"Do Managers Learn from Short Sellers? Evidence from Corporate Acquisitions" [SSRN] (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 the program. These results indicate that, despite managers’ repugnance toward short sellers, they learn more from stock price changes when short sellers are less impeded.
Keywords: Corporate Acquisition, Short Selling, Regulation SHO, Pilot Program
JEL Codes: G14, G18, G30, G34
"Short Squeezes" [SSRN] (with Zhiqian Jiang, Baixiao Liu, and Wei Xu)
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
"Share Repurchases and Managerial Reference Points" [SSRN] (with Nicholas Clarke and Dylan Norris)
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*
"Does Cultural Similarity Affect Managerial Learning? Evidence from Corporate Acquisitions?" [SSRN]
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
"Death and Analysts’ Accuracy: Evidence from the Art Market" (with Spencer Barnes and Brandon Mendez)
Abstract: Analysts’ forecasts are a key component of information dissemination. Yet, how an exogenous shock affects analysts’ forecasts is not well studied. Utilizing the art market, this study leverages artist death as an exogenous setting to explore how it impacts the accuracy of analysts’ pre-sale price estimates. In the year following an artist’s death analysts’ accuracy decreases by 14% on average. Subsample analysis indicates that the media and the artists’ reputation are the likely economic mechanisms influencing this decrease. These findings suggest that analysts perform poorly following information shocks which is pertinent for all capital market participants.
Keywords: Price Uncertainty, Alternative Assets, Cultural Finance
JEL Codes: G11, G14, Z11
Presentations: 2021 Harvard Rising Scholars Conference*, 2021 Ph.D. Project Finance & Economics Doctoral Students Association Conference at the American Finance Association Conference*
"The Unintended Consequences of Large Share Repurchases" (with Don Autore and Nicholas Clarke)
Abstract: Coming Soon