September 11 2025, 12 PM ET

The Pricing and Economic Impact of Legal Risk

Dean Ryu (Oxford)

Abstract: Legal risk is an inherent feature of the market, arising from the institutional foundations that enable economic activity, yet it remains difficult to observe systematically across firms. To address this gap, this paper constructs a text-based measure of firm-level legal risk (LRISK) using earnings call transcripts. LRISK predicts class action lawsuits and exhibits sharp spikes during periods of heightened legal exposure. Legal risk has real and financial consequences: a one standard deviation increase predicts a 3–7% decline in future investment and reduces firms’ reliance on debt when facing financing needs, consistent with a precautionary motive. Legal risk is positively priced, particularly after 2010 when regulatory oversight intensified. The pricing of legal risk varies across legal origins, reflecting its institutional foundations. 

September 18 2025, 12 PM ET

Invoice Digitization and Credit Availability: Hard-Information Effects in Small Business Lending

Yunyue Chen (Ghent University, Belgium)

Abstract: This paper study the impact of digitized invoices on small business lending through China’s Golden Tax Phase III Project, which established a unified tax reporting system and digitalized VAT invoices. Using the project’s staggered provincial rollout as a natural experiment and DID method, this study find that small business in treated provinces obtain substantially larger credit line, pay lower interest rate, and enjoy longer maturities. Banks also report higher measured income and internal credit scores from these firms. We trace these improvements to the elimination of fraudulent invoices, which endows banks with more reliable hard information for income assessment and risk- based pricing. As a result, digital invoices mitigate information asymmetries in lending, allowing banks to extend greater and lower-cost credit to firms lacking hard information. Consistent with this mechanism, the largest credit gains occur in invoice-intensive industries, and the most opaque borrowers, such as individually-owned businesses, and small banks experience the greatest benefits. Finally, macro-level credit data from the People’s Bank of China corroborate our micro-level findings. In general, this study highlights the critical role of digital tax infrastructure in alleviating financing frictions for small businesses and underscores its wider importance for financial inclusion and economic growth. 

October 2 2025, 12 PM ET

When AI Meets Entrepreneurship: Evidence from the Commercialization of ChatGPT

Edoardo Marchesi (Chicago Booth)

Abstract: This paper examines how the commercialization of generative AI influences new firm creation, leveraging the release of ChatGPT as an exogenous shock to AI accessibility. We develop a novel industry-level measure of AI compatibility that captures the extent to which AI tools can support early-stage entrepreneurial tasks. Using a difference-in-differences design with continuous treatment intensity, we find that industries more compatible with AI experienced an increase of over 10% in firm formation following ChatGPT’s release. To investigate why, we examine three mechanisms: reduced experimentation costs, capital supply shifts, and human capital complementation. While we find no evidence supporting the latter two, we show that the increase in firm formation is concentrated in industries where AI can effectively assist and experimentation is critical—evidence consistent with a reduction in the cost of experimentation as the key driver. Our findings suggest that generative AI reduces barriers to entry by helping entrepreneurs test and iterate on ideas more efficiently. 

Discussant: Andrea Pagliuca (London Business School)

October 9 2025, 12 PM ET

AI and Demand-Based Option Listings

Yizhen Xie (Carnegie Mellon)

Abstract: This paper shows that AI-based option listing enhances options trading volume by aligning option strikes with demand. While options trading has expanded prominently, over 80% of option listings in 2022 see less than one contract traded due to uncertainty in demand. This misallocation creates an inefficiency as designated market makers must provide liquidity across all strikes, exposing them to inventory risk. To address this, in 2022, Nasdaq began optimizing listed option strikes based on AI predictions for options demand. Using options transaction data from 2021 to 2023 across all options exchanges (OPRA), I find that the demand-based option listings on Nasdaq increase option trading volume compared to conventional listings on other exchanges based on difference-in-differences. I model the choice of strike listings by an options exchange maximizing total volume. The model features a representative investor with heterogeneous gains from trade across option contracts and market makers exposed to inventory risk for all contracts. The model shows that AI-based option listings improve allocative efficiency by aligning the supply of liquidity better with the hedging demand. The welfare implications depend on cross-subsidization across option listings, since volume-maximizing exchanges may prioritize strikes that generate high trading activity over those that provide greater hedging value but lower volume. 

October 16 2025, 12 PM ET

Nonbank Lending and the Transmission of Monetary Policy: Evidence from U.S. Small Business Loans

Suyang Xu (Purdue)

Abstract: Nonbank lending has reshaped the original credit markets since the Global Financial Crisis. This paper finds that nonbanks expand significantly when monetary policy tightening. Using Uniform Commercial Code filings, I find that a one percent increase in the Federal Funds rates is associated with a 1.4 percent rise in nonbank market share. Nonbanks gain significantly more market share in counties where banks hold greater market power in local deposit markets. These findings are robust to controls for the bank capital channel and time-varying firm heterogeneity. The real impacts suggest that the interest-rate-driven rise in nonbank lending does not promote local economic development, as bankruptcy rates and unemployment rates both increases significantly in more concentrated counties following interest rate hikes. This paper highlights the importance of nonbanks in the transmission of monetary policy to small business lending. 

