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We provide evidence on the evolution of generalized trust among finance professionals using data from the General Social Survey over the period 1978-2016. Accounting for demographic, regional, and socioeconomic characteristics, we document a significant decline in the level of trust among finance professionals relative to the decline of trust in the U.S. population. This decline is unique to the finance industry and is particularly strong in the early years of the sample when finance professionals initially exhibited a higher level of trust than the average American. The decline occurs across all subsectors in finance and at all hierarchy levels.

Using a novel typology of serial acquirers, we examine several puzzles documented in prior literature. We show that acquisitions by different types of acquirers are driven by different factors, they acquire different sizes of targets, and subsequent acquisitions by acquirers are predictable ex ante. Controlling for market anticipation, the most frequent serial acquirers do not earn declining returns as they continue acquiring, while less frequent acquirers do. Our methodology enhances our understanding of serial acquisition dynamics, anticipation, and economic value adjustments. The methodology is likely to be relevant to topics related to event anticipation beyond those covered in this study.

Using multiple measures of attack proximity, we show that CEOs employed at firms located near terrorist attacks earn an average pay increase of 12% after the attack relative to CEOs at firms located far from attacks. CEOs at terrorist attack-proximate firms prefer cash-based compensation increases (e.g., salary and bonus) over equity-based compensation (e.g., options and stocks granted). The effect is causal and it is larger when the bargaining power of the CEO is high. Other executives and workers do not receive a terrorist attack premium.

In this paper, we assess how recent technology advances have changed the way we coordinate. After a brief discussion of the common challenges to effective coordination, we highlight some important implications of technology on addressing informational and behavioral frictions. We focus on discussing the effects of three specific technology developments including artificial intelligence (AI), automation, and blockchain, on the choice of coordination modes. We argue that technology is shifting the boundaries between firms and markets and is opening the door to new research directions.

We examine the effect of board interlocks on patenting and R&D spending for publicly traded companies in India. We exploit a corporate governance reform to address the endogeneity of board interlocks through exogenous changes mandated by the reform requiring a subset of firms to adjust their board structure. We rely on two difference-in-differences frameworks, comparing firms affected by the reform to unaffected firms as well as comparing within the set of firms that did not have to adjust their board structure those that still experienced an exogenous increase of their network size as a result of the reform to those that did not experience a change in their network size. We find that board interlocks have significant positive effects on both R&D and patenting. The evidence suggests that the impact on R&D is induced by information transmission through interlocks. The effect on patenting is driven by firms extending patent protection by patenting inventions abroad that they have already patented in India.

Mutual funds report performance in the form of a holding period return (HPR) over standardized horizons. Changes in HPRs are equally influenced by new and previously reported stale returns which enter and exit the horizon. Investors appear unable to differentiate between the joint determinants, reacting with equal strength to both signals. Stale performance chasing is amplified for funds which promote performance via advertising and is more pronounced during periods of uncertainty in financial markets. Fund managers exploit this behavior by preferentially timing fee increases to align with periods of heightened investor demand resulting from stale performance chasing.

Defining systematic risk management (SRM) skill as persistently low fund systematic risk, we find evidence of time varying allocation of hedge fund management effort across the business cycle. In weak market states, skilled managers focus on minimization of systematic risk via dynamic reallocations across asset classes at the cost of fund alpha and foregoing market timing opportunities. As markets strengthen, attention shifts to asset selection within consistent asset classes. The superior performance of low systematic risk funds previously documented arises due to the superior asset selection ability of managers in strong market states. Incremental allocations by investors arise due to this superior performance and not due to recognition of SRM skill.

We investigate the impact of a firm’s compensation consultant choice on executive compensation by examining shifts in consultant choice following a 2009 US Securities Exchange Commission requirement that firms disclose fees paid to compensation consultants for both consulting and other services. We show that the disclosure rule change acted as a separating device distinguishing firms likely to have used compensation consultants to extract rents from shareholders from firms that were likely to have used consultants to optimally set pay. We conclude that not all multiservice consultants are conflicted while not all specialist consultants are guardians of shareholder value. Our study provides a more nuanced view of the association between compensation consultant choices and executive pay.

