This paper examines the relation between corporate social responsibility (CSR) performance and tax–motivated income shifting. Using a profit–shifting measure estimated from multinational enterprises (MNEs) data, we find that parent firms with higher CSR scores shift significantly more profits to their low-tax foreign subsidiaries. Overall, our evidence suggests that MNEs engaging in CSR activities acquire legitimacy and moral capital that temper negative responses by stakeholders and thus have greater scope and chance to engage in unethical profit-shifting activities, consistent with the legitimacy theory.

We test whether organizational risk management matters to bondholders of U.S. bank holding companies (BHCs), and find that debt financing costs increase when the BHC has lower-quality risk management. Consistent with bailouts giving rise to moral hazard among bank creditors, we find that bondholders put less emphasis on risk management in large institutions for which bailouts are expected ex-ante. BHCs that maintained strong risk management before the financial crisis had lower debt costs during and after the crisis, compared to other banks. Overall, quality risk management can curtail risk exposures at BHCs and result in lower debt costs.

Die „kleine“ Bankenkrise in den USA scheint vorbeizusein, und auch die Credit-Suisse-Krise ist beigelegt. Es stellt sich die Frage, was wir aus der Pleite der Silicon Valley Bank lernen können, um eine ähnliche Situation in Deutschland oder Europa zu vermeiden.

We develop a general approach for stress testing correlations of financial asset portfolios. The correlation matrix of asset returns is specified in a parametric form, where correlations are represented as a function of risk factors, such as country and industry factors. A sparse factor structure linking assets and risk factors is built using Bayesian variable selection methods. Regular calibration yields a joint distribution of economically meaningful stress scenarios of the factors. As such, the method also lends itself as a reverse stress testing framework: using the Mahalanobis distance or Highest Density Regions (HDR) on the joint risk factor distribution allows to infer worst-case correlation scenarios. We give examples of stress tests on a large portfolio of European and North American stocks.

Career-concerned analysts are averse to firm risk. Not only does higher firm risk require more effort to analyze the firm, thus constraining analysts' ability to earn more remuneration through covering more firms, but it also jeopardizes their research quality and career advancement. As such, career concerns incentivize analysts to pressure firms to undertake risk-management activities, thus leading to a lower cost of debt. Consistent with our hypothesis, we find a negative association between analyst career concerns and bank loan spreads. In addition, our mediation analysis suggests that this association is achieved through the channel of reducing firm risk. Additional tests suggest that the effect of analyst career concerns on loan spreads is more pronounced for firms with higher analyst coverage. Our study is the first to identify the demand for risk management as a key channel through which analysts help reduce the cost of debt.

Der Boom auf dem US-amerikanischen Eigenheimmarkt in den frühen 2000er Jahren führte zur schwersten Finanzkrise der vergangenen Jahrzehnte. Wissenschaftler haben unterschiedliche Faktoren dokumentiert, die zum rasanten Anstieg der Immobilienpreise beigetragen haben. Kaum beleuchtet wurde bisher die Rolle der US-Wohnungspolitik, insbesondere die Förderung des privaten Wohneigentums durch den Community Reinvestment Act (CRA). Der vorliegende Beitrag untersucht die Geschichte dieses Bundesgesetzes und seine Auswirkungen auf den Markt für Hypotheken und Wohneigentum seit den späten 1990er Jahren. Infolge des CRA wurden seit 1998 deutlich mehr Hypotheken aufgenommen. Der Anstieg der Immobilienpreise in der Boomphase beruhte zum Teil auf diesem politisch induzierten Anstieg der Hypothekenvergabe. Der CRA ermöglichte es auch Kreditnehmern mit geringerer Kreditwürdigkeit, eine Hypothek aufzunehmen – in der Folge kam es zu vermehrten Zahlungsausfällen. Der CRA hat also zum Boom-Bust-Zyklus auf dem amerikanischen Immobilienmarkt beigetragen. Er kann als Beispiel einer wohlmeinenden Politik gelten, die unbeabsichtigt wohlfahrtsmindernde Wirkungen zeitigt.

We use Hurricane Katrina’s damage to the Mississippi coast in 2005 as a natural experiment to study business survival in the aftermath of a capital-destruction shock. We find very low survival rates for businesses that incurred physical damage, particularly for small firms and less-productive establishments. Conditional on survival, larger and more-productive businesses that rebuilt their operations hired more workers than their smaller and less-productive counterparts. Auxiliary evidence from the Survey of Business Owners suggests that the differential size effect is tied to the presence of financial constraints, pointing to a socially inefficient level of exits and to distortions of allocative efficiency in response to this negative shock. Over time, the size advantage disappeared and market mechanisms seem to prevail.

There is scant evidence on how risk-taking incentives impact specific firm risks. This has implications for board oversight of managerial risk taking, firms' development of comparative advantage in taking particular risks, and compensation design. We examine this question for exchange rate risk. Using multiple identification strategies, we find that vega increases exchange rate exposure for purely domestic and globally engaged firms. Vega's impact increases with international operations, declines post-SOX, and is robust to firm-level governance. Our results suggest that evidence that exposure reduces firm value can be viewed, in part, as a wealth transfer from shareholders and debt-holders to managers.