Risk‐Free Rates and Convenience Yields around the World
Version of Record online: 5/11/2026 | DOI: 10.1111/jofi.70045
William Diamond, Peter Van Tassel
We infer risk‐free rates from index option prices to estimate safe asset convenience yields in 10 G11 currencies. Countries' convenience yields increase with the level of their interest rates, with U.S. convenience yields fifth largest. During financial crises, convenience yields grow, but the difference between United States and foreign convenience yields generally does not. Covered interest parity (CIP) deviations using our option‐implied rates are a similar size between the United States and each other country. A model in which convenience yields depend on domestic financial intermediaries, but CIP deviations reflect the funding costs of international arbitrageurs financed with dollar‐denominated debt, explains these results.
The Equilibrium Effects of Eviction Policies
Version of Record online: 5/11/2026 | DOI: 10.1111/jofi.70046
BOAZ ABRAMSON
I propose a dynamic equilibrium model of rental markets that endogenously gives rise to defaults on rents and evictions. In the model, eviction protections make it harder to evict delinquent renters, but higher default costs to landlords increase equilibrium rents. I quantify the model using micro data on evictions, rents, and homelessness. I find that stronger eviction protections exacerbate housing insecurity and lower welfare. The key empirical driver of this result is the persistent nature of risk underlying rent delinquencies. Rental assistance reduces housing insecurity and improves welfare because it lowers the likelihood that renters default ex ante.
Version of Record online: 5/8/2026 | DOI: 10.1111/jofi.70042
JOSEPH ENGELBERG, JORGE GUZMAN, RUNJING LU, WILLIAM MULLINS
Republicans start more firms than Democrats. In a sample of 40 million party‐identified Americans between 2005 and 2017, we find that 5.5% of Republicans and 3.7% of Democrats become entrepreneurs. This partisan entrepreneurship gap is time‐varying—Republicans increase their relative entrepreneurship during Republican administrations and decrease it during Democratic administrations, amounting to a partisan reallocation of 170,000 new firms over our 13‐year sample. We find sharp changes in partisan entrepreneurship around the elections of President Obama and President Trump, with the strongest effects among the most politically active partisans: those that donate and vote.
Learning in the Limit: Income Inference from Credit Extensions
Version of Record online: 5/7/2026 | DOI: 10.1111/jofi.70040
XIAO YIN
Combining a randomized controlled trial with administrative and survey data, this paper shows that credit limit extensions significantly increase total spending and income expectations. By controlling for changes in personal income expectations, the spending response to credit limit extensions weakens by approximately 30%. For financially unconstrained consumers, expectation changes account for around two‐thirds of the spending responses to limit extensions. These findings are consistent with consumers inferring future income from credit supply.
The Effect of Advisors' Incentives on Clients' Investments
Version of Record online: 4/27/2026 | DOI: 10.1111/jofi.70041
DIEGO BATTISTON, JORDI BLANES I VIDAL, RAFAEL HORTALA‐VALLVE, DONG LOU
We use granular data from an investment firm and a credible identification strategy to estimate the effect of financial advisors' incentives on client investments. Exploiting a natural experiment triggered by the 2018 implementation of Markets in Financial Instruments Directive II (MiFID II), we find that clients' investments respond strongly to changes in advisor incentives. Advisors react through multiple mechanisms: (i) inducing existing clients to bring in new money, (ii) channeling it to high‐incentive funds, and (iii) attracting more new clients. We also find that the MiFID II reform generated more balanced incentives, which translated into higher portfolio efficiency through lower average fees and stronger portfolio diversification.
Funding Black High‐Growth Startups
Version of Record online: 4/9/2026 | DOI: 10.1111/jofi.70039
LISA D. COOK, MATT MARX, EMMANUEL YIMFOR
We classify the race of over 160,000 U.S. founders and investors and study the venture capital (VC) funding gap for Black entrepreneurs. Only 3.1% of VC‐funded startups are Black‐owned, and they raise half as much VC funding as others. We attribute much of this gap to Black founders having fewer traditional success markers, like patents or entrepreneurial experience. This disparity also affects matching: Black VC partners invest more in Black founders, and these investments have higher successful exit rates. We attribute this outperformance to lower information asymmetries due to network overlap and “screening discrimination,” whereby Black VCs better differentiate among Black founders.
