Working Papers

We find strong empirical support for the risk-shifting mechanism to account for the puzzling negative relation between idiosyncratic volatility and future stock returns documented by Ang, Hodrick, Xing, and Zhang (2006). First, equity holders…

I study the efficiency of three prominent accounting rules in a delegated bidding setting where bidders’ incentives are tied to both accounting income and economic surplus. Trade efficiency is maximized (minimized) by the value-in-use method (…

This study finds that more conservative earnings have lower information content in that higher conditional conservatism decreases the speed with which equity investor disagreement and uncertainty resolve at earnings announcements. We find that a…

Although doctors and hospitals own their patients’ medical records, state and federal laws require that they provide patients with a copy at “reasonable cost.” We examine the effects of state laws that…

We analyze how banks’ responses to asset gains and losses can result in procyclical leverage. The analysis reveals that absent differences in regulatory risk weights across assets, leverage is not procyclical. We test predictions from the…

Excessive leverage (indebtedness) in banking endangers the public and distorts the economy. Yet current and proposed regulations only tweak previous regulations that failed to provide financial stability. This paper discusses the forces that have…

We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. At least 30% of the value mutual fund managers add can be attributed to the firm’s role in efficiently allocating capital amongst…

We outline key steps necessary to reform the London Interbank Offered Rate (LIBOR) so as to improve its robustness to manipulation. We first discuss the role of financial benchmarks such as LIBOR in promoting over-the-counter market…

This paper studies the effect of performance feedback on tournament outcomes, when a possibly dishonest principal may manipulate the agents’ expectations to stimulate their effort. Under plausible circumstances, an increase in the principal’s…

Currently available medication for treating many chronic diseases is often effective only for a subgroup of patients, and biomarkers accurately assessing whether an individual belongs to this subgroup do not exist. In such settings, physicians…

The question of whether management control systems (MCS) adopted by start-up companies are valuable is examined. We investigate an international sample of start-ups, including their detailed MCS adoptions and financing histories. We find that…

We examine how the composition of public debt, broken down by currency, maturity, holder profile and marketability, has responded to major debt accumulation and consolidation episodes during 1900-2011. Covering thirteen advanced economies, we…

This paper studies dynamic disclosure when the firm value evolves stochastically over time. The presence of litigation risk, arising from the failure to disclose unfavorable information, not only prompts bad news disclosures but also crowds out…

Entrepreneurship requires creativity and business acumen. Creativity may decline with age, but business skills increase with experience in high level positions. Having too many older workers in society slows entrepreneurship. Not only are older…

This paper investigates the impact of lower mortgage rates on household balance sheets and other economic outcomes during the housing crisis. We use proprietary loan-level panel data matched to consumer credit records using borrowers’ Social…

Using the value that a mutual fund extracts from capital markets as the measure of skill, we find that the average mutual fund has used this skill to generate about $3.2 million per year. We document large cross-sectional differences in skill…

This paper examines whether insiders at leading financial institutions anticipated the effect of government intervention during the Financial Crisis on their firms’ share prices. While we find no evidence that insiders anticipated the Crisis, we…

It is known that organizations benefit from stability, but that they often are compelled to change by circumstances. We argue that the relationship between organizational stability and change hinges on a key…

We propose a new form of hybrid capital for banks, Equity Recourse Notes (ERNs), which ameliorate booms and bust by creating counter-cyclical incentives for banks to raise capital, and so encourage bank lending in bad times. They avoid the…

Traditional academic literature has relied on so-called “limits to arbitrage” theories to explain why investment managers are unable to eliminate the effects of investor “irrational” preferences (either the asset-pricing anomalies or the…