We thank Eric Kim for research assistance, Bert Grider at the TRFSRDC for helping with data and clearance requests, and Evan Buntrock at the NYFSRDC (Cornell) for administrative assistance. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

This paper investigates how firms react strategically to investor sentiment via their disclosure policies in an attempt to influence the sentiment-induced biases in expectations. Proxying for sentiment using the Michigan Consumer Confidence Index, we show that during low-sentiment periods, managers increase forecasts to "walk up" current estimates of future earnings over long horizons. In contrast, during periods of high sentiment, managers reduce their long-horizon forecasting activity. Further, while there is an association between sentiment and the biases in analysts' estimates of future earnings, management disclosures vary with sentiment even after controlling for analyst pessimism, indicating that managers attempt to communicate with investors at large, and not just analysts. Our study provides evidence that firms' longhorizon disclosure choices reflect managers' desire to maintain optimistic earnings valuations. * MIT Sloan School of Management; We are grateful to our editor, Ray Ball, and an anonymous referee for their comments. We also thank

Financial market imperfections can have significant impact on employment decisions of firms. We illustrate the economic importance of this channel by demonstrating that the responsiveness of employment decisions to firms' financial health is quantitatively similar to the much-studied responsiveness of investment decisions to cash-flows. We use a collage of three 'quasi-experiments' used previously in the investment-cash flow and finance-growth literatures to trace the effects of finance on employment. Our results suggest that financial constraints and the availability of credit play an important role in firm-level employment decisions, as well as aggregate unemployment outcomes

Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral channel in which a firm's bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of external debt finance industry wide. To identify this collateral channel, we use a novel dataset of secured debt tranches issued by U.S. airlines which includes a detailed description of the underlying assets serving as collateral. Our estimates suggest that industry bankruptcies have a sizeable impact on the cost of debt financing of other industry participants. We discuss how the collateral channel may lead to contagion effects which amplify the business cycle during industry downturns.