The Dodd-Frank Act in 2010 increased ex ante downgrade threats without changing credit rated firms’ underlying credit quality. We show that the Act had negative impacts on credit rated firms’ acquisition activities, especially among speculative grade firms as they face greater downgrade-induced costs. The more selective acquisition strategies led to higher announcement returns and greater post-acquisition upgrade probabilities. Consistent with firms refraining from taking on overall acquisition risk rather than financial risk, we show significant reductions in both cash and stock settled deal making following Dodd-Frank. In sum, our study highlights that increased legal stringency on CRAs has important spillover effects on firms’ M&A activities.

This study examines the impact of the UK Modern Slavery Act (UK MSA) on firms and stakeholders, highlighting significant shareholder reactions. Investors initially respond negatively, likely due to uncertainty and compliance costs, but subsequently experience long-term gains, reflecting improvements in operational efficiency and corporate reputation. Firms operating in highly competitive markets benefit more substantially, exhibiting a reduction in supplier-related human rights violations due to enhanced supply chain monitoring. These firms also achieve higher profitability through cost savings, increased sales growth, and enhanced firm value, driven by strengthened reputational capital and positive investor and customer sentiment. Our findings suggest that, in competitive environments, firms can strategically leverage ethical business practices to differentiate themselves and secure a sustainable competitive advantage.

Salary History Bans (SHBs) are state laws curbing pay disparities by prohibiting employers from asking about past salaries. However, SHBs affect the distribution of bargaining power between workers and firms, as bans on salary histories conceal workers' reservation wages, increasing their bargaining power. We study the effects of the passage of SHBs on product differentiation, a variable reliant on investment, thus adversely impacted by labor market frictions affecting the bargaining game between workers and firms. We show that the passage of SHBs is associated with significantly lower product differentiation. This effect concentrates in industries intensive in R&D and patents, and in high-wage sectors. These findings indicate that inflated labor costs crowd-out the investments that enable product differentiation. Consistent with the labor bargaining channel, the negative effect of SHBs on product differentiation is stronger in more competitive industries and in states with stronger unionization. SHBs are also associated with lower operating margins in firms with high product differentiation, suggesting losses in pricing power by firms and higher rents captured by workers.

We investigate the influence of firms’ global status on the allocation of credit during a financial crisis. Using data on 15,000 businesses from seven European countries, we find that firms participating in global value chains were 25% less likely to be rationed by banks during the 2009 financial crisis. Matching the firm-level information with data on banks’ branch and subsidiary networks in the countries, we obtain that banks insulated global chain participants from credit rationing, not only accounting for the beneficial effects of global chain participation, but also to reduce spillovers on their own foreign activities related with global chains.