This paper investigates the role of rights offerings as a new market-based mechanism in resolving valuation uncertainties in U.S. Chapter 11 reorganizations. Using hand-collected data on these offerings, I document three novel facts: (i) in the last decade, they have been used to finance 45% of bankruptcy filings, (ii) hedge funds or private equity firms generally proposed them, and (iii) their occurrence is highly correlated with the performance of the stock market. In an instrumental variable setting, I find that compared with other sources of financing, rights offerings are associated with higher recovery rates, shorter time spent in Chapter 11, and lower bankruptcy refiling rates. They also allow firms to access new capital without resorting to asset liquidations, which are value reducing. Overall, these findings suggest that by alleviating key bargaining frictions in the bankruptcy process, rights offerings may improve the efficiency of resource allocation in the economy.

We examine whether CEOs use share repurchases to sell their equity grants at inflated stock prices, a widely shared concern. We document that share repurchases, just like equity grants, vesting dates, and insider trades, are largely affected by the corporate calendar—the firm’s schedule of earnings announcements and blackout periods. The corporate calendar can fully explain why share repurchases and equity-based compensation coincide. Our analysis reveals that firms are actually less likely to repurchase shares when CEOs sell equity. Our findings reconcile earlier studies and highlight the first-order importance of the corporate calendar for the timing of share repurchases.

We examine how access to debt markets affects firms' provision of trade credit. Using hand collected data on trade credit between customer-supplier pairs, we show that increased access to debt strengthens firms' bargaining power relative to major customers and reduces the trade credit they provide to those customers. We establish causality using the staggered passage of anti-recharacterization laws that increased firms' debt capacity. Affected firms expand their customer base, reduce customer concentration, and decrease trade credit to powerful customers. The decline in trade credit leads customers to cut investment, increase leverage, and scale back trade credit provision to firms further downstream.

Does pledging movables as collateral alter corporate borrowing? To answer this question, we study the effect of collateral law reforms on syndicated bank loans granted across nine European countries that facilitated pledging movables between 1995 and 2019, comparing them to nineteen countries that did not. We find that although the reforms have enabled firms to issue more secured loans, the average cost of the loans and the number of covenants has also increased. Banks may demand more to compensate for both the potential wealth redistribution induced by newly issued secured credit and the extra monitoring involved to mitigate concerns about using movables as collateral.

We find that debt covenants have an asymmetric effect on capital structure adjustments of over- and underleveraged firms. While the literature suggests that the presence of covenants imposes a financial cost to all firms, we find that their impact is more nuanced. Introducing a novel measure for covenant tightness, we show that overleveraged firms with tight covenants indeed are slowed down in their adjustment towards their target capital structure. However, this effect is negligible for loose covenants. Conversely, underleveraged firms generally appear to slow down their adjustment in the presence of debt covenants. However, if they get sufficiently close to violation, the covenant has a discipling effect and incentivizes the firms towards a faster adjustment towards the target. Our results are robust across time periods and hold for different definitions of leverage ratios.

Banks are widely believed to have an information advantage, but regulation forces them to sell deteriorating loans, potentially hampering renegotiation and amplifying the initial negative shock to the borrower. We study to what extent the secondary market affects loan outcomes after an initial shock to credit quality. We show that banks, together with CLOs, sell downgraded loans to unregulated financial institutions. The reallocation of loan shares favors the syndicate's concentration, increases lenders' incentives to renegotiate and substitutes lenders' specialization. However, during periods of generalized distress, when potential buyers experience financial constraints, the secondary market fails to reallocate loan shares and syndicate ownership remains dispersed. We show that subsequently loans are less likely to be amended and more likely to be downgraded even further.

Workers care deeply about wage and employment stability. Given potentially differing attitudes towards risk, we investigate whether the provision of wage and employment insurance by firms differs for men and women. We find that women are less protected than men against idiosyncratic shocks to their employers—a gender gap in firm insurance. Using detailed administrative data from Sweden, we document that the elasticity of women’s wages with respect to variations in firm’s idiosyncratic performance is 90% higher than that of men. The likelihood of dismissal due to a negative firm shock is 36% higher for female than for male employees. These gender differences in exposure to corporate idiosyncratic shocks are larger for employees with children, in firms with fewer female executives, and in financially constrained firms.

We show that signals of leadership qualification are more important for women's career advancement than for men's. Specifically, signals of higher education, professional experience and access to professional networks increase male directors' probability to enter a leadership position by 5.2%, and their compensation by 5.7% ($246,900). Female directors with these signals are 11.0% more likely to enter a leadership position, and their compensation is 19.7% ($796,800) higher. This result is in line with models of screening discrimination, in which women need to provide more observable skill signals to counterbalance higher uncertainty about their unobservable qualifications for a leadership position. Supporting this channel, we find that our results are stronger if information asymmetries between (mostly) male employers and female candidates are larger: successions after the sudden death of a CEO, successions in firms with all-male nomination committees, and outside hires.

