Version of Record online: 8/27/2025 | DOI: 10.1111/jofi.13486
DANIEL L. GREENWALD, JOHN KRAINER, PASCAL PAUL
Aggregate U.S. bank lending to firms expanded following the outbreak of COVID‐19. Using loan‐level supervisory data, we show that this expansion was driven by draws on credit lines by large firms. Banks that experienced larger credit line drawdowns restricted term lending more, crowding out credit to smaller firms, which reacted by reducing investment. A structural model calibrated to match our empirical results shows that while credit lines increase total bank credit in bad times, they redistribute credit from firms with high propensities to invest to firms with low propensities to invest, exacerbating the decrease in aggregate investment.
The Propagation of Cyberattacks through the Financial System: Evidence from an Actual Event
Version of Record online: 8/27/2025 | DOI: 10.1111/jofi.13475
ANTONIS KOTIDIS, STACEY L. SCHREFT
This article quantifies the effects of a multiday cyberattack that forced offline a technology service provider (TSP) to the banking sector. The attack impaired customers’ ability to send payments through the TSP, but the business continuity plans of banks and the TSP reduced the effect by more than half. Large banks performed better. Through contagion, banks not directly exposed to the attack experienced a liquidity shortfall, causing them to borrow funds or tap reserves. The ability to send payments after hours helped avoid further contagion. These results highlight the importance of preparedness by the private and official sector for cyberattacks.
Over‐the‐Counter Markets for Nonstandardized Assets
Version of Record online: 8/26/2025 | DOI: 10.1111/jofi.13483
YOSHIO NOZAWA, ANTON TSOY
We study a search and bargaining model of over‐the‐counter markets for nonstandardized assets of heterogeneous quality. Once matched, investors privately learn their values positively correlated with asset quality. Bargaining results in delay that is hump‐shaped in quality and U‐shaped in asset turnover. We document these patterns in commercial real estate and corporate bonds markets. Extreme qualities are little affected by changes in asset standardization, while intermediate qualities are more susceptible. For nonstandardized assets, opacity ensures active trading of all assets, which explains why their trading is decentralized and suggests that trade centralization should come with greater standardization.
Pockets of Predictability: A Replication
Version of Record online: 8/25/2025 | DOI: 10.1111/jofi.13484
NUSRET CAKICI, CHRISTIAN FIEBERG, TOBIAS NEUMAIER, THORSTEN PODDIG, ADAM ZAREMBA
Farmer, Schmidt, and Timmermann (FST) document time‐variation in market return predictability, identifying “pockets” of significant predictability through kernel regressions. However, our analysis reveals a critical discrepancy between the method outlined by FST and the code actually implemented. Instead of using a one‐sided kernel, which guarantees out‐of‐sample forecasts, they perform in‐sample estimation with a two‐sided kernel. As a result, future information leaks into the forecasting model, undermining its reliability. Rectifying this error qualitatively alters the findings, invalidating most conclusions of the FST study. Thus, attempts to exploit such “pockets”—should they exist—offer little help in forecasting market returns.
Thirty Years of Change: The Evolution of Classified Boards
Version of Record online: 8/22/2025 | DOI: 10.1111/jofi.13485
SCOTT GUERNSEY, FENG GUO, TINGTING LIU, MATTHEW SERFLING
Based on a comprehensive data set of classified (staggered) boards covering nearly all U.S. public firms from 1991 to 2020, we show that contrary to conventional wisdom, the use of classified boards remains widespread. Moreover, classified board usage over a firm's life cycle depends significantly on the decade the firm matured or year it went public. While classified boards were rarely removed in the 1990s, firms became more likely to declassify as they matured during the following decades. Decreased collective action costs and increased innovation‐related investments, institutional ownership, and scrutiny of governance contributed to this more dynamic adjustment.
Impediments to the Schumpeterian Process in the Replacement of Large Firms
Version of Record online: 8/20/2025 | DOI: 10.1111/jofi.13481
MARA FACCIO, JOHN J. MCCONNELL
We use newly assembled data overall encompassing up to 75 countries and starting circa 1910, to study impediments to the Schumpeterian process of creative destruction as it “proceeds by competitively destroying old businesses.” Political connections appear to represent an obstacle to the destructive part of the Schumpeterian process in the replacement of large firms. When accompanied by regulations that restrict entry, political connections can play a role in allowing large firms to remain large. When connected to Fogel, Morck, and Yeung (2008, Journal of Financial Economics 89, 83–108), the results imply that political connections, combined with barriers to entry, can retard economic development.
Superstar Returns? Spatial Heterogeneity in Returns to Housing
Version of Record online: 8/19/2025 | DOI: 10.1111/jofi.13479
FRANCISCO AMARAL, MARTIN DOHMEN, SEBASTIAN KOHL, MORITZ SCHULARICK
This paper makes the first comprehensive attempt to study within‐country heterogeneity of housing returns. We introduce a new city‐level data set covering 15 OECD countries over 150 years and show that national housing markets are characterized by systematic spatial variation in housing returns. Total returns in large agglomerations are close to 100 basis points lower per year than in other parts of the same country. Excess returns outside the large cities can be rationalized as compensation for higher risk, especially higher covariance with income growth and lower liquidity. Real estate in diversified large agglomerations is comparatively safe.
Arbitrage Capital of Global Banks
Version of Record online: 8/18/2025 | DOI: 10.1111/jofi.13478
ALYSSA ANDERSON, WENXIN DU, BERND SCHLUSCHE
We study the impact of the U.S. money market fund reform implemented in October 2016 on global banks' funding supply and business activities. We show that the reform induced a large negative wholesale funding shock for global banks. In contrast to the conventional bank lending channel, the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision. We discuss the role of postcrisis liquidity regulations and unconventional monetary policy in explaining our findings, and implications for banks' business models and deposit competition.
