We examine whether insiders can exploit public information to increase their trading profitability. By exploiting, as a quasi-natural experiment, the Bipartisan Infrastructure Law (BIL), announced in the U.S. in March 2021 and implemented in November 2021, we provide evidence that insiders earn higher profits when government investment plans are announced. The increased insider trading profitability is more pronounced in firms with high information asymmetry, high growth, in opportunistic trades, as well as for top executives and persistently profitable insiders. Overall, our evidence supports the attentive hypothesis that insiders earn profits by trading on public information relevant to their firms.

We examine the association between CEO birthplace proximity and financial misconduct. We find that CEOs managing firms near their birthplaces (home CEOs) are associated with less financial misconduct compared to other CEOs. This association is not attributable to differences in corporate governance. The relationship strengthens in areas with a strong local investment presence and greater religious commitment as well as among CEOs with longer tenures in their home state. Our findings are robust to addressing potential selection and omitted variable biases as well as to conducting multiple robustness tests, including analyses of involuntary CEO changes and headquarters relocations. We also find a similar association for CFOs, with firms employing home CFOs exhibiting less financial misconduct.

We examine the relation between home CEOs and corporate social responsibility (CSR). Our analysis shows home CEOs are associated with higher CSR engagement and increased firm value. These firms exhibit higher asset turnover, lower cost of equity, improved productivity, sales, and profit margins. Home CEOs focus more on community, environmental, and employee-related CSR, and are linked to reduced carbon emissions. This relationship is stronger in firms with higher local business concentration and investor monitoring. Firms led by home CEOs earn higher returns during recent crises. Our results suggest the value increase is not primarily due to agency effects and remain robust to endogeneity concerns. The study indicates a CEO's community connection may influence CSR effectiveness, suggesting that mere CSR engagement may not suffice to boost trust and value. These results highlight the potential importance of local ties in corporate leadership and CSR strategy.

Using terrorist attacks as an exogenous shock to uncertainty, we provide evidence that firms located near terrorism-stricken areas are less likely takeover targets for two years after the attack and receive lower acquisition premiums. The latter finding is reflected in lower target firm abnormal returns and synergy gains. Additionally, in terrorism-stricken areas, target firms are associated with a lower share of synergies, withdrawn deals rise, and acquirers are more likely to get involved in acquisitions of target firms located in different metropolitan statistical areas than their own or acquire faraway target firms. We attribute our results to the real options theory, which predicts that high uncertainty increases the value of the option to delay investments. Additionally, we show that the impact on target firm human capital and acquirer CEO uncertainty and fear are potential sources of terrorism-induced uncertainty with the former source prevailing over the latter. This paper was accepted by Gustavo Manso, finance. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4506 .

As opposed to developed markets, financing constraints are a more pressing issue among Small and Medium-Sized Enterprises (SMEs) in emerging markets. We explore the severity of financing constraints on SMEs, and examine the role of supply chain finance (SCF) in alleviating those constraints, with the focus on a large emerging market: China. Using the panel data of SMEs listed on Shenzhen Stock Exchange from 2014 to 2020, we employ robust estimations of panel-corrected standard errors (PCSEs) and robust fixed-effects methods to analyze the issue. Our cash–cash-flow sensitivity model points out that listed SMEs in China show significant cash–cash-flow sensitivity, and financing constraints are prevalent. We document that the development of SCF has a mitigation effect on the financing constraints on the SMEs. Our robustness test with Yohai’s MM-estimator is also supportive of the main finding. Our study indicates the importance of supply chain finance development in alleviating the financing constraints on SMEs and, subsequently, supporting their sustainability journey. Overall, our findings have important policy implications for the stakeholders involved in emerging markets, and there are lessons to be learned from the Chinese experience. There is still much to be explored in the nexus of SCF and the financing difficulties of SMEs in China at present, with much of the extant literature concentrating only on specific financing mechanisms. Thus, our study fills the gap by providing a broad and comprehensive analysis of the issue.

We investigate the impact of deadly terrorist attacks on inventor productivity and mobility in the U.S. During the five-year window after such events, nearby firms generate fewer and less impactful inventions. Moreover, their inventors typically exhibit a post-attack decline in their patent production, unless they move to a distant company (which some tend to do after an attack). Firms' financial constraints and inventor talent appear to provide channels underlying our productivity and mobility findings, respectively. These results provide novel insights about the impact of shocks that distort the invention process and promote the mobility and reallocation of inventors among firms.

