This paper documents evidence that financial constraints increase firms' toxic emissions given that firms actively trade off abatement costs against potential legal liabilities. Exploring three quasi-natural experiments in which firms' financial resources are likely exogenously impacted, we find that relaxing financial constraints reduces U.S. public firms' toxic releases. The effects of financial constraints on toxic releases are amplified when regulatory enforcement weakens and when myopic managers emphasize short-term earnings performance. Overall, our evidence highlights the real effects of financial constraints in the form of environmental pollution, which is a costly negative externality imposed on society and public health.

Financial Constraints and Corporate Environmental Policies

This paper examines whether reducing a debt overhang improves borrowers' operating performance using a sample of distressed and highly overleveraged Austrian ski hotels undergoing debt restructurings The vast majority of the ski hotels experience substantial debt forgiveness, resulting in reductions in leverage of about 23% on average These reductions in leverage, in turn, bring about statistically and economically significant improvements in operating performance of about 28% on average Changes in leverage during the debt restructurings are instrumented with the level of snow in the years prior to the debt restructurings The effect of snow is both statistically and economically significant: a one-standard deviation increase in snow is associated with a reduction in leverage of about 23%

Snow and Leverage

Does common ownership really increase firm coordination

This paper empirically shows that the cost of bank debt is systematically higher for firms that operate in competitive product markets. Using various proxies for product market competition, and reductions of import tariff rates to capture exogenous changes to a firm's competitive environment, I find that competition has a significantly positive effect on the cost of bank debt. Moreover, the analysis reveals that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms, and in illiquid industries. Overall, these findings suggest that banks price financial contracts by taking into account the risk that arises from product market competition.

Competition and the cost of debt

https://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=1018&context=finance_pubs

Stock markets, credit markets, and technology-led growth

Trading pressure following mutual fund outflows generates a potentially powerful quasi-experimental setting in which stock price variation is orthogonal to firm characteristics. To exclude information-based trading, strategies using this variation incorporate an assumption that managers sell firms in proportion to portfolio weights. I show that this assumption drives selection bias in price fluctuations. It inflates price impacts for poorly performing, illiquid firms with lower growth – firms that managers systematically avoid selling. Results drawn using these prices are twice the magnitude of unbiased results. Extensive selection bias precludes potential fixes. Numerous recent studies exploiting this variation should be re-evaluated.

Selection Bias in Mutual Fund Flow-Induced Fire Sales: Causes and Consequences

We document substantial variation in the effect of state-level bank branching deregulation in the United States on economic growth. We examine the sources of this variation by testing multiple channels that may link deregulation and economic growth. Using a matching method that utilizes synthetic counterfactual states, we find support for the hypothesis that economic growth was associated with states where deregulation solved a capital immobility or “dammed” credit problem. We do not find support for other channels, which posit that banks became more efficient, financed more innovative businesses, or learned by observing prior deregulations.

/pdf/credit-be-dammed-the-impact-of-banking-deregulation-on-3jd12w59xx.pdf

Credit Be Dammed: The Impact of Banking Deregulation on Economic Growth

Financial integration and credit democratization: Linking banking deregulation to economic growth

We investigate the economic consequences of access to banking institutions. To do so, we examine the legal marijuana industry, where only half of businesses have access to cash management services from a financial institution. We quantify the benefits of cash management in terms of differences in wholesale prices, retail prices, sales, and ultimately profitability using administrative and survey data. Firms with cash management receive a 10\% discount on wholesale prices, charge 10\% higher retail prices, and sell more product per transaction for the same product. Through these channels, we find that banking services provide a large economic value to firms.

Half Banked: The Economic Impact of Cash Management in the Marijuana Industry

A large body of recent empirical work uses the Herfindahl index to proxy for industry-level product market competition. However, researchers use a variety of data and methods to construct the index. This paper measures the ability of the Herfindahl index to reflect changes in product market competition and introduces a new meaure of product market competition, the Boone indicator. I examine the effect of an exogenous shock to competition (the US-Canada Free Trade Agreement) on the Herfindahl index. The Herfindahl index does not respond to the reduction in import and export tariffs, even among industries that are most affected by the shocks. In contrast, the Boone indicator reflects changes in competition. In industries that receive shocks to both import and export tariffs, the Boone indicator increases, confirming that these industries become more competitive following the tariff shock. These findings question the validity of the Herfindahl index to proxy for industry competition and point to the Boone indicator as a viable alternative.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2409801_code1889780.pdf?abstractid=2367374&mirid=1&type=2

Elizabeth Berger

Papers

Selection Bias in Mutual Fund Flow-Induced Fire Sales: Causes and Consequences

Credit Be Dammed: The Impact of Banking Deregulation on Economic Growth

Financial integration and credit democratization: Linking banking deregulation to economic growth

Half Banked: The Economic Impact of Cash Management in the Marijuana Industry

Survival of the Fittest: An Assessment of the Herfindahl Index and Product Market Competition