Managing Editor’s Blog

Labor and Capital Dynamics Under Financing Frictions

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...

A Theory of Costly Sequential Bidding

The lead article in Volume 22, Issue 5 of the Review of Finance is A Theory of Costly Sequential Bidding by Kent Daniel and David Hirshleifer.  This paper explains why, in many real-life auctions such as M&A, bidders may engage in “jump-bids” – bid much more than needed to stay in the auction – when it might seem more prudent to bid the minimum possible increment

How to Bid in an Auction?Read more...

Bank Exposures and Sovereign Stress Transmission

(This post is thanks to Editor Thorsten Beck)

The lead article in Volume 21, issue 6 of the Review of Finance is “Bank Exposures and Sovereign Stress Transmission” by Carlo Altavilla, Marco Pagano and Saverio Simonelli. The link between sovereign and bank distress has been at the core of the Eurozone crisis, and several papers have addressed the causes of banks’ concentration on domestic sovereign bonds and the repercussions of this concentration for banks’ lending activity and for the real economy.… Read more...

Macro-Finance

The lead article in Volume 21, Issue 3 of the Review of Finance is “Macro-Finance” by John Cochrane of Stanford. This is an excellent review of recent advances and future research directions on a major asset pricing topic – macro-finance – written in a clear way accessible to those outside the asset pricing literature (such as me).… Read more...