How Do Non-Performing Loans Evolve along the Economic Cycle? The Role of Macroeconomic Conditions and Legal Efficiency

The reports about increased insolvency risk during the recent COVID-19 pandemic highlight the importance of banks’ balance sheet resilience. In times of crisis, regulators are most concerned about the build-up of non-performing loans (NPLs) – many historical examples show that excessive levels of NPLs can seriously endanger financial stability (e.g., in Japan, Italy, Mexico, or Asia). Evidence from the […]

Capital Stranding Cascades: The Impact of Decarbonization on Productive Asset Utilization

The low-carbon transition is likely to induce drastic changes in our economies that will affect how we produce and consume. Changes in the “real” economy will almost certainly impact the financial structures built upon it, including the balance sheets of states, households, and corporations. The assets that compose these balance sheets may dramatically fall in […]

How Reduced Injunction Likelihood Affects Firm Value, Profitability, and Technology Commercialization

Injunctions are among the costliest remedies available during patent litigation, as alleged infringers are prohibited to make, use, or sell an item that infringes on a covered patent. Injunctions can result in a devastating impact on a firm when the affected product is important to its business. As patent litigation—and threatened injunctions—has increased dramatically since the 1990s, […]

Underwriter Competition May Help Loan Borrowers with Cheaper Financing

Institutional loans have risen dramatically over the past couple of decades and have become one of the most important avenues for firms to obtain credit. The amount of new issuance of institutional loans increased from less than $100 billion in the early 2000s to over $600 billion in recent years. Underwriters (i.e., lead banks) play […]

Do Debt Renegotiations Improve Borrower Performance? Insights from a Large-sample Study

Renegotiation is a crucial element in private debt contracting. Unlike public bonds, whose vast dispersed ownership structure makes renegotiation impossible to coordinate, private loans are typically issued by either one lender or a coterie of lenders (also known as a loan syndicate)—so renegotiating these contracts is a lot easier. Indeed, loan contracts are frequently amended […]

Sustainable Investing: An incentive for firms to do “good” and attract the “right” investors?

In our recent paper[1], we robustly document that firms have strong incentives to do good by serving a social purpose, as they not only perform well financially, but they also attract financially sophisticated investors with long-term orientation. What is important, however, is not only to do good by engaging in environmental, social, and governance (“ESG”) activities, but also […]

Offshore Activities and Corporate Tax Avoidance

Taxation of multinational companies (MNCs) has received increasing attention from politicians, the media, regulators, and academics. While the popular press provides considerable anecdotal evidence that large MNCs pay lower taxes than their domestic counterparts, academic research provides mixed evidence on how multinationality affects taxation. Although foreign operations provide additional cross-border tax avoidance opportunities, such as […]

Does Investor Inattention Distort Firms’ Capital Allocation Decisions?

There is ample evidence that some investors are inattentive and cause stock prices to fluctuate in ways that disagree with the rational framework. However, a less studied question in the behavioral finance literature is how firm managers respond to fluctuations in stock prices that stem from such irrational trading behaviors. In our recent paper, we exploit a […]

Do firms redact information in their SEC filings to protect proprietary information or to conceal bad news?

Under US securities laws, the Securities and Exchange Commission (SEC) regulates and monitors the financial reporting and disclosure of SEC registrants (companies) with the aims of increasing corporate transparency and protecting investors. Nonetheless, companies’ interests are also considered under the securities laws, which allow companies to make confidential treatment requests to redact certain information from […]

Australia’s Data Sharing Regime: Six Lessons for the World

Open banking is fast becoming a global phenomenon, promising to transform financial services by enabling the safe, swift sharing of personal data. The idea of open banking originated in Europe, and is gaining traction in the US, but Australia is well ahead of these countries and is now rolling out data sharing across other sectors […]