Would Order‐By‐Order Auctions Be Competitive?
Version of Record online: 5/13/2025 | DOI: 10.1111/jofi.13449
THOMAS ERNST, CHESTER SPATT, JIAN SUN
We model two methods of executing segregated retail orders: brokers' routing, whereby brokers allocate orders using the market maker's overall performance, and order‐by‐order auctions, where market makers bid on individual orders, a recent U.S. Securities and Exchange Commission proposal. Order‐by‐order auctions improve allocative efficiency, but face a winner's curse reducing retail investor welfare, particularly when liquidity is limited. Additional market participants competing for retail orders fail to improve total efficiency and investor welfare when entrants possess information superior to incumbent wholesalers. Our results hold when new entrants are less informed or the information structure differs. We also examine the cross‐subsidization of brokers' routing.
Women in Charge: Evidence from Hospitals
Version of Record online: 4/26/2025 | DOI: 10.1111/jofi.13455
KATHARINA LEWELLEN
The paper examines the decision‐making, compensation, and turnover of female CEOs in U.S. hospitals. Contrary to the literature on lower‐ranked executives and directors in public firms, there is no evidence that gender differences in preferences for risk or altruism affect decision‐making of hospital CEOs: corporate policies do not shift when women take (or leave) office, and male and female CEOs respond similarly to a major financial shock. However, female CEOs earn lower salaries, face flatter pay‐for‐performance incentives, and exhibit greater turnover after poor performance. Hospital boards behave as though they perceive female CEOs as less productive.
Dynamic Banking and the Value of Deposits
Version of Record online: 4/23/2025 | DOI: 10.1111/jofi.13454
PATRICK BOLTON, YE LI, NENG WANG, JINQIANG YANG
We propose a theory of banking in which banks cannot perfectly control deposit flows. Facing uninsurable loan and deposit shocks, banks dynamically manage lending, wholesale funding, deposits, and equity. Deposits create value by lowering funding costs. However, when the bank is undercapitalized and at risk of breaching leverage requirements, the marginal value of deposits can turn negative as deposit inflows, by raising leverage, increase the likelihood of costly equity issuance. Banks' inability to fully control leverage distinguishes them from nondepository intermediaries. Our model suggests a reevaluation of leverage regulations and offers new perspectives on banking in a low‐interest‐rate environment.
Is the United States a Lucky Survivor? A Hierarchical Bayesian Approach
Version of Record online: 4/16/2025 | DOI: 10.1111/jofi.13452
JULES VAN BINSBERGEN, SOPHIA HUA, JONAS PEETERS, JESSICA WACHTER
Using international data, we quantify the magnitude of survivorship bias in U.S. equity market performance, finding that it explains about one‐third of the equity risk premium in the past century. We model the subjective crash belief of an investor who infers the crash risk in the United States by cross‐learning from other countries. The U.S. crash probability shows a persistent and widening divergence from the implied global average. We attribute the upward bias in the measured equity premium to crashes that did not occur in‐sample and to shocks to valuations resulting from learning about the probability.
Are CEOs Rewarded for Luck? Evidence from Corporate Tax Windfalls
Version of Record online: 4/9/2025 | DOI: 10.1111/jofi.13448
MARTINA ANDREANI, ATIF ELLAHIE, LAKSHMANAN SHIVAKUMAR
Focusing on the one‐off tax gains and losses (i.e., windfalls) associated with the 2017 Tax Cuts and Jobs Act, we reexamine whether CEOs are rewarded for luck. We find that weakly monitored CEOs are compensated for the windfall tax gains but not penalized for the corresponding tax losses. No such pattern is observed for CEOs facing greater pay scrutiny. The pay for windfalls cannot be explained as rewards for CEOs’ efforts, talents, political activities, or as firms sharing their tax gains with all executives. The results are more consistent with rent extraction by CEOs facing weak pay scrutiny.
Venture Capital and Startup Agglomeration
Version of Record online: 4//2025 | DOI: 10.1111/jofi.13451
JUN CHEN, MICHAEL EWENS
This paper examines venture capital's (VC) role in the geographic clustering of high‐growth startups. We exploit a rule change that disproportionately impacted U.S. regions that historically lacked VC financing via a restriction of banks to invest in the asset class. A one‐standard‐deviation increase in VCs' exposure to the rule led to a 20% decline in fund size and a 10% decrease in the likelihood of raising a follow‐on fund. Startups were not wholly cushioned: financing and valuations declined. Startups also moved out of impacted states after the rule change, likely exacerbating existing geographic disparity in entrepreneurship.
Creating Controversy in Proxy Voting Advice
Version of Record online: 3/16/2025 | DOI: 10.1111/jofi.13438
ANDREY MALENKO, NADYA MALENKO, CHESTER SPATT
We analyze how a profit‐maximizing proxy advisor designs vote recommendations and research reports. The advisor benefits from producing informative, unbiased reports, but only partially informative recommendations, biased against the a priori likely alternative. Such recommendations induce close votes, increasing controversy and thereby the relevance and value of proxy advice. Our results suggest shifting from an exclusive emphasis on recommendations, highlighting the importance of both reports and recommendations in proxy advisors' information provision. They rationalize the one‐size‐fits‐all approach and help reinterpret empirical patterns of voting behavior, suggesting that proxy advisors' recommendations may not be a suitable benchmark for evaluating shareholders' votes.