Forthcoming Articles

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.

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.

Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships and the COVID Crisis

Lei Li and Philip E. Strahan

We analyze bank supply of credit under the Paycheck Protection Program (PPP). The literature emphasizes relationships as a means to improve lender information, which helps banks manage credit risk. Despite imposing no risk, however, PPP supply reflects traditional measures of relationship lending: decreasing in bank size; increasing in prior experience, in commitment lending, and in core deposits. Our results suggest a new benefit of bank relationships, as they help firms access government-subsidized lending. Consistent with this benefit, we show that bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.

Equity Trading Activity and Treasury Bond Risk Premia

Stefanie Schraeder, Elvira Sojli, Avanidhar Subrahmanyam, and Wing Wah Tham

We link equity and treasury bond markets via an informational channel. When macroeconomic state shifts are more probable, informed traders are more likely to have valid signals about fundamentals, so that uninformed traders are less willing to trade against informed ones. This implies low volume and high volatility, i.e., a high volatility-volume ratio (VVR). Central banks react to state shifts, but their actions are uncertain. Therefore, a higher state shift likelihood implies larger bond risk premia. These arguments together imply that VVR should positively predict bond excess returns. We empirically test and confirm this prediction, both in- and out-of-sample.


Shadow Banking in a Crisis: Evidence from FinTech During COVID-19

Zhengyang Bao and Difang Huang

We analyze lending by traditional and FinTech lenders during COVID-19. Comparing samples of FinTech and bank loan records across the outbreak, we find that FinTech companies are more likely to expand credit access to new and financially constrained borrowers after the start of the pandemic. However, this increased credit provision may be unsustainable; the delinquency rate of FinTech loans triples after the outbreak, but there is no significant change in bank loans. Borrowers holding both loan types prioritize bank loan repayments. These results shed light on the benefits of shadow banking and the potential fragility of such institutions.

Flattening the Illiquidity Curve: Retail Trading During the COVID-19 Lockdown

Gideon Ozik, Ronnie Sadka, and Siyi Shen

This paper studies the impact of retail investors on stock liquidity during the Coronavirus pandemic lockdown in Spring 2020. Retail trading exhibits a sharp increase, especially among stocks with high COVID-19-related media coverage. Retail trading attenuated the rise in illiquidity by roughly 40%, but less so for high-media-attention stocks. Causality is addressed utilizing the staggered implementation of stay-at-home advisory across US states. The results highlight that access to financial markets facilitated by fintech innovations to trading platforms, along with ample free time, are significant determinants of retail-investor stock-market participation.

Hedging Commodity Price Risk

Hamid Ghoddusi, Sheridan Titman, and Stathis Tompaidis

We present an equilibrium model of hedging for commodity processing firms. We show the optimal hedge ratio depends on the convexity of the firm’s cost function and the elasticity of the supply of the input and the demand for the output. Our calibrated model suggests that hedging tends to be ineffective. When uncertainty comes exclusively from either the supply or from the demand side, updating the hedge dynamically, and using non-linear contracts improves hedging effectiveness. However, with both supply and demand uncertainty, hedging effectiveness can be low even with option-based and dynamic hedging strategies.

The Role of Corporate Culture in Bad Times: Evidence from the COVID-19 Pandemic

Kai Li, Xing Liu, Feng Mai, and Tengfei Zhang

After fitting a topic model to 40,927 COVID-19-related paragraphs in 3,581 earnings calls over the period January 22 to April 30, 2020, we obtain firm-level measures of exposure and response related to COVID-19 for 2,894 U.S. firms. We show that despite the large negative impact of COVID-19 on their operations, firms with a strong corporate culture outperform their peers without a strong culture. Moreover, these firms are more likely to support their community, embrace digital transformation, and develop new products than those peers. We conclude that corporate culture is an intangible asset designed to meet unforeseen contingencies as they arise.