By employing a dynamic model with two limit order books, we show that fragmentation is associated with reduced competition among liquidity suppliers and lower picking-off risk of limit orders. Due to these countervailing channels, the impact of fragmentation on liquidity and welfare differs with asset volatility: When volatility is high (low), liquidity and aggregate welfare in a fragmented market are higher (lower) than in a single market. However, fragmentation always shifts welfare away from agents with exogenous trading motives and toward intermediaries. We empirically corroborate our model’s predictions about liquidity. Our model reconciles the mixed results in the empirical literature.

I show that an alignment in partisan affiliation, between a firm’s management and the president, is associated with higher levels of investment. Using insider trading data, I find that managers become more optimistic about their companies’ prospects when their preferred party is in power. This optimism-driven increase in investment is amplified by herding and associated with both lower profitability and stock returns. Overall, managers’ political beliefs produce heterogeneous expectations about future cash flows and distort investment decisions.

We find that male participants in Harvard Business School’s New Venture Competition who were randomly exposed to more venture capital (VC) investors on their panel were substantially more likely to start a VC-backed startup post-graduation, indicating that access to investors impacts fundraising independent of the quality of ideas. However, female participants experience no benefit from exposure to male or female venture capitalists (VCs), which appears related to a reduced propensity to reach out to VCs to whom they were exposed. Our results therefore also demonstrate gender-based differences in the degree to which increased exposure to investors can address networking frictions in venture capital.

This study examines how antitrust law adoptions affect horizontal merger and acquisition outcomes. Using the staggered introduction of competition laws in 20 countries, we find antitrust regulation decreases acquirers’ 5-day cumulative abnormal returns surrounding horizontal merger announcements. A decrease in deal value, target book assets, and industry peers’ announcement returns are consistent with the market power hypothesis. Exploiting antitrust law adoptions addresses a downward bias to an estimated effect of antitrust enforcement. The potential bias from heterogeneous treatment effects does not nullify our results. Overall, antitrust policies seem to deter post-merger monopolistic gains, potentially improving customer welfare.

Using random H-1B visa lotteries as a natural experiment, we find that firms respond to shortages of high-skilled workers by acquiring firms that employ such workers. The effect is stronger among firms with high human capital and more senior workforces, firms facing tight labor markets and legal barriers to poaching workers, and firms lacking foreign affiliates. The acquired workers are highly educated, sharing skills and occupations similar to those of the acquirer’s existing workers. Our findings suggest skilled labor is an important driver of acquisitions and acquiring is an effective means of obtaining skilled labor.

This article argues that corporate financial frictions can have an adverse effect on employee mental health, an important determinant of employee productivity. To identify the causal effects of financial frictions, we exploit variation in firms’ need to refinance their long-term debt in 2008, a period when refinancing became more difficult due to the credit crunch. Using administrative microdata, we find that antidepressant use grows significantly more among employees of firms in higher need of debt refinancing. Much of this effect occurs at employees keeping their jobs, pointing to decreased perceptions of job security as a transmission channel.

This study introduces a new measure of ex ante litigation risk using scrutiny of SEC filings by the source of securities litigation (plaintiffs’ lawyers) to reduce measurement error, relative to existing measures. We show that plaintiff-lawyer views proxy for the largely unobservable factors that make firms more likely to face litigation risk. Lagged views precede the public bad news revelation that triggers litigation and predicts future realized litigation risk (i.e., securities class actions filings and plaintiff-lawyer investigations) and stock market outcomes. Finally, we provide new insights into the plaintiff-lawyer case selection process that otherwise cannot be observed.

We examine the association between margin requirements and the market’s efficiency in incorporating firm-specific and market-level public news. Combining the Fed’s 22 changes in margin requirements with a hand-collected sample of earnings announcements between 1934 and 1975, we show that higher margin requirements induce greater delay in incorporating earnings information into prices. We draw similar conclusions when we analyze the Hou and Moskowitz (2005) price delay measure, as well as indirect measures of leverage constraints over recent years. Further tests suggest that, despite the Fed’s expressed intent to curtail excess speculation, higher margin requirements restrict trading by arbitrageurs more than noise traders.

Using data on nearly 20,000 restaurants in China during the COVID-19 outbreak, we find evidence that the government-sponsored rent reduction program reduced debt overhang problems. Rent reductions, which averaged 36,000 RMB per restaurant, increase the open rate of restaurants by 3.7%, revenue by 11,000 RMB, and the number of employees by 0.36. Larger restaurants with higher committed costs benefit more from the rent reduction. The stimulus has a positive spillover effect that boosts the revenue of restaurants in the immediate vicinity of subsidized restaurants. The treatment effect varies with organizational structure in a manner consistent with an information frictions hypothesis.

We investigate how men and women fare in the managerial labor market in the plausibly exogenous circumstance of their firms being acquired when most target-firm managers (about 90%) are displaced. These career disruptions result in a larger drop in rank and compensation for female managers, despite similar job search attributes. Gender differences are mitigated when hiring firms have more women in upper-echelon positions. Rich managerial experience and external board service also reduce gender-related differences. Overall, results point to a (implicit) “gender penalty” in terms of managerial job mobility, but also indicate contexts in which penalty is alleviated, and even reversed.

