This dissertation contains three chapters that study topics in financial economics and how finance affects legal outcomes. In the first chapter, I study how access to consumer litigation funding (CLF) impacts outcomes in the legal system. CLF provides cash advances to consumer plaintiffs in pursuing a tort complaint. Using exogenous variations in access to CLF resulting from staggered state law changes in the U.S., I find evidence that restricting CLF causes a decline in the number of tort lawsuits filed with courts by 18.7 percent. Such finding contrasts the theoretical predictions in the literature that CLF induces settlement, and could be due to the fact that, in reality, defendants hardly ever know whether the plaintiff is funded by CLF. I also find that restricting CLF increases the proportion of liability rulings at trial that favor the plaintiffs by 5.9 percentage points but does not change the portion of lawsuits that go to trial. Overall, these findings suggest that access to CLF either incentivizes plaintiffs to file lawsuits that are less likely to be successful in the court or induces moral hazards of plaintiffs during the trial process.

In the second chapter, I examine the conflicting evidence in the finance literature on whether the equity markets underreact or overreact to liquidity shocks. Using comprehensive stock-level news data, I find that the market underreacts to liquidity shocks whether there is contemporaneous public news or not. Furthermore, when there is public news released contemporaneously, the price discovery process of liquidity shocks does not get any faster. In certain tests, the drift is actually significantly larger. This shows that even though public news reveals more information to investors and draws more investor attention, it does not help them incorporate liquidity shocks into prices. Such findings are consistent with the notion that liquidity level overall is rather difficult for average investors to grasp. Information environment and investor inattention are not the market frictions that result in the market’s underreaction to liquidity shocks.

In the third chapter, my coauthors and I explore the impacts of early-life hardship experiences on corporate leaders’ Corporate Social Responsibility (CSR) decisions and address this question by exploiting the Down-to-the-Countryside Movement in China from 1956 to 1978. This movement is mandatory and is an extreme early-life hardship for the people involved. We find that the chairmen of the board and CEOs who were sent to the countryside and mountains have significantly less CSR practice in their companies than their peers who were not sent. We argue that corporate leaders have less CSR practice because they believe that they have already suffered enough in life and have developed an in-depth aversion to social contribution. Such results are especially strong for chairmen in state-owned enterprises (SOEs) and CEOs in non-state-owned companies(non-SOEs) because chairmen have more decision power in SOEs and CEOs have more decision power in non-SOEs. Moreover, this negative association is mediated by corporate leaders' college education and the corporate governance structure of the enterprise they lead.