This paper provides novel evidence that female politicians increase the proportion of US government procurement contracts allocated to women-owned firms. The identification strategy uses close elections for the US House of Representatives. The effect concentrates in local contractors and persists after the female politician’s departure. The more gender-balanced representation in government contracting does not seem to be associated with economic costs, as the firm characteristics of the average contractor and contract performances are unchanged. By analyzing congressional requests from legislators to federal agencies, we show that female politicians affect procurement contract allocation through individual oversight.

We examine an emerging phenomenon that talented employees leave successful entrepreneurial firms to join less mature start-ups. Using proprietary person-level data and private firm data, we find that the presence of these “serial venture employees” positively predicts their new employers’ future success in terms of exit likelihoods, size growth, venture capital financing, and innovation productivity. Such predictive power is more likely driven by a screening/matching channel rather than venture labor’s nurturing role. Our paper sheds light on an underexplored pattern of inter-firm labor flow, which provides a nonfinancial yet value-relevant signal about private firms for investors and stakeholders.

How do venture capitalists (VCs) make investment decisions? Using a large administrative data set on French entrepreneurs that contains VC-backed as well as non-VC-backed firms, we use algorithmic predictions of new ventures’ performance to identify the most promising ventures. We find that VCs invest in some firms that perform predictably poorly and pass on others that perform predictably well. Consistent with models of stereotypical thinking, we show that VCs select entrepreneurs whose characteristics are representative of the most successful entrepreneurs (i.e., characteristics that occur more frequently among the best performing entrepreneurs relative to the other ones). Although VCs rely on accurate stereotypes, they make prediction errors as they exaggerate some representative features of success in their selection of entrepreneurs (e.g., male, highly educated, Paris-based, and high-tech entrepreneurs). Overall, algorithmic decision aids show promise to broaden the scope of VCs’ investments and founder diversity.

We estimate the unobservable effort that firms put into boosting their efficiency. Identification comes from a model in which firms accumulate capital but also choose a flow of effort that controls efficiency period by period. Model estimates show that, for all cohorts and industries, young firms choose relatively more growth and old firms choose more efficiency. Amongst young firms, higher capital growth predicts higher markups in the long-term, but increases the risk of not surviving into maturity. Our model estimates help explain the priced firms’ exposures to the profitability and in- vestment risk factors of the investment CAPM.

This paper investigates how consumers and investors react to the standardized disclosure of data privacy practices. Since December 2020, Apple has required all apps to disclose their data collection practices by filling out privacy “nutrition” labels that are standardized and easy to read. We web-scrape these privacy labels and first document several stylized facts regarding the supply of privacy. Second, augmenting privacy labels with weekly app downloads and revenues, we examine how this disclosure affects consumer behavior. Exploiting the staggered release of privacy labels and using the nonexposed Android version of each app to construct the control group, we find that after privacy label release, an average iOS app experiences a 14% (15%) drop in weekly downloads (revenue) when compared to its Android counterpart. The effect is stronger for more privacy-invasive and substitutable apps. Moreover, we observe negative stock market reactions, especially among firms that harvest more data, corroborating the adverse impact on product markets. Our findings highlight data as a key asset for firms in the digital era.

We investigate how excess commitment to R&D activities impacts innovation outcomes and consumer welfare. Using project-level data on clinical trials by pharmaceutical firms, we document that trials which faced unanticipated delays in the previous trial stage, relative to initial firm expectations or induced by plausibly-exogenous trial site congestion, are significantly less likely to be subsequently suspended. These effects are amplified when the firm’s CEO has a greater wealth exposure to stock price changes and is personally responsible for the project initiation. Consumers may, in some ways, benefit from firms’ excess commitment in new drug development. Marginally-launched drugs because of commitment distortions are not significantly associated with more adverse events, but are significantly more likely to target diseases with no or only few existing medications in the marketplace (orphan drugs).

Capital ages and must eventually be replaced. We propose a theory of financing in which firms finance new capital with debt and optimally deleverage to free up debt capacity as their capital ages, thereby generating debt cycles. Concurrently, firms shorten the maturity of their debt to match the remaining life of their capital, generating maturity cycles. We provide time series and cross-sectional evidence that strongly supports these predictions and highlights the key roles of capital age and asset life for both debt dynamics and debt maturity choices.

When political institutions fail to control firm externalities, responsible investors can act as substitutes for government intervention. Individual investors, however, are unlikely to consider the aggregate effects of their choices, which raises the question of whether responsible capital is efficiently allocated across firms in the economy. In a general equilibrium model with heterogeneous social attitudes, we show that responsible investors tend to concentrate on a subset of firms while excluding others. This concentration of green capital can create product market power and crowd out the green investments of excluded firms. If this crowding-out dominates, aggregate CSR investments and welfare are higher without responsible investments.