Version of Record online: 8/18/2025 | DOI: 10.1111/jofi.13476
CLÁUDIA CUSTÓDIO, DIOGO MENDES, DANIEL METZGER
We study the impact of an MBA‐style executive education course in finance on corporate policies and firm performance targeting top managers of medium and large Mozambican enterprises. Using a randomized controlled trial, we find that the educational treatment induces changes in financial policies that improve firm performance. Specifically, a reduction in working capital (0.4 to 0.5 standard deviations) increases cash flow, and in turn long‐term investments. This effect operates primarily through a reduction in accounts receivable (0.4 to 1 standard deviations). Our findings show that targeted educational interventions can build managerial capital and enhance corporate performance by improving financial decision making among executives.
Household Portfolios and Retirement Saving over the Life Cycle
Version of Record online: 8/12/2025 | DOI: 10.1111/jofi.13473
JONATHAN A. PARKER, ANTOINETTE SCHOAR, ALLISON COLE, DUNCAN SIMESTER
Using account‐level data on millions of U.S. middle‐class investors over 2006 to 2018, we characterize the share of investable wealth that they hold in the stock market over their working lives. Relative to the 1990s, this share has both risen by 10% and become age‐dependent. The Pension Protection Act (PPA)—which allowed target date funds (TDFs) to be default options in retirement plans—played an important role: younger (older) workers starting at a firm after TDFs became the default option post‐PPA invested more (less) in stocks, in line with the TDF glidepath. In contrast, contribution rates changed little following the PPA.
Version of Record online: 8/7/2025 | DOI: 10.1111/jofi.13474
SEBASTIEN BETERMIER, LAURENT E. CALVET, SAMULI KNÜPFER, JENS SOERLIE KVAERNER
This paper develops an empirical methodology for extracting pricing factors from investor portfolio data. We apply this approach to the stockholdings of Norwegian individual investors from 1997 to 2017. A two‐factor model, featuring the market portfolio and a long‐short portfolio constructed from the holdings of investors sorted by age or wealth, explains both the common variation in portfolio holdings and the cross section of stock returns. Portfolio tilts toward the long‐short investor factor correlate with indebtedness, macroeconomic exposure, gender, and investment experience. Our paper illustrates the benefits of using holdings data for explaining the risk premia of financial assets.
Version of Record online: 8/4/2025 | DOI: 10.1111/jofi.13469
EMIL N. SIRIWARDANE, ADI SUNDERAM, JONATHAN WALLEN
We use arbitrage activity in equity, fixed income, and foreign exchange markets to characterize the frictions and constraints facing intermediaries. The average pairwise correlation between the 32 arbitrage spreads that we study is 22%. These low correlations are inconsistent with canonical intermediary asset pricing models. We show that at least two types of segmentation drive arbitrage dynamics. First, funding is segmented—certain trades rely on specific funding sources, making their arbitrage spreads sensitive to localized funding shocks. Second, balance sheets are segmented—intermediaries specialize in certain trades, so arbitrage spreads are sensitive to idiosyncratic balance‐sheet shocks.
Too Much, Too Soon, for Too Long: The Dynamics of Competitive Executive Compensation
Version of Record online: 7/30/2025 | DOI: 10.1111/jofi.13470
GILLES CHEMLA, ALEJANDRO RIVERA, LIYAN SHI
We examine executive compensation in a general equilibrium model with dynamic moral hazard, where executives' outside options are endogenously determined by equilibrium market compensation. Firms provide incentives through compensation packages featuring deferred payments as “carrots” and termination as “sticks.” Crucially, the effectiveness of termination as an incentive device is undermined by the outside options available to executives. As individual firms fail to internalize the effect of their compensation design on these endogenous outside options, the equilibrium is generally inefficient. Compared to shareholder‐value‐maximizing compensation packages, executives are paid too much, too soon, and keep their jobs for too long.
The “Actual Retail Price” of Equity Trades
Version of Record online: 7/25/2025 | DOI: 10.1111/jofi.13467
CHRISTOPHER SCHWARZ, BRAD BARBER, XING HUANG, PHILIPPE JORION, TERRANCE ODEAN
We compare execution quality of six brokerage accounts across five brokers by generating a sample of 85,000 simultaneous market orders. Commission levels and payment for order flow (PFOF) differ across our accounts. We find that execution prices vary significantly across brokers: the mean account‐level round‐trip cost ranges from 0.07% to 0.46%, excluding any commissions. The dispersion is due to off‐exchange wholesalers systematically giving different execution prices for the same trades to different brokers. Across brokers, variation in PFOF does not explain the large variation in price execution. We provide several suggestions for more informative disclosures on execution quality.
Does Saving Cause Borrowing? Implications for the Coholding Puzzle
Version of Record online: 7/2/2025 | DOI: 10.1111/jofi.13466
PAOLINA C. MEDINA, MICHAELA PAGEL
Using an experiment in which 3.1 million bank customers were encouraged to save, we explore the mechanisms behind coholding liquid savings and credit card debt. Theoretically, we show that the joint responses of spending, saving, and borrowing to the nudge differ across economic models of coholding. Using machine learning techniques, we find that the most responsive individuals reduce spending and increase savings by 4.9% (206 USD PPP per month) while their credit card debt remains unchanged. These individuals' marginal responses to the nudge are consistent with our model of coholding for the purpose of self‐ or partner‐control.