Product market rivals often source upstream inputs from the same set of suppliers. Because these inputs are typically sold on credit, sharing a supplier could create incentives for customers to strategically demand trade credit terms in order to prevent the supplier from providing liquidity to rivals. In this paper, we empirically document this strategy and show that customers prolong payable days with suppliers that also sell to their rivals. For identification, we exploit the U.S. government’s QuickPay reform, which permanently shortened the government’s payable days to small business contractors, creating an exogenous liquidity influx. We find that after QuickPay, affected contractors extend more trade credit to their corporate customers. In response, rivals of these corporate customers begin to extract more trade credit from the shared suppliers, indicating their efforts to pull away these suppliers’ liquidity from the competitors already benefiting from QuickPay. Our paper reveals an underexplored incentive in supply-chain relationships, namely, the incentive to avoid “feeding the mouth that bites,” and how it shapes the allocation of trade credit.

The institutional-loan market is segmented and has specialized underwriters. We document that more intense underwriter competition in a given segment is associated with lower initial loan spreads and more upward rate adjustments. We provide evidence that competition affects underwriters' trade-off between bidding low initial rates to win underwriting mandates and incurring reputational costs when adjusting rates upward in the book-building process. Moreover, stronger underwriter competition lowers final loan spreads without resulting in more defaults or hurting borrowers' access to investors. The impact of underwriter competition is moderated by the uncertainty about investor demand and the existence of prior borrower-underwriter relationships.

We study the interconnection between the productivity and pricing effects of financial shocks. Combining administrative records on firm-level output prices and quantities with quasi-experimental variation in credit supply, we show that a tightening of credit conditions has a persistent, yet delayed, negative effect on firms’ long-run physical productivity growth (TFPQ) but also induces firms to change their pricing policies. As a result, commonly used revenue-based productivity measures (TFPR)—which conflate the pricing and productivity effects—offer biased predictions regarding the consequences of financial shocks for firms’ productivity growth, underestimating the long-run elasticity of physical productivity to credit supply by almost half. Moreover, we show that the pricing adjustments themselves also have productivity implications. Firms coping with a contraction of credit use low pricing as a source of internal financing, allowing them to avoid cutting expenditures on productivity-enhancing activities, thereby softening the impact of financial shocks on long-run productivity growth.

This paper studies the asset market for pollutive plants. Firms divest their most pollutive plants following environmental risk incidents. The buyers face weaker environmental pressures, and have supply chain relationships or joint ventures with the sellers. Following these divestitures, total and scaled pollution levels do not decline. The sellers earn higher returns when they sell more pollutive plants, and their ESG ratings increase while their regulatory compliance costs decrease after divesting. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution levels and with substantial gains from trade.

We analyze jointly optimal carbon pricing and financial policies under financial constraints and endogenous climate-related transition and physical risks. The socially optimal emissions tax may be above or below a Pigouvian benchmark, depending on whether physical climate risks have a substantial impact on collateral values. We derive necessary conditions for emissions taxes alone to implement a constrained-efficient allocation, and show a cap-and-trade system or green subsidies may dominate emissions taxes because they can be designed to have a less adverse effect on financial constraints. Additionally introducing leverage regulation can be welfare-improving if environmental policies have a direct negative effect on financial constraints. Furthermore, our analysis highlights the positive effect of carbon price hedging markets on equilibrium environmental policies.

The control of carbon emissions by policymakers poses the new corporate challenge of developing an optimal carbon management policy. We provide a unified model that characterizes how firms should optimally manage emissions through production, green investment, and the trading of carbon credits, as well as the implications for asset prices. Under a carbon trading scheme, firms adopt precautionary policies such as under-producing compared to a laissez-faire benchmark. Perhaps surprisingly, firms with a large stock of credits are less committed to curbing emissions. Carbon regulation induces firms to tilt towards more immediate yet transient types of green investment as it becomes more costly to comply. Lastly, even if more polluting firms command a higher risk premium, carbon regulation need not reduce firm value.