This article investigates crash risk premiums in individual stocks using skewness swaps. These swaps involve buying a stock’s risk-neutral skewness and receiving the realized skewness as a payoff. The strategy’s returns, which measure the skewness risk premium, are found to be consistently large and positive. This suggests investors are concerned about potential crashes in individual stocks and require substantial compensation for bearing this risk. Notably, significant results are mainly observed after the 2007/2009 financial crisis, indicating changes in post-crisis option market dynamics. Cross-sectional determinants of skewness swap returns include measures of systematic crash risk and stock overvaluation.

Practical real-world activities consume energy and emit thermal infrared radiation (TIR). Leveraging this physical fact, we develop a direct, real-time measure of firms’ operating activity using satellite data. Tracking 28,236 factories of Chinese listed firms, we find TIR declines significantly following operational shocks and strongly forecasts subsequent sales growth, costs, investment, employment, and profits. TIR also predicts future stock returns, especially among opaque firms and those with limited investor access, yet sophisticated investors largely ignore this information. Our findings highlight TIR as a distinctive, under-exploited indicator of corporate fundamentals.

After medical marijuana legalization (MML) by U.S. states, firms’ cost of equity (COE) decreases, especially for those with more growth opportunities, higher productivity, or a more skilled workforce. This policy change also reduces firm risk and leads to an increase in labor supply through increased labor force participation, employment, hours worked, and net migration. Further, home prices rise after MML, reflecting increased local housing demand due to a growing supply of workers. These findings align with theoretical models that link asset prices to labor markets and suggest that MML can lower firms’ COE by mitigating labor search frictions.

This article documents adverse selection in Ginnie Mae issuers’ early buyout decisions. Conditional on default, we find a 1 percentage point increase in interest rate spread increases the probability of an early buyout by 7–9 percentage points. Issuers buy out higher interest rate spread loans because they generate greater economic gains when they reperform. We illustrate how issuers acquire private soft information that provides direct insight into the likelihood of reperformance. Although the soft information is ostensibly collected on behalf of investors during the delinquent loan servicing process, issuers can exploit the information in their early buyout decisions.

We investigate how the government, as a customer, affects a supplier’s environmental policies. We find that government contractors have significantly lower levels of toxic pollution. Exploring the mechanisms, we show that government contractors reduce pollution by strengthening internal environmental governance and increasing investments in pollution abatement. Further analysis rules out alternative explanations related to reduced economic activities and financial constraints. Overall, our results highlight the government’s important role in disciplining corporate environmental misbehavior.

Equity returns follow a pronounced V-shape pattern around the onset of recessions. They sharply drop into negative territory just before business cycle peaks and then strongly recover as the recession unfolds. Recessions are typically preceded by a flat yield curve. Probit models relying on the term spread as a predictor therefore time the beginning of recessions well. We show that model-implied recession probabilities based on the term spread strongly improve equity premium prediction in- and out-of-sample and outperform several benchmark predictors. Correcting for a structural break in the mean of the term spread in 1982 further strengthens the forecast performance.

We administer a theory-driven, lab-in-the-field experiment to study the disposition effect among financial professionals. Our novel design identifies, at the individual participant level, key behavioral drivers of the disposition effect: reference-dependent risk attitudes (“tastes”), second-order uncertainty attitudes (including “ambiguity”), and subjective likelihood assessments (“beliefs”). Among the 237 professionals in our sample, 34% exhibited the disposition effect, which seems to be primarily driven by non-Bayesian beliefs. Our experimental results suggest that, when faced with new information about their asset’s performance, financial professionals failed to update their beliefs sufficiently leading them to sell the asset that gained (lost) value more (less) readily.

This study provides direct evidence of the association between debt–equity conflict and investment efficiency in financially distressed firms. Leveraging a unique institutional setting in Japan, we examine the impact of lender-affiliated directors on the managerial decisions of their borrowers. Although banker-directors do not influence firms at low risks of default, their presence leads to more conservative financial decisions in distressed firms, thereby mitigating shareholder exploitation. They also reduce information frictions to prevent overinvestment and underinvestment. However, despite within-firm efficiency gains, potential spillover effects on other stakeholders raise questions about the broader welfare implications of this debt–equity conflict mitigation.