Version of Record online: 4/7/2026 | DOI: 10.1111/jofi.70034
ITAMAR DRECHSLER, ALEXI SAVOV, PHILIPP SCHNABL, OLIVIER WANG
The deposit franchise is valuable because banks pay below‐market deposit rates. However, if depositors leave, its value vanishes. This can trigger runs by uninsured depositors, even if banks hold fully liquid assets. Because the franchise value increases with interest rates, runs are more harmful, and hence likelier, when rates are high. Banks can deter runs by shortening asset duration, but this risks insolvency if rates fall. Avoiding both runs and insolvency requires capital covering the potential loss of the uninsured deposit franchise. We estimate deposit franchise values and use them to identify vulnerable banks during the 2023 regional bank crisis.
The (Missing) Relation between Acquisition Announcement Returns and Value Creation
Version of Record online: 4/7/2026 | DOI: 10.1111/jofi.70038
ITZHAK BEN‐DAVID, UTPAL BHATTACHARYA, RUIDI HUANG, STACEY JACOBSEN
Cumulative abnormal returns (CARs) computed around acquisition announcements are widely considered to be market‐based assessments of expected value creation. We show, however, that announcement returns do not correlate with commonly used and new measures of ex post outcomes. A simple characteristics‐based model using standard information known at the announcement date can predict these outcomes reasonably well, yet CAR even fails to capture the predictions from this model. Evidence suggests that information about the stand‐alone acquirer dominates CAR, making it virtually impossible to extract deal‐related information. We conclude that CAR is an unreliable measure of expected value creation.
Size, Returns, and Value: Do Private Equity Firms Allocate Capital According to Manager Skill?
Version of Record online: 4/3/2026 | DOI: 10.1111/jofi.70036
REINER BRAUN, NILS DORAU, TIM JENKINSON, DANIEL URBAN
Using a novel data set linking private equity (PE) deals to individual managers, we document evidence of manager skill in terms of generating net present value (NPV), a performance measure that captures both scale and returns. PE firms have strong economic incentives to raise larger funds and execute larger deals. While relative returns decline with scale, NPV persists and even increases. Skilled managers are entrusted with more capital and achieve better career outcomes, and approximately 40% of NPV is attributable to internal capital allocation decisions. These findings highlight the role of PE firms in creating value through performance‐based capital deployment.
Leader‐Follower Dynamics in Shareholder Activism
Version of Record online: 4/2/2026 | DOI: 10.1111/jofi.70033
DORUK CETEMEN, GONZALO CISTERNAS, AARON KOLB, S. VISWANATHAN
We propose a theory of coordination and influence among blockholders. Privately informed activists time their trades in sequence to lower acquisition costs, prompting a strategic use of order flows: leader activists create trading gains for their followers, ultimately influencing their willingness to bear greater value‐enhancing intervention costs. Through this channel, informed trades can exhibit predictability, in sharp contrast with Kyle (1985,
Corporate M&As and Labor Market Concentration: Efficiency Gains or Power Grabs?
Version of Record online: 4/1/2026 | DOI: 10.1111/jofi.70035
DAVID CICERO, MO SHEN, JAIDEEP SHENOY
Mergers of firms that share labor markets increase labor market concentration which can lead to labor efficiency gains and/or create labor market power for the merged firms. Using a novel measure based on establishment‐level employment data, we find that merger‐induced increases in labor market concentration explain value creation in a sample of completed U.S. public firm mergers from 1991 to 2016. Analysis of the stock market reactions of rival, supplier, and customer firms, as well as firm‐ and establishment‐level real effects in the merging firms, supports a labor efficiency explanation of these merger gains.
Version of Record online: 3/30/2026 | DOI: 10.1111/jofi.70037
DORON LEVIT, NADYA MALENKO, ERNST MAUG
We develop a unified theory of blockholder governance and the voting premium in a setting without takeovers or controlling shareholders. A voting premium emerges when a minority blockholder can influence shareholder composition by accumulating votes and buying shares from dissenting shareholders. Our theory reconciles conflicting empirical findings by showing that standard measures of the voting premium often misrepresent the true value of voting rights, increased conflicts between the blockholder and small shareholders do not necessarily raise the voting premium, and the voting premium can even turn negative when small shareholders free‐ride on the blockholder's trades.