We analyze a sample of private firms that go public through an initial public debt offering (IPDO) as an alternative to going public through equity (IPO). Firms that choose the IPDO route are larger, more likely to be backed by a financial sponsor such as a venture capital or private equity firm, and less likely to face information asymmetry than traditional IPO firms. Only a quarter of these firms eventually conduct an IPO, but those who do face lower underpricing than their contemporaneous private peers who do not have public debt at the time of going public., Cambridge Endowment for Research in Finance (CERF)

Academic research on whether social networks influence financial outcomes is still undeveloped. The literature has typically focused on three major questions — whether social networks affect investor behavior, firm behavior, or intermediary behavior. Because the theoretical framework in finance is organized around an accepted set of paradigms, and because data on intermediaries and firms have been publicly available for a long time, the financial economics area has just started using big data in its analysis. This note describes the extant research in this area and outlines how the field is likely to evolve.

The optimal design of executive compensation is one of the primary issues in the area of corporate governance and has been investigated in considerable detail in the academic literature over the past three decades. The underlying assumption behind the design of optimal compensation schemes is that the executives of the firm have more information on the firm’s projects and cash flows than the shareholders. In the presence of symmetric information, since the shareholders can completely distinguish the executive’s effort from bad luck or other extraneous factors, there is little need to motivate the executive beyond a flat salary. In the presence of asymmetric information, the shareholder faces two problems: One, to select the right type of agent (the adverse selection problem) and two, to motivate the agent to work hard once selected (the moral hazard problem). All executive compensation schemes represent trade-offs between these two agency problems. In this survey, in the first section, I start by discussing the theory of executive compensation. Why do firms pay executives? I distinguish two major approaches. The first arises from the theory of optimal compensation contracting and focuses on the composition of pay. It argues that the composition of pay is set to attract good executives (to solve the adverse selection problem) and motivate them to work hard (the moral hazard problem). The second approach focuses on the level of pay. It argues that managers have a considerable degree of power in setting their own wages, and in particular, use their power to extract excessive pay or rents from the shareholders. In the second section, I discuss the evidence on both the composition and level of pay and how it has changed over time, treating each component pay separately. I also discuss the composition of pay in countries around the world and in specific industries. In the third section, I describe who decides pay composition and levels. Finally, in the fourth section, I conclude by examining how the structure of pay has real consequences for firms.

The literature on managerial style posits a linear relation between a CEO's past experiences and firm risk. We show that there is a nonmonotonic relation between the intensity of CEOs’ early-life exposure to fatal disasters and corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs’ disaster experience and corporate policies has real economic consequences on firm riskiness and cost of capital.

We examine the ex ante ability of investors to identify superior mutual fund managers among the investor set likely most able, and with the greatest incentive to do so, their rivals. Identifying actual copycat funds via comparisons of trading in consecutive periods, we find little evidence to suggest that managers are able to detect superior funds. Copycats select funds with high prior performance and investment inflows, and the performance of the target fund reverses following copying initiation. If superior managers exist, our results suggest that the source of skill lies in private information obtained by these managers. These results are consistent with information models indicating that private, but not public, information can be profitable

Over the past two decades, the topics of Environmental, Social, and Corporate Governance (ESG) and Corporate Social Responsibility (CSR) have attracted an increasing amount of interest, reflecting a growing sensitivity of investors and corporations towards environmental, social, and governance issues. This survey offers an overview of the academic literature on ESG/CSR through the lens of investors, institutions, and firms. We first discuss the definitions of ESG and CSR and their relationship to each other. We next describe how ESG is measured and note problems with the measurement of and quality of ESG data and discrepancies between different measures of ESG. We then turn our attention to investors, examining what types of investors invest in ESG and the role of institutional investors in ESG. From the firm’s perspective, we discuss why firms themselves conduct ESG. We also summarize the literature on the impact of ESG on firms: how ESG affects firms’ financing, disclosure and reporting activities, and firm performance. Finally, we describe other consequences of the focus of ESG and CSR on firms and investors.