This study examines how changes in political leadership and rising U.S. polarization flow through societal culture to corporate culture. Using quasi-experimental methods, we find that executives adjust culture messaging in earnings calls on extensive and intensive margins across varying political contexts. These changes follow two pathways: under political alignment, executives emphasize their firm’s culture, motivated by pride; and under political misalignment, executives reduce cultural messaging—particularly innovation, quality, and respect—due to lower perceived growth opportunities. Additional tests reveal these changes reflect strategic communication rather than fundamental cultural changes. Our findings highlight how cultural messaging varies with political context.

This article shows that when a compensation peer firm experiences a significant failure in its say-on-pay (SOP) voting, the focal firm’s stock price is adversely affected, resulting in reduced CEO pay in the subsequent period. This pay-reduction effect is amplified when the board is more powerful, when proxy advisors express concerns about CEO pay, and when the compensation consultant lacks quality. Directors who react to the price drop and cut the CEO’s pay receive higher votes in future director elections, implying a market feedback effect for directors of the focal firm triggered by their peers’ SOP voting failure.

We are the first to study the interplay between corporate diversification and debt maturity, both theoretically and empirically. Our models predict that diversification mitigates the debt-overhang problem, making long-term debt more attractive in the presence of rollover costs. Using data on 30,135 firms from 1978 to 2022, we find that multi-division firms have debt maturities at least 1 year longer than stand-alone firms, especially when facing debt overhang. Consistent with our predictions, the excess value of Berger and Ofek (1995) and Mansi and Reeb (2002) increases with debt maturity, suggesting that traditional measures of the diversification discount could be misleading.

This article examines how the entry of commercial lenders (CLs) transforms microfinance markets, focusing on borrower outcomes and market-wide spillovers. Using detailed credit registry data, we show that increased competition improves loan terms for both graduating and staying borrowers, generating sustained benefits. Our setting also allows us to document what happens when entry fails and entrants retreat following a crisis. Despite increasing defaults, borrowers who graduate to banks experience long-term gains, particularly through lower borrowing costs. Our findings highlight the broader benefits and risks of fostering competition in microfinance, providing valuable insights for policymakers and financial inclusion initiatives.

Exploiting changes in countries’ competition laws, we find that competition increases firms’ propensity to use zero leverage (ZL). We test the financial-flexibility, financial-constraint, and quiet-life explanations for this result, concluding that desire for flexibility is the one most likely. The relation between competition and ZL strengthens with cash-flow volatility, which supports the flexibility motive. Adoption of ZL by firms is accompanied by increases in payouts, so it is unlikely that ZL adopters are constrained. Proxies for governance have no effect on the relation between competition and ZL, suggesting that desire for a quiet life is not the explanation either.

The identification of disaster risk has remained a significant challenge due to the rarity of macroeconomic disasters. We show that the interbank market can help characterize the time variation in disaster risk. We propose a risk-based model in which macroeconomic disasters are likely to coincide with interbank market failure. Using interbank rates and their options, we estimate our model via maximum likelihood estimation (MLE) and filter the short-run and long-run components of disaster risk. Our estimation results are independent of the stock market and serve as an external validity test of rare disaster models, which are typically calibrated to match stock moments.

In a setting with a tradable value-weighted market index, ambiguity-averse investors do not trade, and the index is not mean–variance efficient. But when a passive fund offers the risk-adjusted market portfolio (RAMP), whose weights depend on information precision as well as market values, investors share risk via index investing and effectively hold the same portfolios as in the economy without model uncertainty. This follows from a new Information Separation Theorem: equilibrium portfolios are the sum of RAMP, which is the optimal portfolio conditional on public information, and their optimal private-information-based portfolios. RAMP is in equilibrium mean–variance efficient.