Version of Record online: 3/29/2026 | DOI: 10.1111/jofi.70032
KRISTIAN BLICKLE, CECILIA PARLATORE, ANTHONY SAUNDERS
Using supervisory data on the loan portfolios of large U.S. banks, we document that these banks specialize by concentrating their lending disproportionately in a few industries. This specialization is consistent with banks having industry‐specific knowledge, reflected in reduced risk of loan defaults, lower aggregate charge‐offs, and higher propensity to lend to opaque firms in the preferred industry. Banks attract high‐quality borrowers by offering generous loan terms in their specialized industry, especially to borrowers with alternative options. Banks focus on their preferred industry in times of instability and relatively lower Tier 1 capital as well as after surges in deposits.
Consumer Choice and Corporate Bankruptcy
Version of Record online: 3/23/2026 | DOI: 10.1111/jofi.70030
SAMUEL ANTILL, MEGAN HUNTER
We estimate the indirect costs of corporate bankruptcy associated with lost customers. In incentivized experiments, randomly informing consumers about a firm's Chapter 11 reorganization lowers their willingness to pay for the firm's products by 17% to 28%. Consumers worry that bankruptcy could reduce product quality or prevent future interactions with the bankrupt firm. On average, 38% of consumers are aware of major bankruptcies. Using our experiments to estimate a structural model, we show that these indirect costs of bankruptcy amount to 12% to 15% of a firm's value. We show that these costs are unlikely to arise before bankruptcy.
Pricing of Climate Risk Insurance: Regulation and Cross‐Subsidies
Version of Record online: 3/16/2026 | DOI: 10.1111/jofi.70029
SANGMIN S. OH, ISHITA SEN, ANA‐MARIA TENEKEDJIEVA
Homeowners insurance is central to managing the rising losses from climate‐related disasters. We show that insurance premiums are subject to starkly different regulations across states, creating persistent cross‐subsidies and price distortions. We employ states' regulatory rules in an instrumental variable estimation and a border discontinuity design to show insurers do not adjust rates in highly regulated states and compensate by raising rates in less regulated states. Rates and risks diverge in the long run, distorting cross‐state risk‐sharing and increasing insurer exits from highly regulated states. We argue these patterns stem from the interactions between rate regulation and insurers' financing constraints.
Competition Enforcement and Accounting for Intangible Capital
Version of Record online: 2/6/2026 | DOI: 10.1111/jofi.70028
JOHN D. KEPLER, CHARLES G. MCCLURE, CHRISTOPHER R. STEWART
Antitrust laws mandate review of mergers and acquisitions (M&As) that exceed an asset size threshold based on accounting standards that exclude most intangible capital. We show that this exclusion leads to thousands of intangible‐intensive M&As being nonreportable. Acquirers in nonreportable deals achieve higher equity values and price markups, especially when consolidating product markets. Furthermore, nonreportable pharmaceutical deals are three times more likely to involve overlapping drug projects, which are subsequently 40% more likely to be terminated. Our results suggest that the growth of intangible assets may exacerbate market power through nonreportable consolidation of the sectors most concerning for consumers.
Model Ambiguity versus Model Misspecification in Dynamic Portfolio Choice
Version of Record online: 1/21/2026 | DOI: 10.1111/jofi.70027
PASCAL J. MAENHOUT, HAO XING, ANNE G. BALTER
We study aversion to model ambiguity and misspecification in dynamic portfolio choice. Risk‐averse investors (relative risk aversion ) fear return persistence, while risk‐tolerant investors () fear mean reversion, when confronting model misspecification concerns of identically and independently distributed (IID) returns. The intuition is that risk‐averse investors, who want to hedge intertemporally, endogenously fear return persistence, which precludes hedging. A log investor is myopic and unaffected by model misspecification, therefore only worrying about model ambiguity. Our model can generate belief scarring, nonparticipation in equity markets, and extrapolative return expectations. Extending beyond IID returns, we study model misspecification for a mean‐reverting Sharpe ratio.