This paper studies the effects of bank failure on firm performance. We collect 36 million loan records to build a novel dataset on the credit relationships of 1.8 million US firms, predominantly composed of small and medium-sized enterprises (SMEs). We then implement a staggered treatment difference-in-differences estimation strategy using 179 bank failures from 1990 to 2023 to estimate the impact of bank failure on firm-level survival and employment growth. Although the US regulatory framework resolves failed banks through forced acquisitions by healthier institutions—a process designed to minimize disruption—we find substantial negative effects. Firms with a credit relationship to a bank that subsequently fails are 6.7 percentage points (44.3%) more likely to fail themselves within five years, while surviving firms exhibit 25% lower employment growth compared to those banking with non-failed institutions. These impacts persist for more than 10 years, are evident during both crisis and non-crisis periods, and are strongest among very small firms—a firm size segment that we are the first to study in this context. Our estimated effects are further supported by two natural experiments. Surprisingly, we also observe that a small subset of bank failures had positive effects on firm outcomes, suggesting that, in some cases, bank failure can be fortuitous for affected firms. Overall, our findings suggest that bank failures exert a substantially larger influence on the real economy than previously recognized, possibly requiring a re-evaluation of current regulatory approaches to managing such events.

We show that the directional effect of the 52-week high on short-term stock market reactions to M&As, SEOs, and earnings announcements is mechanical rather than behavioral. Stocks trading far below their 52-week high react more strongly to news, i.e., their announcement returns have higher magnitudes. Hence, for stocks far below their 52-week high, favorable (unfavorable) corporate announcements mechanically exhibit even more positive (negative) returns. Overall, our results provide a cautionary tale for interpreting supposedly behaviorally driven proxy variables.

This paper presents evidence that the leveraged positioning of hedge funds amplifies the response of sovereign bond yields to shocks, leading to temporary overshooting. Combining granular regulatory transaction-level data on repo positions with high-frequency monetary policy surprises, I find that approximately one-third of the total yield movement on days with monetary policy surprises is associated with hedge fund trading, and that this effect scales with positioning intensity. Within-dealer comparisons further show that the amplification operates through hedge fund positioning rather than through the behavior of the dealers that intermediate their trades. The amplification is almost symmetric across regimes. When a shock moves prices against the position, the resulting mark-to-market loss erodes the capital buffer and leads funds to reduce their exposure. When a shock moves prices in favor of the position, the freed up capital leads funds to increase their exposure. In both cases, the resulting trading pushes yields further in the direction of the initial shock.