Research Lab

High returns for investors. Our author argues that a different approach to ESG can strike a better balance between environmental and social goals and profits.

Many organizations rely on formal management control systems that align employee values with organizational values (i.e., culture-fit) to shape organizational culture. Using proprietary data from a highly-decentralized organization, I examine the employee performance consequences of adopting a formal culture-fit measurement system in employee selection. I exploit the staggered feature of the adoption of the system, and find that employees selected with the system perform significantly better than those without the system.

This paper recasts the consumption asset pricing model in terms of observable accounting outcomes by recognizing accounting principles that connect those outcomes to consumption and the risk to consumption. The model prompts the construction of a pricing factor from observed accounting information. The factor performs well relative to extant factors in explaining cross-sectional returns. Further, it delivers out-of-sample expected returns that forecast the actual returns and the forward betas that investors actually experience.

The crash of some of the flagbearers of the equity bubble in recent years has been painful for investors. We have seen “pandemic winner” Netflix dive 75 per cent from 2021 peaks, crypto exchange operator Coinbase plunge 86 per cent and the one-time meme stock and cinema chain AMC lose 80 per cent.

I study whether banks' loan loss provisioning contributes to economic downturns, by examining the U.S. housing market. Specifically, I examine the aggregate effects of banks' delayed loan loss recognition (DLR) on house prices during the Great Recession and the channels through which these potential effects arose. I construct ZIP-code-level exposure to banks' DLR before the crisis and compare high- and low-exposure ZIP codes during the crisis to examine the aggregate effects of banks' DLR on the housing market.

We use supervisory loan-level data to document that small firms (SMEs) obtain shorter maturity credit lines than large firms, post more collateral, have higher utilization rates, and pay higher spreads. We rationalize these facts as the equilibrium outcome of a trade-off between lender commitment and discretion. Using the COVID recession, we test the prediction that SMEs are subject to greater lender discretion. Consistent with this hypothesis, SMEs did not draw down whereas large firms did, even in response to similar demand shocks.

It will take an evolution of fixed-income managers’ approach to make a difference to corporate behaviour.

Not to be left out of the ESG gold rush, a growing number of bond firms now offer environmental, social and governance funds. ESG integration has become a standard box to be checked (or not) on bond clients’ Requests for Proposals. Investment banks have created tools to help fixed income managers ESG-ify their portfolios.

We develop a model of information and portfolio choice in which ex ante identical investors choose to specialize because of fixed attention costs required in learning about securities. Without this friction, investors would invest in all securities and would be indifferent across a wide range of information choices. When securities' dividends depend on an aggregate (macro) risk factor and an idiosyncratic (micro) shocks, fixed attention costs lead investors to specialize in either macro or micro information.

We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate.