Research

This paper provides the first evidence that expected future cash flows expand firms' borrowing capacity beyond collateral values. I identify exogenous variation in expected future cash flows using new major product liability litigation involving firms' product-market peers. Evaluated at sample means, a 1% increase in sales raises net long-term debt issuance by 14.97%, equivalent to 1.55% of average total debt. The effect is stronger among firms with lower growth opportunities, tighter financial constraints, and lower asset tangibility. Firms experiencing positive expected future cash flow shocks increase investment and cash holdings, issue more unsecured debt, and borrow at lower bond yields, with no significant changes in shareholder payouts or leverage. Segment-level analysis further reveals increased investment in unexposed segments of treated firms, consistent with an expansion in financing capacity rather than changes in investment opportunities alone. These findings establish expected future cash flows as a distinct source of corporate borrowing capacity.

Non-financial obligations created by long-term contracts such as leases are often large, exceeding financial debts in around a third of U.S. firms. Their treatment in insolvency varies: Chapter 11 allows firms to freely reject or assume contracts, but many other restructuring regimes do not allow rejection. We model regimes with and without the rejection option. This option prevents excessive liquidation of insolvent firms and increases firms' debt capacity. Using novel measures of executory contracts by industry, and two difference-in-difference settings, we confirm that leverage and loan flow increase when the rejection option is available.

This paper investigates how tightening insider trading regulations affects the governance roles of blockholders. Using the 2016 implementation of the Market Abuse Regulation (MAR) as a quasi-natural experiment, we examine how heightened disclosure requirements alter the composition and behaviour of key shareholders. We find that short-term, liquidity-focused investors reduce their board representation following stricter insider trading rules, while their presence on nomination committees remains unchanged. MAR also increases short-term blockholders' probability of board exit by 16-20 percentage points.

I examine how the participation of an external informed trader impacts managerial share repurchase decisions. I present a model with an external informed trader showing that managers tend to repurchase fewer shares when such a trader is involved. Empirically, I find a significant reduction in both share repurchase amounts and the probability of executing repurchases in response to increased firm-level abnormal institutional investor attention. These findings indicate that managers strategically abstain from repurchasing shares when their firms are under the spotlight.