Economic Downturns and the Informativeness of Management Earnings Forecasts

By David A. Maslar, Matthew Serfling and Sarah Shaikh October 15, 2021 by renholding

Economic downturns brought about by events such as the financial crisis and COVID-19 pandemic create substantial uncertainty for companies. While some firms endure the downturns unscathed or even thrive, others see their businesses decline drastically and their bankruptcy risk increase. …

The Leverage Effect of Bank Disclosures

By Philipp J. König, Christian Laux and David Pothier October 7, 2021 by renholding

In a new paper, The Leverage Effect of Bank Disclosures, we challenge the widespread view that disclosure requirements prompt banks to reduce their risk and leverage. That view has prevailed since at least 2004, when the Basel Committee introduced Pillar …

COVID-19, Corporate Leverage, and Financial Fragility

By Sharjil M. Haque and Richard Varghese October 5, 2021 by renholding

The COVID-19 pandemic and efforts to combat its spread were an unprecedented shock to corporate cash flows and consequent need for external financing. How did corporate leverage respond? More important, what does the impact on leverage mean for financial stability? …

Attention to Dividends, Inattention to Earnings?

By Charles Ham, Zachary Kaplan and Steven Utke October 4, 2021 by renholding

Why do firms pay dividends? A well-known finance theory proposes that, in frictionless markets, dividends are irrelevant for firm valuation because an investor’s wealth does not change if the firm holds a dollar in the bank or if the firm …

The Economics of Crypto Funds

By Paul P. Momtaz September 15, 2021 by renholding

Crypto funds are a new financial intermediary that trade in cryptographically protected digital assets, known as coins or tokens. Both the number of crypto funds and investments in crypto funds are soaring. As of the second quarter of 2021, more …

Fragile Financial Regulation

By Pradeep Yadav and Yesha Yadav September 14, 2021 by renholding

As COVID-19 rocked financial markets in March 2020, the Treasury market failed to perform its role of maintaining financial stability. Unable to respond to the surge of investors liquidating their Treasury holdings to raise cash, the secondary market ground to …

Public Information and Capital Flows: Evidence from a Betting Market

By Karthik Balakrishnan and Darren Bernard September 2, 2021 by renholding

What are the consequences of increasing public information in a market of risk-seeking participants? Academics and policy makers alike are grappling with this question following the influx of speculative capital flows from individual investors in financial markets. As platforms such …

Davis Polk Discusses FinCEN, CFTC Penalties on Cryptocurrency Derivatives Exchange

By Robert Cohen, Jai Massari, Daniel Stipano, Zachary Zweihorn and Kendall Howell August 19, 2021 by renholding

The CFTC and FinCEN recently announced a settlement with BitMEX for $100 million to resolve an enforcement action related to the exchange’s failure to register as a futures commission merchant and failure to establish a BSA/AML compliance program.

The Order

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The Triumph of a Local Focus in Troubled Times

By Samer Adra, Yang Gao and Jing-Ming Kuo August 16, 2021 by renholding

The emphasis on the contribution of local knowledge to economic growth is a key tenet of classical economic theory. The Hayekian worldview, for example, sees the dispersion of local pockets of knowledge across the economy as the primary reason why …

Moving Beyond Mutual Funds

By Shawn Bayern August 13, 2021 by renholding

As has become widely known in the past few years, the mutual-fund industry is more concentrated than ever, especially because of the growing use of index funds. Whether this is a problem and how to respond have been the topics …

ISS on Maximizing Good Results in Global Sustainable Finance Industry

By Soumya Munagala August 13, 2021 by renholding

The global sustainable finance industry has been described as an ‘industry in transition’, according to the recently-released Global Sustainable Investment Review 2020. This is reflective not only of the growth of the industry, but also the steps taken by

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Debevoise & Plimpton Discusses the State of the LIBOR Transition

By Ramya Tiller, Jeff Ross, Paul Brusiloff, Emilie Hsu and Courtney Bradford Pike August 11, 2021 by renholding

On March 5, 2021, LIBOR’s administrator, ICE Benchmarks Administration (the “IBA”), and LIBOR’s regulator, the U.K. Financial Conduct Authority (the “FCA”), announced that LIBOR will no longer be provided (i) for all sterling, euro, Swiss franc and Japanese yen settings, …

The Restructuring Landscape in Emerging Markets One Year into the Pandemic

By Steven T. Kargman August 10, 2021 by renholding

Like advanced economies, emerging economies were buffeted by the global economic slowdown stemming from the COVID-19 pandemic and the associated lockdowns of national economies. In 2020, emerging economies (and developing countries) contracted by 2.1 percent (their steepest decline in many …

Short-Term Institutions, Analyst Recommendations, and Mispricing: The Role of Higher-Order Beliefs

By Martijn Cremers, Ankur Pareek and Zacharias Sautner August 4, 2021 by renholding

Discussions on the role of higher-order beliefs (investor beliefs about the beliefs of other investors) in financial markets can be traced back to Keynes’ (1936) comparison of the stock market to a beauty contest. Investors “are concerned,” he famously said, …

National Blockchain Laws Are a Threat to Capital Markets Integration

By Matthias Lehmann August 3, 2021 by renholding

Since its creation in 2008, the blockchain has seemed incompatible with legal constraint. Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, hailed the blockchain’s “unstructured simplicity.” Even now, apostles of distributed ledger technology (DLT) strongly resist the idea that …

Reforming the Macroprudential Regulatory Architecture in the United States

By Kathryn Judge and Anil Kashyap July 26, 2021 by renholding

When the COVID-19 pandemic shuttered major economies in March 2020, it also wreaked havoc on financial markets. In the first few weeks of March, investment-grade corporate bonds lost roughly a fifth of their value, on par with the declines in …

Why We Need to Verify and Unmask the Identity of Cryptocurrency Users

By Hadar Y. Jabotinsky and Michal Lavi July 23, 2021 by renholding

Cryptocurrencies are by now widely known as electronically generated and stored currencies that enable users to trade tokens. The tokens are exchanged anonymously through a decentralized payment system: the blockchain. To further anonymity, the parties to cryptocurrency transactions are identified …

How Does Removing the Tax Benefits of Debt Affect Firms?

By Ali Sanati July 20, 2021 by renholding

Almost all countries have historically allowed businesses to write off interest expenses against taxable income. Critics argue that the tax-favored status of debt has created a corporate debt pile-up, thereby exacerbating economic downturns. This argument, which gained more attention after …

Do Public Financial Statements Influence Venture Capital and Private Equity Financing?

By Brian K. Baik, Natalie Berfeld and Rodrigo S. Verdi July 13, 2021 by renholding

Venture capital and private equity funds are important equity investors in private companies (Hand 2005; Stromberg 2008; Kaplan and Stromberg 2009), and their investments are characterized by an extensive search process that imposes significant upfront costs for the funds (Chen …

Risk and Ambiguity in Turbulent Times

By Menachem Brenner and Yehuda Izhakian July 9, 2021 by renholding

Over the past 50 years, the financial markets have been rocked by major shocks, which have led to the introduction of financial instruments that could cope with uncertainty in general and extreme events in particular. To manage the uncertainty surrounding …

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