Conference Agenda

By investigating dealer banks and high-frequency traders (HFTs) in foreign exchange markets, this study sheds light on the distinct yet complementary roles of ``traditional’’ and ``new’’ market makers in over-the-counter markets. Using message-level data, our findings reveal that these two types coexist by carrying out complementary roles. HFTs excel in processing public information, while dealers are skilled in managing private information. Specifically, HFTs provide resilient liquidity during market-wide volatility spikes, whereas dealer liquidity is robust in informational events such as scheduled macroeconomic announcements or policy regime changes. HFTs contribute to the majority of the information share through frequent quote updates, which incorporate public information. In contrast, dealers contribute to price discovery through trades that impound private information.

We study the extent of interest rate risk sharing across the financial system using granular positions and transactions data in interest rate swaps. We show that pension and insurance (PF\&I) sector emerges as a natural counterparty to banks and corporations: overall, and in response to decline in rates, PF\&I buy duration, whereas banks and corporations sell duration. This cross-sector netting reduces the aggregate demand that is supplied by dealers. However, two factors impede cross-sector netting and add to substantial dealer imbalances across maturities: (i) PF\&I, bank and corporations' demand is segmented across maturities, and (ii) hedge funds trade large volumes with time-varying exposure. We test the implications of demand imbalances on asset prices by calibrating a preferred-habitat investors model with risk-averse arbitrageurs, who face both funding cost shocks and demand side fluctuations. We find that demand imbalances play a bigger role than arbitrageurs’ funding cost in determining the equilibrium swap spreads at all maturities. In counterfactual analyses, we demonstrate how demand shocks, e.g., regulation leading banks to hedge more, affect the hedging behavior of PF\&I. Our paper provides a quantity-based explanation for empirically observed asset prices in the interest rate derivatives market.

Using granular data on the entire Brazilian securities lending market merged with all trades in the centralized stock exchange, we identify information leakage from short sellers. Our identification strategy explores trading execution mismatches between short sellers’ selling activity in the centralized exchange and borrowing activity in the over-the-counter securities lending market. We document that brokers learn about informed directional bets by intermediating securities lending agreements and leak that information to their clients. We find evidence that the information leakage is intentional and that brokers benefit from it. We also study leakage effects on stock prices.

Taking advantage of a novel dataset on individual mutual funds' securities lending activities, we provide the first systematic evidence that mutual funds, especially ESG funds, recall loaned shares prior to voting record dates. Funds' recall-voting sensitivities differ based on their stated lending policies, ownership stakes in portfolio firms, and holding horizons, indicating heterogeneity in funds' perceived values of voting rights. Recalled shares are more likely to be voted against management proposals, and in favor of shareholder proposals and dissident slates in proxy contests. Recall-sensitive funds attract higher fund flows and do not suffer poor performance because of foregone lending revenues.

Passive investors participate in the corporate bond primary market, despite the bonds not yet being included in their benchmark index. Passive funds have higher holdings in bonds with lower underpricing, which is driven by allocations rather than secondary market purchases or ETF creation baskets. Higher passive holdings are related to deals with less demand (downsized, lower spread compression, and cold offerings) and bonds of lower quality (more likely to be downgraded). The underperformance continues over one month and one year. The main findings are driven by overallocations by underwriters to passive families and by fund families to their passive funds. Our results suggest passive funds serve as a backstop for deals, benefiting underwriters, issuers, and active funds.

Banks finance their lending to risky firms by selling these loans to nonbank financial institutions. Among these nonbanks, collateralized loan obligations (CLOs) provide the bulk of funds. I show that CLO managers have significant market power during loan origination, which increases firms' cost of borrowing in the leveraged loan market. Akin to bank market power in classic lending relationships which are the result of a bank's "information monopoly," nonbank market power is the result of asymmetrically informed nonbanks. Information asymmetries across nonbanks arise from differential information flows during loan underwriting. Contrary to the underwriting of public securities, banks in general disseminate private information about the borrower when marketing a loan. However, some nonbanks self-restrict their information access to publicly available information. To identify my results, I construct a new instrument using novel data on mergers in the CLO industry. I provide the first analysis of these mergers and their determinants. Overall, this research highlights a key distinction between public and private debt markets and its economic consequences for borrowing firms. My findings have important implications for the ongoing legal debate on the applicability of securities law to leveraged loans.

We use data on stock portfolios of Norwegian households to show that stock market wealth increases entrepreneurship by relaxing financial constraints. Our research design isolates idiosyncratic variation in household-level stock market returns. An increase in stock market wealth increases the propensity to start a firm, with the response concentrated in households with moderate levels of financial wealth, for whom a 20 percent increase in stock wealth increases the likelihood to start a firm by about 20\%, and in years when the aggregate stock market return in Norway is high. We develop a method to study the effect of wealth on firm outcomes that corrects for the bias introduced by selection into entrepreneurship. Higher wealth causally increases firm profitability, an indication that it relaxes would-be entrepreneurs' financial constraints. Consistent with this interpretation, the pass-through from stock wealth into equity in the new firm is one-for-one.

Women are less likely than men to start firms and female entrepreneurs are less

likely to succeed. This paper studies the effect of childbirth on women’s entrepreneurial activity. Drawing on rich administrative data from Canada and an

event study and instrumental variable design, I show that children have substantial

negative effects on both founding rates and start-up performance, accounting for

a large portion of the gender gap in entrepreneurship. The effects are permanent:

entrepreneurial outcomes never recover to their pre-birth levels. These results are

not fully explained by household specialization based on labor market advantage.

Childcare availability and belonging to a culture with progressive gender norms

reduce the adverse effect of childbirth on the entrepreneurship gap.

