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Exploiting confidential data from the euro area, we show that sound banks pass negative rates on to their corporate depositors and that pass-through is not impaired when policy rates move into negative territory. We do not observe a contraction in deposits, reflecting a general increase in corporate liquidity during the sample period. When their banks charge negative rates on deposits, firms with ex ante high liquidity invest more than comparable firms that are not charged negative rates and increase their liquid holdings less. These results challenge the common view that conventional monetary policy becomes ineffective at the zero lower bound.

We document that heightened public attention to gender equality is associated with an increase in board gender diversity. Improvements in diversity are more pronounced in firms with a corporate culture that is already sympathetic to gender equality. When public attention to gender equality increases, firms reach out to a larger pool of women, such as women without industry experience or outside their network, but female director appointments do not appear to be dilutive of the board’s skills. Instead, we observe less reliance on connections for director appointments and a decrease in the propensity to appoint connected men.

Better access to debt markets mitigates the effects of uncertainty on corporate policies. We establish this result using the staggered introduction of anti-recharacterization laws in US states. These laws enhanced firms’ ability to borrow by strengthening creditors’ rights to repossess collateral pledged in special purpose vehicles. After the passage of the laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, and investment in intangible assets. Our findings suggest that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms’ precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.

Exploiting China’s anti-corruption campaign, we show that following a decrease in corruption, firm performance improves. Small and young firms benefit more. We identify the channels through which corruption hampers firm performance. Following the anti-corruption campaign, the allocation of capital and labor becomes more efficient. Firms operating in ex ante more corrupt environments experience larger productivity gains, higher growth of sales, and lower cost of debt than other firms. Taken together, our results suggest that corruption is an inefficient equilibrium for an economy because it creates negative externalities.

We show that there is cross-sectional variation in the quality of shareholder proposals. On average, proposals submitted by the most active individual sponsors are less likely to receive majority support, but they occasionally pass if shareholders mistakenly support them and may even be implemented due to directors’ career concerns. While gadfly proposals destroy shareholder value if they pass, shareholder proposals on average are value enhancing in firms with more informed shareholders. We conclude that more informed voting could increase the benefits associated with shareholder proposals.

We show that production networks are important for the transmission of unconventional monetary policy. Firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries by extending additional trade credit to their customers. The increase in trade credit is pronounced from core countries to periphery countries and for financially constrained customers. Customers then increase investment and employment in response to the increased trade financing, whereas suppliers expand their customer base, contributing to upstream industry concentration. Our findings suggest that trade credit redistributes the effects of monetary policy across regions and firms.

Regulation and capital constraints may force banks and collateralized loan obligations (CLOs) to sell deteriorating loans, potentially hampering renegotiation and amplifying the initial negative shock to the borrower. We show that banks and CLOs sell downgraded loans to mutual funds and hedge funds. The reallocation of loan shares favors the syndicate's concentration, increasing lenders' incentives to renegotiate. However, syndicates remain less concentrated when potential buyers experience financial constraints and subsequently loans are less likely to be amended and more likely to be downgraded even further. Our findings indicate that existing regulations may amplify shocks to credit quality during periods of generalized distress in the financial system.

We show that trade credit in production networks is important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries and extend more trade credit to their customers. The increase in trade credit flows is more pronounced from core countries to periphery countries and towards financially constrained customers. Customers increase investment and employment in response to the additional financing, while suppliers with eligible bonds increase their customer base, potentially favoring upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy produces heterogeneous effects on regions, industries, and firms. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We show that following the introduction of Morningstar's sustainability ratings (the "globe" ratings), mutual funds attempt to improve their globe ratings by increasing their demand for sustainable stocks. This trading behavior creates buying pressure, making stocks with high sustainability ratings overvalued. As a consequence, a tradeoff between sustainability and performance arises and the performance of funds improving their globe ratings deteriorates. As performance appears to be more important in attracting flows than sustainability, a new equilibrium emerges in which the globe ratings stop affecting investor flows and funds no longer trade to improve their globe ratings. Our results highlight the issues arising when funds are evaluated along two different dimensions that create conflicting incentives for fund managers competing for flows.

