This dissertation consists of three chapters. In the first chapter, I investigate how political spending by corporations responds to regulatory concerns and if it is associated with improved firm value. Using the 2010 Deepwater Horizon disaster as an exogenous shock to the difficulty of obtaining offshore oil drilling permits, I show that offshore oil firms spent more money hiring lobbyists in order to influence the permitting process. In contrast, the evidence of a response through campaign contributions is weak. The lobbying spending was associated with both a higher probability of permit approval and faster time to approval. Permit approvals had a five-day cumulative abnormal return of 0.69% after the disaster. In particular, offshore firms hired more lobbyists with prior-employment connections to Congressmen or Federal agencies with oil industry oversight. My results show that corporate governance issues may be second-order in this setting and that lobbying may have a real impact on regulator decisions and a positive effect on firm value.

In the second chapter, I establish a previously unknown fact about the value of firms engaging in lobbying. Despite evidence that firms respond to specific opportunities or concerns through lobbying spending, most corporations lobby persistently. I show that firms engaging in lobbying spending earn higher returns relative to non-lobbying firms in response to elections that result in a unified government (White House and Congress controlled by the same political party). In contrast, lobbying firms earn lower returns relative to non-lobbying firms in response to elections that result in a divided government (White House and Congress controlled by different political parties, or Congressional division). The results show that the balance of power within the government has an effect on the cross-section of stock returns. Disentangling expected return and abnormal return explanations for these results is an interesting area for future research.

In the third chapter (with Ivo Welch), we investigate extended abnormal rates of return for S&P 500 index changes in a comprehensive 1979-2013 sample. The evidence suggests that the short-window portfolio announcement returns that did not revert in the 1980s have fully reverted in the 2000s. The reversion was a portfolio effect, not an individual stock effect.

In Chapter 1, I find increases in investor exposure to prominent systematic trading strategies, such as momentum, correlate with lower returns to these strategies. A 1 percentage point increase in gross momentum exposure as a percentage of market capitalization corresponds with a permanent 1.1 percentage point decline in future annual momentum returns. The result is based on a new measure of total investment in a strategy that distills aggregate dollar exposure levels from stock trading volumes. The approach circumvents market clearing for zero cost strategies by defining aggregate exposure as the absolute sum of long plus short exposure. Estimating aggregate investment in momentum over time reveals a nearly 10-fold increase in momentum exposure as a percentage of market capitalization from 1980 to 2010. The association of a permanent decline in returns with increases in exposure extends to other strategies, including long-run reversal and idiosyncratic volatility.

In Chapter 2 (with Daniel Feenberg and Ivo Welch), I discuss how contrary to common perception, many fixed-income investors have not suffered unusually low real interest rates in and after the Great Recession of 2008. This is because taxable investors must first pay taxes on nominal interest returns, before inflation further reduces their earned real interest rates. To obtain the same real after-tax yield, investors need more than one-to-one compensation for inflation. As a result, long-term Treasury bonds have been no less attractive for taxable investors in 2016 (with a 0.5% post-tax real yield) than they were in 2006 (0.5%) and 1976 (-1.7%), and only moderately lower than yields in 1966 (0.9%), and 1956 (0.8%), although they are much less attractive than they were in 1996 (2.4%) and 1986 (2.9%). Short-term Treasury bond yields have been on the low side but have also not been particularly unusual.

This dissertation consists of three chapters.In Chapter 1 of the dissertation, I contribute to the inconclusive literature on labor empow- erment and corporate innovation. The paper exploits a law that creates Labor-Controlled Firms (LCFs) for identification in a regression discontinuity design using administrative data that link employers, inventors, and patents in Germany. The law mandates that firms with more than 500 or 2,000 employees have a minority (33%) or parity (50%) share of labor-elected directors on their boards, respectively. Local average treatment effects on the number of patents and the forward citation-weighted number of patents per LCF are significantly positive at both the minority and parity cutoffs, although forward citations per patent are significantly negative at the parity cutoff. The results suggest that labor control causes innovative productivity to increase at the expense of a relative shift from exploratory toward exploitative search. Auxiliary tests support this conclu- sion. Labor control insures employed inventors against adverse labor market shocks, increasing firm-related specialization through longer employment spells while reducing the intensive margin of innovative labor supply. Moreover, inventors’ marginal income per patent is insensitive to the quality of the patent when the employer is labor-controlled, suggesting a lack of financial incen- tives for exploratory search in LCFs. In Chapter 2, we estimates that shares in Private Investments in Public Equity (PIPEs) offered a discount of 3% for each year during which these shares could not be resold. The discount can be substantially larger in offerings in which marketability is a greater concern. Our estimates make use of the duration of the resale restriction and information about the effects of a regulatory change. In 2008, the SEC amended Rule 144 to shorten the default statutory holding period. Our estimates are smaller than previous estimates and robust to various controls and endogeneity concerns. In Chapter 3, we offer evidence from acquisition decisions that suggests that antitakeover pro- visions (ATPs) may increase firm value when internal corporate governance is sufficiently strong. We document that, in Germany, firms with stronger ATPs, and particularly supermajority provi- sions, are better acquirers. Managers of high-ATP firms create value in acquisitions by making governance-improving deals. They are more likely to engage in acquisitions that reduce their own entrenchment level and less likely to invest in declining industries. The empirical evidence is consistent with a short-termist interpretation. Takeover threats can induce myopic investment decisions, which ATPs can mitigate. They also lead managers to engage more often in value- creating long-term and innovative investing, and increase their sensitivity to investment opportu- nities. Our findings contribute to a growing literature challenging conventional wisdom that the agency-increasing effect of ATPs empirically dominates the myopia-eliminating effect, suggesting that a more contextual view of the value implications of ATPs is necessary.