Having learned from the financial crisis, policymakers the world over have reacted to the COVID-19 lockdowns by providing a lot of liquidity, in the form of debt, to the business sector. However, the longer it takes to make a full recovery, the greater is the danger that firms may find themselves not just illiquid in the short-run, but insolvent in the long-run. That is,… Read More »Paper Spotlight: The COVID-19 Shock and Equity Shortfall: Firm Level Evidence from Italy

Governments all over the world have responded to the COVID-19 outbreak by closing down significant parts of their economies, leading to a liquidity crisis for many firms. Default risk increased because firms’ stream of cash flows took a hit, and with it firms’ rollover risk. How did firms behave in their bid to shore up their precarious liquidity positions? In the paper “The Risk of Being a Fallen Angel and… Read More »Paper Spotlight: The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID

“Stock Market Information and Innovative Investment in the Supply Chain” by Lantian Liang, Ryan Williams, and Steven Chong Xiao

Here is an interesting fact that spans corporate finance and asset pricing: among U.S. public firms, innovation is mostly concentrated in a very small group of large corporations, and innovation “leaders” experience lower systematic risk than the “laggards.” Jan Bena and Lorenzo Garlappi, in their paper “Corporate Innovation and Returns,” investigate this fact by, first, proposing a winner-takes-all patent-race model, and then empirically showing that a firm’s expected return decreases… Read More »Paper Spotlight: Corporate Innovation and Returns