This paper models strategic voting on ESG proposals by blockholders with heterogeneous reputational concerns and varying levels of commitment to ESG values. ESG activists, whose public-good gains from intervention are not attenuated by selling shareholders’ free-riding, rationally sponsor even long-shot proposals. Proposals that lower firm value but produce environmental benefits pass with positive, but perhaps small, probability. Our analysis leads to some non-obvious insights: neither increases in blockholders’ personal commitments to ESG values nor increases in blockholder dispersion reliably increase the probability of proposal success. However, the probability of success is uniformly increased both by increasing overall reputational pressure on blockholders and by increasing the gap between the pressure faced by the most and least pressured blockholders.

Blanket exclusion of “brown” stocks is seen as the best way to reduce their negative externalities by starving them of capital. We show that a more effective strategy may be tilting – holding a brown stock if the firm has taken a corrective action. While such holdings allow the firm to expand, they also encourage the action. We derive conditions under which tilting dominates exclusion for externality reduction. If the action is not publicly observable, the investor might not tilt even if she can gather private information on the action – tilting would lead to accusations of greenwashing. The presence of an arbitrageur who buys underpriced stocks increases the relative effectiveness of tilting. A responsible investor who is partially profit-motivated may be more likely to tilt than one whose sole objective is minimizing externalities.

In a continuous-time game, a risk-neutral decision-maker chooses the volatility of a state variable, and a stopper terminates the game. I provide conditions under which the decision-maker becomes risk averse endogenously and minimizes volatility near termination, even if he faces myopic incentives to gamble for resurrection. The conditions introduce forward-looking incentives to preserve economic rents. I study two applications: a levered corporation and a mutual fund with uncertain productivity. When investors are about to default or withdraw their capital, managers attempt to preserve their rents by minimizing risk. Rents originate from current payoffs, growth opportunities, or managerial overconfidence.

Myers (1977) described how firms can gamble using asset substitution, which is switching to a less efficient and more volatile project. Gambling using derivatives is a sharper instrument, allowing the owners to gamble just to what is needed, and with negligible efficiency loss. In our model, “gambling for redemption” operates at small scale and is socially beneficial, while “gambling for ripoff” operates at large scale and is socially inefficient but benefits firm owners (at the expense of bondholders). Superpriority laws grant Qualified Financial Contracts (QFCs) bankruptcy law exemptions, which make more funds available for gambling. This reduces firm value due to difficulty borrowing in the face of more gambling for ripoff.

We show that short-term debt in a firm’s optimal capital structure reduces investment under asymmetric information. Investors’ interpretation of underinvestment as a positive signal about the quality of the assets in place allows the equity holders to profit from short-term debt repricing at the rollover stage. Thus, underinvestment is more pronounced at shorter maturities, in contrast to Myers (1977). Low types’ incentives to mimic put an endogenous constraint on high types’ underinvestment payoff via a duration floor. Perhaps most strikingly, because cash lowers the duration floor, an increase in a firm’s retained earnings can decrease investment.

Using detailed data on employees’ campaign contributions to Democrats and Republicans, we find that firms are considerably more likely to announce and complete a merger when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger performance are higher when employees have more similar political attitudes. The effects are stronger when political polarization is greater, during economic expansions, and when the target and acquirer plan to integrate operations. The effect of political attitudes is distinct from that of corporate culture. Overall, we provide new estimates that political attitudes and polarization affect the allocation of real assets in the economy.

We provide the first systematic evidence of contractual innovation in the terms of poison pill plans. In response to the increase in hedge fund activism, pills have changed to include anti-activist provisions, such as low trigger thresholds and acting-in-concert provisions. Using unique data on hedge fund views of SEC filings as a proxy for the threat of activists’ interventions, we show that hedge fund interest predicts pill adoptions. Moreover, the likelihood of a 13D filing declines after firms adopt “antiactivist” pills, suggesting that pills are effective in deterring activists. The results are particularly strong for “NOL” pills that, due to tax laws, have a five percent trigger. Our analysis has implications for understanding the modern dynamics of market discipline of managers in public corporations and evaluating policies that regulate defensive tactics.

This paper uses mergers and acquisitions (M&A) and textual analysis of firms' financial filings to show that competitive approach constitutes an important determinant of firms' investment decisions. The analysis reveals that becoming an acquirer or a target depends on the competitive approach. Moreover, M&A deals are more likely between companies implementing the same competitive approach. Those deals yield higher combined announcement returns, asset and sales growth. The same approach effect is stronger in a highly competitive environment and within an industry, suggesting that acquirer and target misalignment in competitive approaches constraints the optimal response to investment opportunities and market threats.