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This paper examines the role of a related bank in the investment efficiency of business-group firms. We show that a bank is associated with less investment sensitivity to investment opportunities for family group firms, especially in financially dependent industries. There is evidence of inefficient related lending in that the weakened investment sensitivity for family firms is linked to related-bank net-charge-offs. Alternatively, a bank is associated with greater investment sensitivity for family group firms in well-developed banking systems, and for non-family group firms in financially dependent industries. Ownership type and financial development seem pivotal for the role of a related bank.

We examine the role of a bank within a business group consisting of favored firms with greater owner rights, and disadvantaged firms with fewer owner rights. Our results suggest that a bank allows a family owner to tunnel wealth by offering high-yield subordinated debt to favored firms, increasing favored-firm financial revenue; while granting high-interest-rate loans to disadvantaged firms, increasing disadvantaged-firm financial expenses. Correspondingly, a sales-growth shock to the most disadvantaged group firm is met with more financial revenue for favored firms. For disadvantaged firms within family groups, there is also less investment efficiency in the presence of a bank.

This paper studies the relation between analyst optimism and CEO optimism. The CEO optimism indicator is derived from unexercised option moneyness. Bias, a common measure of analyst optimism, is partly driven by information bias. To identify the correlation between CEO optimism and analyst optimism, I use a control function to control for information bias. When acting on information, analysts expect lower earnings from optimistic CEOs; the average partial effect of information bias (or expected earnings) is -33%. However there is a positive correlation between analyst optimism and CEO optimism; the average partial effect of optimism is 29%. These results remain robust when controlling for year effects and firm fixed effects. The evidence suggests that correlated optimism is driven by behavioral CEO optimism and strategic analyst optimism; strategically optimistic analysts cover behaviorally biased CEOs in an effort to influence investors.

Corporate liquidity demand models view investments in marketable securities as a relatively simple store of excess liquidity (the storage view). However, compared to excess cash, marketable securities have more in common with investment and payout. For firms with repatriation tax exposure, constrained to a limited payout and permanent foreign real-investment plans, the average coefficient difference between excess cash and market investment regressions is zero. For all firms, the difference is 12%. The findings suggest that market investment is no longer a passive store of excess liquidity. Rather, market investment is associated with general investment and liability-driven investment.

In the $3.7 trillion U.S. state-and-local-government-bond market, lower issue-prices cost taxpayers, but may benefit financial underwriters. There is no evidence of underpricing in the presence of an underwriter auction. However in its absence, underpricing increases with the geographical distance between a governor and his underwriter campaign-contributors, and with the chosen underwriter’s contributions relative to others. The interaction between the two results distinguishes political support from influence: Conditional on the state choosing an underwriter that contributed generously, underpricing increases with underwriter proximity. The findings suggest that the quality of government financial outcomes is associated with political ties between politicians and bankers.

Forecast bias is associated with lower short-term returns. However, bias is not equivalent to optimism when information-biased analysts exhibit processing errors. Late-tenure and early-forecasting analysts are incentivized to be strategically optimistic. Using the timing variables for identification, this paper finds that for upward revisions, a 1% increase in analyst optimism results in a 12 basis-point greater two-day return. Under normal conditions, the overpriced (underpriced) stocks covered by late-tenure (early-tenure) analysts do (do not) experience a price correction; the under-reaction engenders an analyst-optimism portfolio alpha of 62 basis points per month. The findings suggest that asset prices increase with strategic optimism.