We show that foreign lenders and low market share lenders extend more credit in comparison to other lenders during lending booms leading to banking crises, but not during other credit expansions. Less established lenders also increase the amount of credit they extend to riskier borrowers, without asking for collateral or imposing covenants and higher interest rates. Our results suggest that taking lenders' characteristics into account could provide an indicator for how much risk an economy is accumulating and be a useful barometer for macroprudential policies.

We proxy for board members’ opinions and values using directors’ ancestral origins and show that diversity has costs and benefits, leading to high performance volatility. Consistent with the idea that diverse groups experiment more, firms with ancestrally diverse boards have more numerous and more cited patents. In addition, their strategies conform less to those of the industry peers. However, firms with greater ancestral diversity also have more board meetings and make less predictable decisions. These findings suggest that diversity may lead to inefficiencies in the decision-making process and conflicts in the boardroom.

We show that banks manipulate borrowers’ credit ratings before sharing them with competing banks. Using a unique feature on the timing of information disclosure of a public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high-quality borrowers for which they have positive private information to protect their informational rents. Banks also upgrade low-quality borrowers with multiple lenders to avoid creditor runs. Our results suggest that credit ratings manipulation limits the positive effects of credit registries’ information disclosure on credit allocation.Received April 18, 2016; editorial decision April 1, 2017 by Editor Philip Strahan.

We provide evidence that lenders differ in their ex post incentives to internalize price-default externalities associated with the liquidation of collateralized debt. Using the mortgage market as a laboratory, we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and thus are less inclined to foreclose. We provide evidence consistent with our conjecture. Arguably as a consequence, zip codes with a higher concentration of outstanding mortgages experience smaller house prices declines. These results are not driven by unobservable zip code or lender characteristics.

Exploiting confidential data from the euro area, we show that sound banks can pass negative rates on to their corporate depositors without experiencing a contraction in funding. These pass-through effects become stronger as policy rates move deeper into negative territory. Banks offering negative rates provide more credit than other banks suggesting that the transmission mechanism of monetary policy is not hampered. The negative interest rate policy (NIRP) provides further stimulus to the economy through firms’ asset rebalancing. Firms with high current assets linked to banks offering negative rates appear to increase their investment in tangible and intangible assets and to decrease their cash holdings to avoid the costs associated with negative rates. Overall, our results challenge the commonly held view that conventional monetary policy becomes ineffective when policy rates reach the zero lower bound.

We explore whether demand factors contribute to low female board participation. We use time-varying public attention to gender equality as a shock that differentially affects the demand for female directors of firms with different ex ante culture towards gender equality. We find that public attention is associated with an increase in female board representation, especially in firms whose ex ante culture is more sympathetic to gender equality. Furthermore, public attention to gender equality changes the way female directors are recruited. First, the pool of female directors broadens without any obvious compromises on quality. Second, public attention to gender equality reduces the probability that connected men are appointed, leading to higher female board representation.

We show that, after the revelation of corporate fraud in a state, household stock market participation in that state decreases. Households decrease holdings in fraudulent as well as nonfraudulent firms, even if they do not hold stocks in fraudulent firms. Within a state, households with more lifetime experience of corporate fraud hold less equity. Following the exogenous increase in fraud revelation due to Arthur Andersen's demise, states with more Arthur Andersen clients experience a larger decrease in stock market participation. We provide evidence that the documented effect is likely to reflect a loss of trust in the stock market. [ABSTRACT FROM AUTHOR]

We show that there is cross-sectional variation in the quality of shareholder proposals. On average, the proposals submitted by the most active individual sponsors are less likely to be supported by a majority of votes, but they occasionally pass if shareholders mistakenly support them and may even be implemented due to directors’ career concerns. While gadflies’ proposals destroy shareholder value if they pass, shareholder proposals on average are value-enhancing in firms with more informed shareholders. We conclude that more informed voting could increase the benefits associated with shareholder proposals.

We show that firms with more short-term institutional investors have better long-term performance in dynamic economic environments. Following exogenous increases in competitive pressure due to large cuts of import tariff rates, firms with more short-term investors achieve higher growth rates of sales and employees in comparison to other firms in the industries affected by the tariff cuts. To do so, these firms invest more in fixed assets, R&D, and advertising, and differentiate their products from those of the competitors. Firms with more short-term investors also conduct more diversifying acquisitions and have higher executive turnover in the aftermath of large tariff cuts, suggesting that they put stronger effort in adapting their business to the new competitive environment. These results are not specific to tariff cuts but also robust to increases in competitive pressure due to deregulation shocks. Our findings suggest that firms with more short-horizon investors adapt more promptly to changing economic environments and highlight a potential benefit of short-horizon investors.

We exploit the domestic portfolios of US mutual funds to provide microeconomic evidence that investors are more likely to liquidate geographically remote investments at times of high aggregate market volatility. This has important implications for asset prices. The valuations of stocks with ex ante less local ownership decline more when aggregate market volatility is high. Furthermore, the returns of stocks with geographically distant owners are more exposed to changes in aggregate market volatility.

We study the impact of directors with foreign experience on firm performance in emerging markets. Using a unique data set from China, we exploit the introduction of policies to attract talented emigrants and increase the supply of individuals with foreign experience in different provinces at different times. We document that performance increases after firms hire directors with foreign experience and identify the channels through which the emigration of talent may lead to a brain gain. Our findings provide evidence on how directors transmit knowledge about management practices and corporate governance to firms in emerging markets.

We show that long-term compensation is associated with higher pay in the financial industry and this association is stronger in markets with high competition for talent. We argue that this evidence supports models of competition for talent based on retention motives.

We provide evidence that open-end organizational structures undermine incentives for asset managers to attack long-term mispricing. We compare open-end funds with closed-end funds. Closed-end funds purchase more underpriced stocks than do open-end funds, especially if the stocks involve high arbitrage risk. We then show that hedge funds with highshare restrictions having a lower degree of open-endedness also trade against long-term mispricing to a larger extentthan do other hedge funds. Our analysis suggests that open-end organizational structures are not conducive to long-term risky arbitrage.

Using a unique dataset with information on 20 million inter-firm transactions, we provide evidence that suppliers offer trade credit to high-bargaining-power customers to ease competition in downstream markets in which they have a large number of other clients. Differently from price discounts, trade credit targets infra-marginal units and does not lower the marginal cost of high-bargaining-power customers. As a consequence, the latter do not gain market share and the supplier can preserve profitable sales to low-bargaining-power customers. We show that empirically trade credit is not monotonically increasing in past purchases, as is consistent with our conjecture that it targets infra-marginal units. In addition, the supplier grants trade credit to high-bargaining-power-customers only when it fears the cannibalization of sales to other low-bargaining-power clients. Our results are not driven by differences in suppliers' ability to provide trade credit, customer-specific shocks, or endogenous location decisions.

We conjecture that lenders’ decisions to provide liquidity are affected by the extent to which they internalize negative spillovers. We show that lenders with a large share of loans outstanding in an industry provide liquidity to industries in distress when spillovers are expected to be strong, because fire sales are likely to ensue. Lenders with a large share of outstanding loans also provide liquidity to customers and suppliers of industries in distress, especially when the disruption of supply chains is expected to be costly. Our results suggest a novel channel explaining why credit concentration may favor financial stability.

Better access to debt markets mitigates the effects of uncertainty on corporate policies. We establish this result using the staggered introduction of anti-recharacterization laws in U.S. states. These laws enhanced firms’ ability to borrow by strengthening creditors’ rights to repossess collateral pledged in SPVs. After the passage of the laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, and investment in intangible assets. Our findings suggest that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms’ precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.

