1.  Share Repurchases and Managerial Reference Points (with Nicholas Clarke and Dylan Norris)

The Financial Review, forthcoming

Abstract: Corporate repurchase activity increases as a firm’s current stock price declines in relation to the price  at  which  it  previously  repurchased  shares.  This  relation  holds  up  to  various  empirical  specifications and robustness tests. The effect weakens around stock splits, is asymmetric in stock gains and losses, and strengthens when prior repurchases are larger than the sample median. The results  suggest  a  behavioral  pattern  in  which  managers  use  prior  repurchase  prices  as  reference  points for current repurchases.

Keywords: Reference Point, Stock Repurchases, Behavioral Finance 

JEL Codes: G32, G41

Presentations: 2021 Academy of Behavioral Finance & Economics Annual Meeting*, Middle Tennessee State University*, 2021 Southern Finance Association Annual Meeting*, 2022  Annual  Meeting  of  the  Southwestern  Finance  Association*, Illinois State University*, University of Alabama in Huntsville*

Working Papers

2.  Short Squeezes  (with Zhiqian Jiang, Baixiao Liu, and Wei Xu)

Revise and Resubmit, Financial Analysts Journal

Abstract: Building upon the premise that short squeezes are most likely to occur following a large one-day price increase for stocks with a short sale constraint and can be captured by the level of subsequent price reversal, we study how prevalent short squeezes are and the corresponding economic consequences. Using daily short interest data, we confirm that the occurrence of short squeezes is driven by both the capital constraint of the short sellers and the short sale constraint of the underlying stocks. Further analyses reveal that following a large price increase, the “squeezed” firms experience an increase in the demand for and cost of borrowing their shares, as well as an increase in their trading volume, idiosyncratic volatility, and abnormal return. These findings suggest that in addition to their impact on stock prices, short squeezes can also have a lingering effect on capital markets.

Keywords: Short Squeeze, Price Reversal, Limits to Arbitrage

JEL Codes: G12, G14

Presentations: Peking University*, Purdue University*, 2022  Annual  Meeting  of  the  Southwestern  Finance  Association

3.  The Effect of Short Sale Restrictions on Corporate Managers (with Baixiao Liu and John McConnell)

Abstract: We examine how the exemption of short sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the program, managers of pilot firms, whose stocks are less subject to short selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers’ sensitivity prior to nor post SHO. These results highlight a cost of short selling restrictions: market prices become less informative. The message is that regulators should consider the loss of market information when weighing the costs and benefits of restrictions on the trading of market participants.

Keywords: Short Sale Restrictions, Short Selling, Regulation SHO, Pilot Program

JEL Codes: G14, G18, G30, G34

4.  Does Cultural Similarity Affect Managerial Learning? Evidence From Corporate Acquisitions?

Abstract: This study examines whether the corporate cultural similarity between a target and an acquiring firm influences the acquiring managers’ decision to abandon a corporate acquisition attempt conditional on the acquiring firm's stock price reaction at the announcement of the deal. The findings suggest that higher cultural similarity decreases the propensity of acquiring managers to listen to the stock market. We use the inclusion in the annual list of the 100 Best Corporate Citizens as an exogenous shock to establish a causal link. We interpret the findings to imply that acquiring managers are subject to a confirmatory bias that leads them to give an overly optimistic valuation to target firms that share similar corporate culture. Therefore, cultural similarity between a target and an acquiring firm could have detrimental effects on the acquiring firm.

Keywords: Corporate Acquisition, Corporate Similarity, Managerial Learning 

JEL Codes: G30, G32, G34, M14

Presentations: Cal State Fullerton, Cornerstone Research, 2021 Eastern Finance Association Annual Meeting, Miami University, Florida State University, Ohio University, University of Richmond

5.  Analysts' Accuracy Following an Increase in Uncertainty: Evidence From the Art Market (with Spencer Barnes and Brandon Mendez)

Abstract: Financial economists have long been interested in asset price uncertainty. This study utilizes the art market as an exogenous setting to explore how an increase in price uncertainty (i.e., the death of an artist) impacts the accuracy and forecast error of analysts' estimates. We find that in the year following an artist's death, analysts' accuracy decreases by 14%, and their forecast error increases by 11%. Additional analysis indicates that the effect is due to both a decrease in the estimation range as well as an increase in the forecast bias of analysts. These findings suggest that analysts perform poorly following an increase in uncertainty which is pertinent for many real asset markets.

Keywords: Price Uncertainty, Alternative Assets, Cultural Finance

JEL Codes: G11, G14, Z11

Presentations: 2022  Annual  Meeting  of  the  Southwestern  Finance  Association*, 2021 Harvard Rising Scholars Conference*, 2021 Ph.D. Project Finance & Economics Doctoral Students Association Conference at the American Finance Association Conference*

6.  Do Large Share Repurchases Attract Activist Investors? (with Don Autore, Nicholas Clarke, and Matthew Gustafson )

Abstract: Firms that make large open-market share repurchases are more frequent targets of activist investors. In a sample of about 35,000 firm-years during 2005-2018, large repurchases (over 10% of shares outstanding) are associated with a 37% greater likelihood that the repurchasing firm is the target of an activist investor in the following year, all else equal. This effect is driven by firms with market capitalizations under $2.5 billion, for which there is a 57% increased likelihood. This association is not mechanically driven by a reduced share count. The targeted firms are poor performers but experience exceptionally positive stock performance while the activist is present. Like other activist events, large-repurchase-linked activist engagements are associated with an increased likelihood of being acquired or experiencing CEO turnover. We conjecture that activists may target large repurchasers because the sharply reduced share count makes it cheaper to acquire a given ownership stake in the firm.

Keywords: Share Repurchases, Activist Investors

JEL Codes: G32, G35