The lead article in Volume 23, Issue 6 of the Review of Finance is Governance Under the Gun: Spillover Effects of Hedge Fund Activism by Nickolay Gantchev, Oleg Gredil and Chotibhak Jotikasthira.  This paper finds that the threat of hedge fund activism spurs non-targeted companies to improve profitability and valuations, increase payout, and reduce capital expenditure and cash holdings. 

The Debate Around Hedge Fund Activism

Hedge fund activism is a controversial topic.  Prominent lawyer Marty Lipton argues that the long-term future of corporate America is being undermined “by a gaggle of activist hedge funds who troll through S.E.C.… Read more...

The lead article in Volume 23, Issue 5 of the Review of Finance is Credit Market Competition and Liquidity Crises by Elena Carletti and Agnese Leonello.  This paper finds that – contrary to common concerns – greater competition in the banking industry can reduce the risk of financial crises. 

The Double-Edged Sword of Competition

In most industries, competition is believed to be socially beneficial – it benefits customers through greater product choice and lower prices, suppliers through higher input costs, and workers through enhanced wages.… Read more...

The lead article in Volume 23, Issue 4 of the Review of Finance is Are US Industries Becoming More Concentrated? by Gustavo Grullon, Yelena Larkin, and Roni Michaely. This paper finds that industry concentration has increased substantially in the US over the last two decades.… Read more...

The lead article in Volume 23, Issue 3 of the Review of Finance is Do Credit Default Swaps Mitigate the Impact of Credit Downgrades? by Sudheer Chava, Rohan Ganduri, and Chayawat Ornthanalai.  When a firm’s debt is downgraded, its stock price falls, it subsequently raises less debt, and its cost of debt increases.  This paper finds that, when credit default swaps (CDS) trade on its debt, all three effects are reduced – suggesting that CDS alleviates the financial frictions arising from downgrades.… Read more...

The lead article in Volume 23, Issue 2 of the Review of Finance is Labor and Capital Dynamics under Financing Frictions by Ryan Michaels, Beau Page, and Toni Whited. This paper uses a new quarterly panel dataset to examine how financing frictions affect firms’ investment and hiring decisions.  In particular, it shows that higher leverage reduces wages, even though it does not reduce employment.  To rationalize the findings, the authors build a model where higher leverage increases the probability of default, reducing the surplus to be shared with workers and thus wages.… Read more...