Discussant: Edoardo Marchesi (Chicago Booth)

October 23 2025, 12 PM ET

Forecast Dispersion and the Price Impact of Macroeconomic News

Samia Badidi (Tilburg)

Abstract: A large literature in macro-finance examines how financial markets process macroeconomic news, yet little is known about how the composition of the forecaster pool shapes these dynamics. Using data on 25 major U.S. macroeconomic announcements, I document that forecast dispersion has a strong negative effect on market reactions, challenging the conventional interpretation of dispersion as a proxy for uncertainty. To reconcile this puzzle, I show that dispersion also captures analyst heterogeneity and propose a noisy rational expectations model in which the interpretation of dispersion depends on the share of experienced analysts. When experienced analysts dominate, low dispersion indicates precise pre-announcement information, reducing the announcement's price impact. Conversely, when non-experienced analysts dominate, low dispersion reflects shrinkage toward noisy common information, increasing price impact. Using lagged analyst experience as an instrument, I confirm that the negative effect of dispersion is stronger when analysts are less experienced. These findings reveal an important channel through which analyst heterogeneity affects price discovery.

October 30 2025, 12 PM ET

Partisan Fed

Andrea Pagliuca (London Business School)

Abstract: I show that political alignment between Federal Open Market Committee (FOMC) members and the incumbent U.S. President systematically influences monetary policy. I construct two novel, individual-level measures of political alignment for each member of the FOMC, based on their political campaign contributions and appointments to public roles. Using a Difference-in-Differences design around four presidential party transitions between 1992 and 2019, I find that a individual-level positive shift in political alignment with the sitting U.S. President leads FOMC members toward more expansionary policy preferences and more optimistic macroeconomic forecasts (over-forecasting GDP and under-forecasting inflation). At the committee level, a one-point increase in political alignment within the FOMC lowers the federal funds rate by approximately 25 basis points relative to the Federal Reserve staff’s benchmark recommendation. These politically driven rate decisions generate a partisan business cycle: periods of political alignment between the Fed and the executive lead to more frequent interest rate cuts, stimulating short-term gains in output, employment, and stock market performance, but contributing to higher inflation in the long run. Conversely, during periods of political misalignment the FOMC raises interest rates above the apolitical benchmark, resulting in short-run output contractions, but controlling long-run inflation. 

Discussant: Suyang Xu (Purdue)

November 6 2025, 12 PM ET

Ample Reserves for Whom? The Role of Foreign Banks in U.S. Monetary Policy Implementation

Junko Oguri (Northwestern Kellogg), Cristoforo Pizzimenti (Northwestern)

Abstract: This paper shows that foreign banks are the marginal holders of reserves in the U.S. ample-reserves system. Despite holding a minority share of U.S. banking assets, foreign banks hold nearly half of total reserves and exhibit highly elastic demand, responding aggressively to arbitrage opportunities between interests on reserves and funding rates. This sensitivity is amplified by internal liquidity transfers between their branches and foreign headquarters. Using high-frequency shocks to reserve supply, we confirm that foreign banks absorb the bulk of adjustments to aggregate reserve fluctuations. We develop a tractable model that formalizes these findings and show that uncertainty originating from foreign banks, such as quarter-end window-dressing, raises the optimal reserve supply by the Fed. These results highlight the importance of institutional heterogeneity in reserve demand. In an ample-reserves framework, effective policy implementation depends not only on the aggregate level of supply, but also on the identity of the marginal holder. 

November 13 2025, 12 PM ET

Proprietary Information Sharing and Supply Chain Lock-In

Enshuai Yu (Boston College)

Abstract: This study investigates whether and how proprietary information sharing induces lock-in effects in supply chain relationships. Using a hand-collected dataset of supply chain contracts, I develop a measure of potential proprietary information sharing based on the intensity of confidentiality provisions governing private information exchange between supply chain partners. Validation tests show that this measure is positively associated with both parties’ proprietary cost concerns, and firms entering into higher-confidentiality-intensity contracts exhibit improved managerial learning, particularly in the quality of information environment and investment decisions. Primary analyses suggest that supply chain relationships characterized by more proprietary information sharing are more locked-in, evidenced by longer ex-post duration and a lower likelihood of termination following supplier adverse events (e.g., regulatory violations, import competition, and financial distress). Such lock-in effects are more pronounced when customer firms face more competition, face rivals with intense innovation activities, have greater access to alternative suppliers, or when the focal relationship is the sole conduit for proprietary information exchange. Collectively, the findings highlight contracting frictions induced by private inter-firm information exchange in supply chains. 

November 20 2025, 12 PM ET

When Roll-up Breaks: Serial Private Equity Acquisitions in the Hospital Industry

Sungil Kim (Duke Fuqua)

Abstract: This paper challenges the idea that private equity (PE) roll-ups consistently create site-level operating value across sequential acquisitions. I link hospital operations, finances, quality, and deal data and classify targets as stand-alone, platform, or add-on. Platforms are selected from low-leverage, higher-margin hospitals, consistent with grandstanding at entry. They obtain cheaper debt at close, rebalance balance sheets and investment, and then exhibit gradual profitability gains. Add-ons inherit the platform facility, cut headcount, and do not generate additional margin improvement. The evidence points to a two-stage strategy, with value created at platform formation and little scalability to add-on acquisitions in the hospital industry.