Journal of Financial Economics最新文献

This paper develops two new methods to infer a mutual fund's proxy advisors from SEC filings. It then applies these methods to characterize features of the proxy advice industry from 2007 to 2021: (i) As of 2021, ISS and Glass Lewis collectively control approximately 90 percent of the market. During this period, the market share of ISS remains stable, while that of Glass Lewis has increased. (ii) When a proxy advisor issues a recommendation opposing management, its customers are approximately 20 percentage points more likely to also oppose management compared to other investors. (iii) Funds that subscribe to both proxy advisors tend to vote more similarly to the recommendations of the advisor whose voting platform they use. (iv) Proxy advisors often change their advisory stance when investors disagree with their previous advice. I offer suggestive evidence that this adaptation reflects both learning from informed investors and a desire by proxy advisors to align with the preferences of their customers.

We study liquidity supply in fragmented markets. Market makers intermediate heterogeneous order flows, trading off spread revenue against inventory costs. Applying our model to payment for order flow (PFOF), we demonstrate that portfolio-based considerations of inventory management incentivize market makers to segment retail orders by siphoning them off-exchange. Banning order flow segmentation reduces total welfare, can make trading more costly for all investors, and can resolve a prisoner's dilemma among market makers. These results differentiate our inventory-based model from the existing information-based theories of PFOF.

We examine how a fixed capital supply shortage affects firm investment. Using equipment transaction–level data, we find pandemic-driven production disruptions significantly altered capital reallocation patterns across firms. A surge in used capital trading activity softened the investment decline, as firms acquired used capital from distant and dissimilar counterparts. Younger firms were disproportionately affected even though they rarely purchase new capital: while in normal times older firms sell their capital to younger firms, following a supply shortage, older firms compete for used capital, pricing out younger firms. Our evidence highlights the crucial role of secondary markets and distributive externalities for corporate investment.

We examine how executive compensation can be designed to facilitate product market collusion. We look at the 2013 decision to close several regional offices of the U.S. Department of Justice, which lowered antitrust enforcement for firms located near these closed offices. We argue this made collusion more appealing to shareholders, and find that these firms increased the sensitivity of executive pay to local rivals' performance, consistent with rewarding the managers for colluding with them. The affected CEOs were also granted longer vesting periods, which provides long-term incentives that could foster collusive arrangements.

Compliance-driven investments in technology—or “RegTech”—are growing rapidly. To understand the effects on the financial sector, we study firms’ responses to new internal control requirements. Affected firms make significant investments in ERP and hardware. These expenditures then enable complementary investments that are leveraged for noncompliance purposes, leading to modest savings from avoided customer complaints and misconduct. IT budgets rise and profits fall, especially at small firms, and acquisition activity and market concentration increase. Our results illustrate how regulation can directly and indirectly affect technology adoption, which in turn affects noncompliance functions and market structure.

Theory suggests that increasing idiosyncratic, uninsurable labor income risk may cause individuals to reduce the risk in their financial assets. This relationship is confounded empirically by the tendency of risk tolerant people to choose riskier careers and hold riskier portfolios, leading to an upward-biased estimate of the effect of earnings risk on risky assets holdings. We overcome this identification problem by exploiting a discontinuity built into the Danish national university admissions system, which provides quasi-random assignment of similar applicants to programs with different earnings volatility profiles. Our methodology allows us to measure the causal impact of enrolling in a high-volatility program, holding fixed the average program earnings and human capital betas. We show that entering a program whose enrollees subsequently experience volatile earnings causes students to have more volatile earnings and, ceteris paribus, to hold fewer risky assets and be less likely to participate in the stock market. We calibrate our empirical results to a portfolio choice model with risky labor income that fits our empirical findings well with modest participation costs, myopic behavior, and reasonable levels of risk aversion.

We develop a novel approach to separate alpha and beta under model misspecification. It comes with formal tests to identify less misspecified models and sharpen the return decomposition of individual funds. Our hedge fund analysis reveals that: (i) prominent models are as misspecified as the CAPM, (ii) several factors (time-series momentum, variance, carry) capture alternative strategies and lower performance in all investment categories, (iii) fund heterogeneity in alpha and beta is large—an important result for fund selection and models of active management, (iv) performance is increasingly similar to mutual funds, (v) fund valuation is sensitive to investor sophistication.

Capital ages and must eventually be replaced. We propose a theory of financing in which firms borrow to finance investment and deleverage as capital ages to have enough financial slack to finance replacement investments. To achieve these dynamics, firms issue debt with a maturity that matches the useful life of assets and a repayment schedule that reflects the need to free up debt capacity as capital ages. In the model, leverage and debt maturity are negatively related to capital age while debt maturity and the length of debt cycles are positively related to asset life. We provide empirical evidence that strongly supports these predictions.

We study whether state-level mandatory business closures implemented in response to the outbreak of the Covid-19 causally affect economic and health outcomes. Using plausibly exogenous variations in exposure to these restrictions, we find that they impose substantial losses to firms and workers, the former bearing approximately two thirds of the cost, consistent with firms partially insuring their workers. We show that mandatory business closures have a significant negative causal effect on mortality rates, particularly in areas featuring contact-intensive occupations. We discuss the assumptions under which the health benefits of business closures exceed their associated economic costs.

This paper studies bank antitrust rules which discontinuously shift bank mergers' competitive impact. The likelihood of mandatory divestiture rises sharply for mergers in markets above a threshold level of concentration, leading to an increase in the number of banks in these markets. Consistent with greater competition, intervention leads to higher deposit rates. Mortgage originations rise by 11%, from both refinancing and purchases. However, small business loan quantities do not change. The effects of intervention do not dissipate over time, and nonbank lenders respond similarly to banks. Overall, antitrust rules can increase bank competition, but relationships protect banks from competitors.