We study how the scarcity of committed capital affects the equilibrium distribution of net alphas in the asset management industry. We propose a model of active portfolio management with different sales fee structures where committed capital is in short supply. In the model, a portfolio’s excess return is not fully appropriated by the money manager but shared with long-term investors. Empirically, we show that capital commitment allows funds to hold shares longer and take advantage of slow-moving arbitrage opportunities. Consistent with the model, funds with more committed capital generate higher value added, which, net of fees, accrues to long-term investors.

Executives trade more profitably and opportunistically over the course of the tenure of independent directors (IDs). IDs’ increased connections with and hence allegiance to executives are likely the channel through which ID tenure can affect executive trading. Executive opportunism is mitigated by disciplinary factors that include the presence of a firm’s internal trading policy, blockholders, and IDs with legal expertise as well as the risk of shareholder-initiated derivative lawsuits. These results point to an association between long-tenured IDs and weakened corporate governance.

I develop a model revealing the interplay between a stock’s liquidity and the policies and value of the issuing firm. The model shows that bid-ask spreads increase not only the firm’s cost of capital but also the opportunity cost of cash, then lowering cash reserves, increasing liquidation risk, and reducing firm value. These outcomes are stronger when internalized by liquidity providers, simultaneously leading to a wider bid-ask spread. A two-way relation between the firm and the liquidity of its stock arises, implying that shocks arising within the firm or in the stock market have more complex implications than previously understood.

Is there a trade-off between the short-run and long-run real effects of monetary policy “leaning against the wind”? We provide novel evidence on this question from the United States in 1920–1921. Our identification strategy exploits county-level variation in access to the Federal Reserve’s discount window, and hand-collected data on banking and agriculture in Illinois. In the short term, tightened conditions at the discount window decreased bank lending and lowered crop prices and farm revenues. In the long term, however, they lowered debt-to-output levels and led to greater farmland utilization, suggesting an avoidance of debt overhang problems.

Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of the experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and correlated earnings surprises, confirming that earnings autocorrelation is not a necessary condition for PEAD. Instead, it acts as an accelerator: PEAD is stronger when earnings surprises are correlated. We further show that market prices underadjust to fundamental value changes, and that trading strategies can profitably exploit the PEAD.

This article analyzes the optimal allocation of losses via a Central Clearing Counterparty (CCP) in the presence of counterparty risk. A CCP can hedge this risk by mutualizing losses among its members. This protection, however, weakens members’ incentives to manage counterparty risk. Delegating members’ risk monitoring to the CCP alleviates this tension in large markets. To discipline the CCP at minimum cost, members offer the CCP a junior tranche and demand capital contribution. Our results endogenize key layers of the default waterfall and deliver novel predictions on its composition, collateral requirements, and CCP ownership structure.

We investigate whether firms’ number of credit relationships with financial institutions affects labor market outcomes. Using 5 million observations on matched credit and labor panel data from Brazil, we estimate IV regressions, employing exogenous variation in firm-lender relationships due to nationwide bank M&A activity. Firms with more relationships employ more workers and pay higher wage bills. Credit availability, cost of credit, and financial institution heterogeneity are economic channels. The firm-level results translate into positive macroeconomic effects in municipalities and states. The evidence is novel and indicates the positive effects of multiple relationships on labor market outcomes in an emerging economy.

We use New York City (NYC) taxi data to identify trips between mutual fund offices and local firm headquarters. NYC funds overweight the stocks of local firms they visit via taxi, and firm visits are associated with superior investment performance. Firm visits are elevated prior to earnings announcements, and mutual fund trades that are associated with firm taxi visits predict earnings surprises. The results are generally stronger when fund and firm executives share educational connections. Additional tests support the conclusion that funds’ local bias and investment performance are driven by portfolio managers’ efforts and ability to actively gather material information.

Contrary to leading asset pricing theories, recent empirical evidence indicates that financial markets compensate only short-term equity variance risk. An equilibrium model with generalized disappointment aversion risk preferences and rare events reconciles salient features of the variance term structure. In addition, a calibration explains the variance and skew risk premiums in equity returns and the implied volatility skew of index options while capturing standard moments of fundamentals, equity returns, and the risk-free rate. The key intuition for the results stems from substantial countercyclical risk aversion induced by endogenous variation in the probability of disappointing events in consumption growth.

We exploit the arrival of industry-wide synergistic merger waves to identify whether classified boards deter takeover bids. In a stylized model, we show that when target classified boards are costly to bidders, their negative effect on takeover likelihood should be more pronounced during merger waves. Using a sample of takeover bids in the United States between 1990 and 2016, we find strong evidence supporting this prediction. The results are robust to accounting for the benefits of classified boards and controlling for other antitakeover provisions. Our findings suggest that classified boards effectively reduce a firm’s exposure to the takeover market.