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.

Price discovery in financial markets guides the efficient allocation

of resources. Yet we argue that speculators uninformed about firms'

fundamentals can profit from distorting the allocative function of prices

by inflating stock prices. Such speculation can be profitable because high

valuations attract employees, business partners, and investors who create

value at targeted firms at the cost of diverting resources away from better

firms. The resulting resource misallocation is worst in "normal" (neither hot nor cold)

markets and when firms o¤er stakeholders performance compensation or equity.

Investors, such as VCs, can also profit from inflating firm valuations in private markets.

This paper studies the economic importance of mobile applications (apps) as intangible assets. Using novel data, we construct a market-based app-value measure and show that it corresponds positively with apps' utility value, measured by future downloads. Firms' app values are associated with a significant reduction in firm-specific risk, especially when the apps collect user data. Following the California Consumer Privacy Act—a plausible exogenous shock to data-collecting ability—the relationship between app value and firm risk diminishes. Moreover, firms' app values predict substantial future growth and increased market power, and the growth is more pronounced when apps collect data.

We use data from a major South African payment processor to study how digital payments mitigate asymmetric information challenges in small business "revenue-based financing" contracts, which tie repayment schedules to future revenue. Eight months post-financing, digital payments through the processor are 15% lower for takers than observably similar non-takers. We show this "gap" can be decomposed into three components: moral hazard from revenue hiding, adverse selection, and the causal effect of financing for takers. Two natural experiments suggest that takers shift more revenue off the platform when competition increases (moral hazard), and that financiers can increase repayment by waiting longer before extending offers (adverse selection). With estimates from both experiments, we bound the gap components, finding substantial adverse selection, but also positive short-run causal effects. Our results suggest digital payment platforms with "sticky" features can alleviate classic risk-sharing frictions by imposing hiding costs and limiting hidden information.

The empirical investment literature studying the determinants of investment relies almost exclusively on truncated samples of publicly listed firms due to the lack of data on private firms. This truncation, however, is not random because listing is a choice for many firms, whereas others cannot list due to their characteristics. The ensuing endogenous truncation entails biased estimates. We develop a methodology that corrects for the bias. The bias-corrected results lend strong support for the q-theory: the investment-cash flow sensitivity disappears and the relation between investment and q nearly quadruples. Our econometric framework is also applicable in many other economic contexts.

Using micro data on managerial expenditures, we uncover heuristics in capital budgets, such as nominal rigidity, anchoring, and sharp reset deadlines. Such heuristics engender managerial opportunism. Managers with a budget surplus increase investment before budget deadlines, and such projects underperform. Managers who reach a budget constraint early in the fiscal cycle halt spending until their budget is reset, irrespective of investment options. These effects are stronger at firms with more hierarchical layers and a greater subordinates-to-executives ratio. Such firms become targets of private equity funds. After the buyout by strong principals, firms remove budgetary heuristics and switch to continuous capital allocations. Overall, simplifying budgeting rules engender strategic managerial behavior.

We show how the threat of “uncertainty-induced zombification”—creditors’ willingness to keep their distressed borrowers alive when faced with uncertainty—shapes various industry dynamics. Under a real options framework, we demonstrate that unlevered firms become reluctant to invest and disinvest in anticipation that uncertainty induces creditors to convert defaulting rival firms into zombies. We validate our theory using dynamic, industry-specific estimates of expected uncertainty induced zombification together with loan contract-level data. Empirically, higher uncertainty-led rival zombification expectations prompt healthy firms to reduce their costly-to-reverse capital investment and disinvestment, hiring, and establishment-level openings and closures (intensive and extensive margins are affected). We confirm those dynamics using granular, near-universal data on the asset allocation decisions of global shipping firms. Critically, uncertainty-led zombification expectations depress healthy firms’ sales, profits, and stock returns. Our results reveal nuanced effects on creative destruction—while healthy firms’ asset allocation slows down, their innovation activity accelerates. Our findings highlight a novel channel through which uncertainty shapes firms’ capital accumulation, distorting their real and financial policies and performance.

This paper measures the impact of information quality on the success of firms' investment decisions using the U.S. census as an empirical context. Over the course of a decade, information from the decennial census snapshot likely deviates from the evolving market condition, thereby making the data less relevant. I find that on average, outdated census information increases establishment failure rate by 1.6% per year. The effects are stronger for geographic areas that experience large changes in demographics, for industries that rely on precise information in small trade areas, and for independent retailers that lack alternative sources of demographic information.

We show that production networks amplify the effects of a firm’s financial constraints, generating substantive contagion effects on its partners’ investment. We quantify these effects via a network multiplier whereby a one-dollar drop in the constrained firm’s investment reduces total supply-chain investment by an additional dollar. To facilitate identification, we employ multiple financial-constraint measures, a Network Regression Discontinuity Design that accounts for covenant-violation spillovers, and an instrumented network of long-term partners. Consistent with production-driven spillovers, firms producing specific inputs generate larger investment spillovers and receive more trade credit. Overall, our results suggest that production networks aggregate firm-level financial frictions.

Using large, plausibly exogenous shocks to the maturity structure of U.S. government debt, I find that a higher supply of long-term government bonds increases firms’ discount rates at long horizons leading to a crowding-out of long-duration investment. This crowding out occurs through reallocations of capital away from long-duration investment towards short-duration investment. This happens across industries, within industries across firms and within firms across divisions. Such changes to the average duration of investment explain a significant share of changes to the average maturity of corporate debt. These results identify important real effects of policies which affect the net supply of long-termbonds, such as quantitative easing by central banks.