We exploit a change in regulation of money market funds to investigate how the structure of liabilities impacts financial intermediaries' asset holdings. We show that following a change in regulation, which has made prime money market funds' liabilities less money-like, safer funds exited the industry. The remaining funds have increased the riskiness of their portfolios, possibly in response to an increase in the sensitivity of flows to performance. As a result, issuers with lower risk of default have less access to funding from US money market funds. To the best of our knowledge, our paper provides the first evidence in support of theories highlighting that the characteristics of financial intermediaries' assets and liabilities are jointly determined.

Formal finance involves the costly acquisition of information about distant entrepreneurs, while relationship-based finance allows financiers to fund a narrow circle of close entrepreneurs without acquiring costly information. In developing economies with low capital endowments, relationship-based finance is optimal because only high-quality entrepreneurs receive funding. However, formal finance may emerge in equilibrium, and it has the only effect of shifting rents from entrepreneurs to financiers. In more-developed economies with higher capital endowments, formal finance becomes necessary to prevent funding of low-quality entrepreneurs. Nevertheless, relationship-based financing may persist in equilibrium, and low-quality close entrepreneurs are funded even when there are high-quality distant entrepreneurs.

Exploiting the Japanese banking crisis of the 1990s as a laboratory, we investigate the effects of bank bailouts on the supply of credit and the performance of banks' clients. Our findings indicate that the size of capital injections relative to the initial financial condition of banks is crucial for the success of bank bailouts. Capital injections that are large enough to reestablish bank capital requirements increase the supply of credit and spur investment. In contrast, not only do capital injections that are too small fail to increase the supply of credit, but they also encourage the evergreening of nonperforming loans. (JEL E44, G21, G28, G32, G34)

We show that corruption affects negatively the performance of small and young firms, which compete with corrupted industry peers in the product market or with corrupted firms in the same province for resources. We exploit the Chinese anti-corruption movement to establish causality and identify the channels through which corruption causes negative externalities. Small and young firms have lower sales growth in industries and provinces with high corruption, arguably because demand is diverted to the largest firms in their industries, which spend more in corrupting officials. Small and young firms also have higher financing costs in industries and provinces with high corruption and therefore invest less. Furthermore, corruption decreases the efficiency of labor and capital allocation and deters entry of small and young firms.

Public outrage over executive compensation reached an all-time high during the financial crisis. Around the world, many argued that CEOs and boards were immoral in setting their pay and pressured governments to impose restrictions on executive pay. Using a unique sample of data on human values for CEOs, we show that CEOs and directors have different values than general members of the population. CEOs and directors place more emphasis on power and achievement values than members of the population, and they emphasize self-direction values more. However, values appear to have little explanatory power for pay, in contrast to economic variables. While some CEOs may be unethical in setting their pay, our results suggest that pay is not a matter of values on average.

We study the effects of investor protection on equilibrium stock prices, returns and portfolio allocation decisions. In our theoretical model, if investor protection is weak, wealthy investors have an incentive to become controlling shareholders. In equilibrium, the stock price reflects the demand from both controlling shareholders and portfolio investors. As a consequence, due to the high demand from controlling shareholders, the price of weak corporate governance stocks is not low enough to fully discount the extraction of private benefits. This generates the following empirical implications. First, stocks should have lower expected returns when investor protection is weak. Second, domestic and foreign investors' participation in the stock market should be lower in countries with weak investor protection. Third, portfolio investors from countries with weak investor protection should hold relatively more foreign equity. Fourth, countries with weak investor protection should receive relatively more foreign direct investment. We show that these implications are consistent with existing empirical studies and we provide original evidence that domestic portfolio investors are less likely to participate in the domestic stock market and hold more foreign equity, when investor protection is weak.

