Local bankruptcy and geographic contagion in the bank loan market

This paper examines whether corporate bankruptcies influence the bank loan characteristics of geographically proximate firms. We find that, controlling for industry contagion and local economic conditions, firms headquartered near a bankruptcy event experience a 7 basis point increase in loan spreads over the subsequent year, even when the credit default risks of local firms do not increase. There is also an increase in the proportion of secured loans among non-filing local firms. Local bankruptcy has a stronger impact among lenders with geographically concentrated loan portfolios, but even lenders with low exposure to the local economy increase their spreads. The adverse effects of bankruptcy weaken as borrowers' distance to bankrupt firms increases. Collectively, these results suggest that lenders are sensitive to local bankruptcies and induce geographic contagion in the bank loan market

Political sentiment and predictable returns

This study shows that shifts in political climate influence stock prices. As the party in power changes, there are systematic changes in the industry-level composition of investor portfolios, which weaken arbitrage forces and generate predictable patterns in industry returns. A trading strategy that attempts to exploit demand-based return predictability generates an annualized risk-adjusted performance of 6% during the 1939 to 2011 period. This evidence of predictability spans 17%-27% of the market and is stronger during periods of political transition. Our demand-based predictability pattern is distinct from cash flow-based predictability identified in the recent literature

Stature, obesity, and portfolio choice

Using multiple U.S. and European data sources, we show that observed physical attributes are related to participation in financial markets. Specifically, we find that individuals who are relatively tall and of normal weight are more likely to hold stocks in their financial portfolios. We consider several potential mechanisms that could drive the relation between physical attributes and portfolio decisions. We find that teenage social experiences as well as genetic and prenatal endowments that are fixed at birth are the two channels through which height affects financial decisions. Furthermore, we find that the relation between body mass index and portfolio decisions is largely driven by education and race

Contagious Negative Sentiment and Corporate Policies: Evidence from Local Bankruptcy Filings

This study shows that corporate bankruptcy events affect the investment and financing policies of geographically proximate firms. Following the bankruptcy of a local peer, non-filing local firms significantly reduce investment expenditures, reduce capital structure leverage, and hold more cash. The effects of local bankruptcy are more pronounced when the CEO of the filing firm is dismissed, and stronger among firms managed by CEOs who are relatively young, have fewer qualifications, and relatively short tenure. Firms that have board connections with the bankrupt firms also react more strongly to the distress events. Importantly, the spillover effects associated with geographic proximity cannot be explained by intra-industry or supply chain effects documented in the extant literature. We also find that the effects cannot be explained by shocks to the local economy. Collectively, these results suggest that corporate managers follow the availability heuristic and become overly conservative in their investment and financial policies in response to local distress events