Tracing negative media attention, this paper investigates the effect of reputational risk on firm value. Decomposing reputational damage into environmental, social and corporate-governance dimensions, it reports that environmental reputational risk has the most significant negative effect on price earnings, i.e., firms exposed to environmental risk are likely to be priced at a discount or charged a higher risk premium when discounting future earnings.

In this article, I review the theoretical and empirical literature on the effects of public and private equity markets on firm behavior, emphasizing the consequences that emerge from disclosure requirements, ownership concentration, and degree of firm standardization. While publicly listed firms benefit from a lower cost of capital, enabling increased focus on commercialization and profitability, they are less suited to pursue long-term risky investments. Privately held firms are better equipped to pursue innovative projects but face a higher cost of capital, which limits their growth. Complementarities between public and private equity markets can mitigate their respective limitations. Innovation in private equity markets supplements commercialization efforts of public firms, and demand for innovation by public firms accelerates entrepreneurial activity in private equity markets. I conclude by discussing directions for future research.

This study provides firm-level evidence on the effect of capital account liberalization on total factor productivity (TFP) growth. We find that a one standard deviation increase in the capital account openness indicator constructed by Fernández et al. (2016) is significantly associated with a 0.18 standard deviation increase in firms’ TFP growth rates. The productivity-enhancing effects are stronger for sectors with higher external finance dependence and capital-skill complementarity, and are persistent five years after liberalization. Moreover, we show that potential transmission mechanisms include improved financing conditions, greater skilled labor utilization, and technology upgrades. Finally, we document heterogeneous effects across firm size and tradability, and threshold effects with respect to the country's institutional quality.

We use granular project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect the quantity and quality of bank lending. We combine the universe of recipient firms under the Improvement of Regional Economic Structures program (GRW) with their local banks during 1998-2019. The modalities of GRW subsidies to firms are determined at the EU level. Therefore, we use it to identify bank outcomes. Banks with relationships to more subsidized firms exhibit higher lending volumes without any significant differences in bank stability. Subsidized firms, in turn, borrow more indicating that banks facilitate regional economic development policies.

Despite widespread criticism, credit ratings continue to be commissioned and paid for by the firms they ought to scrutinize, raising concerns about the reliability of these issuer-paid ratings. We use an experiment to evaluate whether financial reputation concerns can effectively alleviate rating inflation and find that they are only partially sufficient to discipline rating agencies. However, introducing accountability mechanisms into the rating process effectively reduces rating inflation and almost extinguishes it in our model. Our results emphasize that financial reputation and accountability are important but different factors, which combined can effectively alleviate rating inflation and therefore provide a powerful mechanism of control over rating agencies.

The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks in the European Union (EU). Using the staggered BRRD implementation across 15 member states, we identify banks’ capital cost responses and subsequent pass-through to borrowers towards surprise elements due to national transposition details. Average bank capital costs increase heterogeneously across countries with strongest funding cost hikes observed for banks located in GIIPS and non-EMU countries. Only banks in core E(M)U countries that exhibit higher funding costs increase credit spreads for corporate borrowers and contract credit supply. Tighter credit conditions are only passed on to more levered and less profitable firms. On balance, the national implementation of BRRD appears to have strengthened financial system resilience without a pervasive hike in borrowing costs.

The authors provide a comprehensive overview of codetermination, that is, worker representation in firms’ governance and management. The available micro evidence points to zero or small positive effects of codetermination on worker and firm outcomes and leaves room for moderate positive effects on productivity, wages, and job stability. The authors also present new country-level, general-equilibrium event studies of codetermination reforms between the 1960s and 2010s, finding no effects on aggregate economic outcomes or the quality of industrial relations. They offer three explanations for the institution’s limited impact. First, existing codetermination laws convey little authority to workers. Second, countries with codetermination laws have high baseline levels of informal worker voice. Third, codetermination laws may interact with other labor market institutions, such as union representation and collective bargaining. The article closes with a discussion of the implications for recent codetermination proposals in the United States.

This paper investigates whether managers’ personal connections help corporate productivity to recover after a negative economic shock. Leveraging the heterogeneity in the severity of the financial crisis across different sectors, the paper reports that (i) the financial crisis had a negative effect on within-firm productivity, (ii) the effect was long-lasting and persistent, supporting a productivity-hysteresis hypothesis, and (iii) managers’ personal connections allowed corporations to recover from this productivity slowdown. Among the possible mechanisms, we show that connected managers operating in affected sectors foster productivity recovery through higher input cost efficiency and better access to the credit market, as well as more efficient use of labour and capital.

We examine the effect of pay transparency on the gender pay gap and firm outcomes. Using a 2006 legislation change in Denmark that requires firms to provide gender-disaggregated wage statistics, detailed employee-employer administrative data, and difference-in-differences and difference-in-discontinuities designs, we find that the law reduces the gender pay gap, primarily by slowing wage growth for male employees. The gender pay gap declines by 2 percentage points, or 13% relative to the prelegislation mean. Despite the reduction of the overall wage bill, the wage transparency mandate does not affect firm profitability, likely because of the offsetting effect of reduced firm productivity.

The economy is a complex system because market participants do not act independently but adjust their behavior to other agents and to the outcome which emerges from their joint actions (Arthur, 2014). Dependencies among participants can impede policy makers capabilities to influence or steer the course of the economy. Kambhu et al. (2007) argue that to influence developments in financial markets, for instance to prevent crises from spreading, there are only “coarse or indirect options” available for policy makers. Similar to crises which propagate through a complex system, interventions might result in unintended side effects which can also disseminate through the system. Thus, in a complex system, unintended consequences of policy efforts may well be the rule. Policy makers try to ward off or mitigate negative consequences for the economy and society during periods of crisis. For instance, during the Covid crisis large scale support programs for firms in Western economies were set up to avoid bankruptcies. Similarly, during the sovereign debt crisis in the Eurozone, the European Central Bank (ECB) set up large scale asset purchase programs as well as additionally longer-term refinancing operations (LTRO) which provided immediate support to financial market participants’ liquidity positions and thereby prevented a melt-down of the financial system. During these periods, immediate and abundant liquidity supply is of utmost importance. Meanwhile, crisis measures, due to their massive scale and non-specific target group, may entail unknown or unintended side effects for instance on competition among market participants, firms’ investment behavior, or changes in lending strategies and risk taking behavior of banks. Likewise, new regulatory frameworks such as the introduction of new markets can have consequences previously not thought of. For policy makers it is important to know direct effects of policy interventions but also to be aware of the possibility and impact of indirect or unexpected side effects in order to evaluate measures taken and to learn for future design of regulation or intervention.