While the positive growth effects of financial integration are extensively documented, little is known of its impact on small and young firms. This paper aims to fill this void relying on a panel of 60,000 firm-year observations on listed and unlisted companies in Eastern European economies to assess the differential impact of foreign bank lending on firm growth and financing. Foreign lending stimulates growth in firm sales, assets, and use of financial debt even though the effect is dampened for small firms. More strikingly, young firms benefit most from foreign bank presence, while businesses connected to domestic banks or to the government suffer. Overall, our findings suggest that foreign banks can help to mitigate connected-lending problems and to improve capital allocation. Copyright 2009, Oxford University Press.

We relate trade credit to product characteristics and aspects of bank--firm relationships and document three main empirical regularities. First, the use of trade credit is associated with the nature of the transacted good. In particular, suppliers of differentiated products and services have larger accounts receivable than suppliers of standardized goods and firms buying more services receive cheaper trade credit for longer periods. Second, firms receiving trade credit secure financing from relatively uninformed banks. Third, a majority of the firms in our sample appear to receive trade credit at low cost. Additionally, firms that are more creditworthy and have some buyer market power receive larger early payment discounts. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org., Oxford University Press.

Sweden offers a unique natural experiment to analyze the effects of institutionalized saving on the ownership structure, corporate governance, and firm performance. The Swedish pension reform increased the stock market participation of pension funds, causing a significant reshuffling in the ownership of pension funds. We show that the effects of institutional investment on firm performance depend on the industry structure of pension funds. Firm valuation improves if public pension funds and large independent private pension funds increase their shareholdings. Additionally, controlling shareholders appear reluctant to relinquish control and the control premium increases if public pension funds acquire shares. {JEL G3, G23) A large literature in corporate finance analyzes the effects of ownership on firm performance. Thus far, this literature has not been successful in establishing whether institutional ownership enhances firm value. Partly, this is because ownership and performance are jointly determined and an increase in institutional ownership may be positively correlated with performance merely because investors select firms that they expect to perform better. It is thus impossible to draw conclusions about causal relations simply by saturating firm performance regressions with a large number of firm characteristics in addition

This paper shows that the liberalization of capital inflows may undermine bank stability in emerging markets. After financial liberalization, uninformed international investors rationally provide large amounts of funds at low cost. This enables insolvent banks to accumulate bad loans. In equilibrium, when a substantial amount of losses may have been accumulated, solvent banks do not find it any longer optimal to issue debt at the interest rate that would compensate investors for risk. Investors anticipate this and stop holding bank debt. When the market for bank liabilities breaks down, insolvent banks default. I show that, because of wasteful investment, the liberalization of capital inflows may decrease aggregate welfare.

We show that financial-conglomerate-affiliated hedge funds (FCAHFs) have more stable funding and lower flow-performance sensitivity than other funds even though they are less likely to impose impediments on withdrawals. Arguably due to their privileged access to funding, during periods of financial turmoil, FCAHFs are able to take more risk and to purchase less liquid and more volatile stocks than other hedge funds. During good times, instead, FCAHFs expand their assets less than other funds and are less exposed to systematic risk factors. Thus, FCAHFs appear to perform a stabilizing function for the financial system even though they do not generate higher returns for their investors.

Diverse directors may have diverse preferences over firms’ policies and objectives. As shown by Arrow (1951), diverse individual preferences may fail to univocally aggregate in collective preferences and may consequently lead to arbitrary and volatile decisions. Using the board of directors as a laboratory, we test whether diversity leads to higher performance volatility. We show that firms with more diverse boards have greater stock return and fundamental volatility suggesting that board diversity indeed makes decision-making more erratic. Also, firms with diverse boards have less persistent strategies and analysts make larger forecast errors in predicting their performance supporting the conjecture that board members’ diverse preferences lead to hard to predict decisions. Consistent with the presence of conflicts in the boardroom, we find that executive and director turnovers are higher in firms with diverse boards. These firms also have more board meetings. We find no evidence that our results may be driven by firm risk-taking or complexity.

We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of the Argentinean public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers to avoid creditor runs. Our results can explain the limited effectiveness of public credit registries and cast doubt on the use of credit ratings in reducing information asymmetry.