterns are consistent with variable lease payments being based on stable drivers. Following ASC 842 adoption, firms report lower minimum operating lease commitments and higher variable lease expenses, suggesting a substitution from operating to variable leases. Neither equity betas nor credit ratings reflect potential variable lease liabilities. Conservative estimates show that recognition of variable lease liabilities would increase debt by 7.1% on average. Our findings provide evidence on the properties of variable leases and the potential implications of keeping them off balance sheet.

Using a comprehensive list of terrorist attacks over three decades, we find that aggregate investor risk aversion inversely relates to terrorist activity in the United States. A one standard deviation increase in the number of attacks each month leads to a 75.09 million drop in aggregate flows to equity funds and a 56.81 million increase to government bond funds. Tests on alternative channels further suggest that the shift in aggregate risk aversion is driven mainly by an emotional shock rather than changes in wealth or the outside environment. We also investigate possible alternate explanations for reduced flows to risky assets. Our evidence is consistent with a fear-induced increase in aggregate risk aversion.