Focusing on CEOs’ ethnic cultural identity (ECI), this study investigates whether CEO-specific cultural values affect cross-border acquisitions. Regardless of the immigration time of CEOs’ ancestors to the US, acquirers are more likely to bid for a target firm in their CEOs’ ancestral country of origin. The CEO ECI also increases the probability of completed deals, revealing a matching preference when acquirer’s CEO ethnic cultural identity and target firm both originate from the same country. Additionally, it does not affect acquirer’s announcement stock returns. Collectively, these results support an ethnic cultural homophily channel and reject information advantage or agency costs explanations.

This study extends our understanding of CEO inside debt compensation under an agency problem perspective by considering the impact of a behavioural trait, namely CEO overconfidence. Using a sample of US firms in Standard & Poor's ExecuComp for the period 2006-2019, we find that overconfident CEOs exhibit greater inside debt incentives (i.e. incentives arising from defined-benefit pensions and deferred compensation). This relationship is more pronounced among firms with higher CEO overconfidence-induced agency cost of debt (e.g. financially unconstrained firms) managed by CEOs who are less able to align compensation with their own preferences (e.g. less powerful CEOs). The results are robust to endogeneity, self-selection concerns and alternative explanations. We contribute to the inside compensation literature that deals with agency problems under overconfident CEOs, and optimal contracting and managerial power theories.

Using elections that reveal changes in countries' leniency on the left-right political spectrum, we examine whether societal sentiment regarding income inequality affects executive compensation. We find that elections that bring left-leaning (pro-equality) political leaders to power are associated with significantly lower CEO pay and this impact begins in the year of such elections, not before. We further show that a rise in pro-equality sentiment restrains powerful CEOs from extracting rents. However, such sentiment also imposes value-damaging limits on incentives of senior executives in a given firm or industry. Our results are robust to a host of alternative measures and specifications.

We examine the effect of CEO personal reputational capital on financial misconduct. We find thathome CEOs (defined as those who manage firms located within 100 miles of their birthplaces) areassociated with significantly less misconduct than firms with non-home CEOs. However, homeCEOs also appear to rationally calculate the effect of corporate events on personal reputation.When their firms are financially distressed, home CEOs do not act differently from non-homeCEOs in the levels of firm misconduct at their firms, perhaps because the catastrophic reputationaldamage of bankruptcy is higher than the reputational costs of engaging in financial misconduct.

Using two independent exogenous shocks, we investigate whether the opioid epidemic affects labor and innovation even when personal addiction is not the main driver. Exploiting a setting of corporate innovation where production is mostly generated by white-collar individuals - unlikely addicts - we first find that county-level increases in opioid abuse cause declines in innovation. Second, legislations limiting opioid prescriptions lead to increases in innovation. A plausible channel is that star-young inventors relocate to counties that suffer less from the epidemic. Finally, the opioid epidemic is more detrimental for firms when employees’ input to innovation and firm growth are important.

Executive Compensation and Deployment of Corporate Resources: Evidence from Working Capital

There is a curvilinear relation between credit ratings and acquisitions. Non-investment grade firms make more acquisitions as their ratings improve, consistent with the relaxation of financial constraints. However, this pattern reverses for investment grade firms, supporting the view that such firms want to preserve their rating and are concerned about acquisition-related downgrades. Abnormal returns first decrease and then increase as ratings improve. In support of these findings, acquisitions have a negative impact on future ratings only for highly-rated firms. These results indicate that the level of a firm's credit rating has a significant impact on the acquisition process.

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This study explores the impact of joint corporate asset restructuring decisions, where firms sell an asset in order to fund a subsequent acquisition (selling-to-buy). We find that firms with asset sales are associated with increased acquisition probability. The effect is more pronounced for financially constrained firms. We also show that, in addition to the established improved firm efficiency from focus-increasing asset sales, financially constrained firms obtain the necessary funds to conduct focus-increasing acquisitions, improving further their efficiency. This translates into both higher long-run operating performance and stock abnormal returns at the asset sale announcement.

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