Do shareholders gain when managers disperse corporate resources through activities classified

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and NBER. We thank seminar participants at Brigham Young University for helpful comments. The analysis and conclusions contained in this paper are those of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System, its members, its staff, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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We study an important recent series of buyback auctions conducted by the U.S. Treasury in retiring $67.5 billion of its illiquid off-the-run debt. The Treasury was successful in buying back large amounts of illiquid debt while suffering only a small market-impact cost. The Treasury included the most-illiquid bonds more frequently in the auctions, but tended to buy back the least-illiquid of these bonds. Although the Treasury had the option to cherry pick from among the bonds offered, we find that the Treasury was actually penalized for being spread too thinly in the buybacks. Copyright 2007 by The American Finance Association.

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The issuance of structured finance securities boomed during the run-up to the Financial Crisis. Existing explanations for this growth emphasize supply-side factors. Demand, however, was also encouraged by efforts to avoid regulatory capital requirements. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, assets which offered the highest yield per unit of required capital. The results are only evident in accounts subject to capital requirements and at firms with low levels of ex ante capital, consistent with regulatory distortions fueling the demand for securitized assets.

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