Forthcoming Articles

Determinants of International Buyout Investments

Serdar Aldatmaz, Greg W. Brown, and Asli Demirgüç-Kunt

Using a proprietary data set on international private equity activity, we study the determinants of buyout investments across 61 countries and 19 industries over the period of 1990–2017. We find that countries with cyclically strong economies, more active stock and credit markets, and better rule of law experience more buyout activity. Countries also receive more buyout capital following investor protection and contract enforcement reforms. The set of determinants we identify appear somewhat unique to buyout investments, because other forms of investment such as FDI, gross capital formation, investments in R&D, and M&A activity do not respond similarly to these factors.

Information Intermediaries: How Commercial Bankers Facilitate Strategic Alliances

Marc Frattaroli and Christoph Herpfer

We investigate how bankers use information from lending relationships to help borrowers find partners for strategic alliances. Firms that have borrowed from the same banker or share an indirect connection through a network of bankers are significantly more likely to enter an alliance. Consistent with bankers overcoming informational frictions, their ability to facilitate alliances decreases with banker-network distance, and is stronger for opaque borrowers. Firms connected to more potential partners via banker networks enter more alliances. These alliances are associated with positive announcement returns and brokering banks are more likely to receive future underwriting mandates.

Shareholder Litigation and Corporate Social Responsibility

Steven Freund, Nam H. Nguyen, and Hieu V Phan

This research examines the relation between shareholder litigation and corporate social responsibility (CSR). Exploiting exogenous changes in shareholder litigation rights following the staggered adoption of universal demand laws by U.S. states and the Ninth Circuit Court of Appeals’ ruling on securities class action lawsuits, we show that weaker shareholder litigation rights lead to lower CSR scores. Moreover, the relation is stronger for firms facing higher litigation risk, and a decreased CSR score enhances firm value. Our evidence suggests that firms engage in CSR activities partly to reduce shareholder litigation risk ex ante and mitigate its consequences ex post.

Buying the Vote? The Economics of Electoral Politics and Small Business Loans

Ran Duchin and John Hackney

We study the effect of electoral politics on government small business lending, employment, and business formation. We construct novel measures of electoral importance capturing swing and base voters using data from Facebook ad spending, independent political expenditures, the Cook Political Report, and campaign contributions. We find that businesses in electorally important states, districts, and sectors receive more loans following the onset of the COVID-19 crisis, controlling for funding demand and both health and economic conditions. Estimates from survey and observational data show that electoral politics and the allocation of government funds affect employment, small business activity, and business applications.

Peer Effects in Equity Research

Kenny Phua, Mandy Tham, and Chishen Wei

We study the importance of peer effects among sell-side analysts who work at the same brokerage house, but cover different firms. By mapping the information network within each brokerage, we identify analysts who occupy central positions in their network. Central analysts incorporate more information from their coworkers and produce better research. Using shocks to network structures around brokerage mergers, we identify the influence of peer effects and the importance of industry expertise on analysts’ performance. A portfolio strategy that exploits the forecast revisions of central analysts earns up to 24% per annum.

Small Business Survival Capabilities and Fiscal Programs: Evidence from Oakland

Robert P. Bartlett III and Adair Morse

Using City of Oakland data during COVID-19, we document that small business components of survival capabilities — revenue resiliency, labor flexibility, and committed costs — vary by firm size. Nonemployer businesses rely on low cost structures to survive. Microbusinesses (1 to 5 employees) depend on 14% greater revenue resiliency. Enterprises (6 to 50 employees) use labor flexibility to survive, but face 10% to 20% higher residual closure risk from committed costs. The evidence argues for size-targeting of financial support programs, including committed costs and revenue-based lending programs. Supporting the capabilities mapping, we find that the PPP increased medium-run survival probability by 20.5% specifically for microbusinesses.

Words Matter: The Role of Readability, Tone, and Deception Cues in Online Credit Markets

Qiang Gao, Mingfeng Lin, and Richard Sias

Using debt crowdfunding data, we investigate whether borrowers’ writing style is associated with online lender and borrower behaviors, whether the information contained in linguistic style can mitigate information asymmetry in peer-to-peer markets, and whether online investors correctly interpret the economic value of written texts. Peer-to-peer lenders bid more aggressively, are more likely to fund, and charge lower rates to online borrowers whose writing is more readable, more positive, and contains fewer deception cues. Moreover, such borrowers are less likely to default. Online investors, however, fail to fully account for the information contained in borrowers’ writing.

Natural Disaster Effects on Popular Sentiment Toward Finance

Manish Jha, Hongyi Liu, and Asaf Manela

We use a text-based measure of popular sentiment toward finance to study how finance sentiment responds to rare historical disasters and to the ongoing COVID-19 pandemic. Finance sentiment declines after epidemics and earthquakes but rises following severe droughts, floods, and landslides. These heterogeneous effects suggest finance sentiment responds differently to the realization of insured versus uninsured risks. Finance sentiment declines at the start of the COVID-19 pandemic but recovers in countries that experienced high stock markets returns and that responded with large fiscal spending. Finance sentiment seems to depend on the insurance provided by private markets and by public finance.