Market prices are noisy signals of economic fundamentals. In a two-period model, we show that if the central bank uses market prices as guidance for intervention, large strategic investors who benefit from high prices would depress market prices to induce a market-supportive intervention. Stronger anticipated interventions lead to deeper price depressions preintervention and sharper price reversals post-intervention. The central bank intervention harms strategic investors even though it is the investors who tried to mislead the central bank. The model predicts a V-shaped price pattern around central bank interventions, consistent with recent evidence.

I examine how the investment behavior of bond mutual funds affects corporate financing decisions. Mutual funds that hold a firm’s existing bonds have a high propensity to acquire additional new issuances from the same firm. I utilize this stylized fact to construct a firm-specific bond capital supply measure by aggregating flows from a firm’s existing bondholders. Firms with a higher flow-driven capital supply are more likely to issue bonds, enjoy lower yields, and substitute away from equity financing and bank loans. Information acquisition costs and underwriter relationship likely contribute to the impact of flow-driven capital supply.

This paper provides empirical evidence that a strong statutory right of redemption leads to a statistically significant and an economically large impact in reducing bankruptcy filings. Under the statutory right of redemption, borrowers can repurchase the property after the foreclosure auction at a certain price. Implementations of the statutory right of redemption, however, vary substantially among states. When categorizing the redemption rights from an economic perspective, we find that a strong redemption right leads to a greater than 30% decrease in the odds that a borrower with a defaulted mortgage will file for bankruptcy.

We examine how firms respond to the increased workplace transparency due to the coverage on Glassdoor.com, which collects and disseminates reviews on employee satisfaction. Leveraging the staggered timing of first‐time reviews on Glassdoor, we use a difference‐in‐differences design and find that after being reviewed on Glassdoor, firms improve their workplace practices, measured by corporate social responsibility scores on employee relations and diversity. Consistent with firms improving their workplace practices to remain competitive in the labor market, we find that such improvement concentrates in firms with negative initial reviews and with high labor intensity. We also find firms increase disclosures about workplace practices after being reviewed and the increase concentrates in firms with high institutional ownership, consistent with firms providing more disclosures to appease investors. Overall, our findings suggest that the increased workplace transparency through social media has a disciplinary effect on corporate policies.

This paper investigates the institutional origins of ownership discrimination in bank lending through a staggered quasi-natural experiment: China's Split-share Structure Reform. State-Owned Enterprises (SOEs) have an advantage over non-SOEs in securing external financing to protect investment opportunities from cash flow fluctuations. This financing privilege declined significantly after the reform, which mandatorily converted SOEs' non-tradable state-owned shares into tradable shares, sharply increasing the likelihood of further privatization. Consistent evidence also exists in terms of bank lending behaviors. Further, we show both direct and indirect evidence that the effects were more pronounced among SOEs under higher threats of privatization (e.g., firms with larger increases in tradable shares, smaller workforce, and in industries peripheral to national strategy). The evidence suggests that banks proactively prefer SOEs for the perceived safety of loans under implicit government guarantee; when this privilege disappeared after the reform, banks reacted by allocating credits more fairly. This paper provides new evidence on the bright side of share structure reforms in mitigating credit misallocation and enlightens policy makers to practical resolutions to the financing inefficiency in emerging capital markets.

This study analyzes the motivations for and consequences of funds' credit default swap (CDS) investments using mutual funds' quarterly holdings from pre‐ to postfinancial crisis. Funds invest in CDS when facing unpredictable liquidity needs. Funds sell more in reference entities when the CDS is liquid relative to the underlying bonds and buy more when the CDS‐bond basis is more negative. To enhance yield, funds engage in negative basis trading and sell CDS with the highest spreads within rating categories, and with spreads higher than those of their bond portfolios. Funds with superior portfolio returns also demonstrate more skill in CDS trading.

Pástor and Stambaugh (2012) find that from a forward-looking perspective, stocks are more volatile in the long run than they are in the short run. We demonstrate that when the nonnegative equity premium (NEP) condition is imposed on predictive regressions, stocks are in fact less volatile in the long run, even after taking estimation risk and uncertainties into account. The reason is that the NEP provides an additional parameter identification condition and prior information for future returns. Combined with the mean reversion of stock returns, this condition substantially reduces uncertainty on future returns and leads to lower long-run predictive variance.

We formulate the optimal balance sheet management problem as a linear program and study it using a duality approach. In addition to helping determine the optimal balance sheet, the dual problem also provides us the interest rate risk and credit risk pricing. We deploy our methodology to determine premia on credit risk and interest rate risk for commercial banks, which allows us to manage the risk allocation for a bank given a risk budget. Moreover, our approach will be of interest to regulators, who can use it to assess the price of credit and interest rate risk at each point in the economic cycle. Finally, we apply this methodology to real data and show how it can be used in a real-world setting, using diversification constraints and a greedy algorithm that results in the optimal asset-liability allocation.