Research

Publications

1. Short Squeezes with Zhiqian Jiang, Baixiao Liu, and Wei Xu

Financial Analysts Journal, 2024, 80(2), 152

Abstract: We investigate the prevalence and persistence of short squeezes and the corresponding economic consequences on the stocks being squeezed. Using daily short sale data, we provide evidence that a short squeeze on average subsides within seven trading days and can be driven by both the capital constraint of the short sellers and the short sale constraint of the underlying stocks. The risk of being squeezed is higher during major macroeconomic events. Further analyses reveal that squeezed stocks experience an increase in the demand for and the cost of borrowing the shares and in trading volume, idiosyncratic volatility, and abnormal returns.

Keywords: Short Selling, Short Squeeze, Short Sale Constraint, Price Reversal

JEL Codes: G12, G14

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

2. Share Repurchases and Managerial Reference Points with Nicholas Clarke and Dylan Norris

The Financial Review, 2024, 59(1), 57

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 Southwestern Finance Association Annual Meeting*, Illinois State University*, University of Alabama in Huntsville*

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

Journal of Economic Behavior & Organization, 2024, 228

Abstract: 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 a decrease in the estimation range, an increase in the forecast bias of analysts, and an increase in the price volatility of the artwork. These findings suggest that analysts perform poorly following an increase in uncertainty which is pertinent for asset markets.

Keywords: Price Uncertainty, Alternative Assets, Cultural Finance

JEL Codes: G11, G14, Z11

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

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

Journal of Risk and Financial Management, 2023, 16(11), 486

Abstract: This paper studies the effect of short selling on corporate managers from 2002 through 2010. 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 indicate that, despite their dislike of short sellers, managers believe that the level of informativeness from capital markets is superior when short sellers are less impeded.

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

JEL Codes: G14, G18, G30, G34

Working Papers

5. Corporate Share Repurchases and the 2023 Excise Tax with Don Autore, Spencer Barnes, and Nicholas Clarke

Abstract: The Inflation Reduction Act of 2022 imposes a one percent excise tax on US corporate share repurchases, effective January 1, 2023. The tax's implementation is associated with a significant decline in corporate repurchases that is not offset by a corresponding increase in dividends. Aggregate repurchases decline from about $1 trillion in 2022 to just over $800 billion in 2023, and the average firm reduces quarterly repurchases (as a fraction of market capitalization) by roughly 25%. The decline in repurchases by US firms far exceeds a contemporaneous decline in repurchases by Canadian firms, is large in a historical context, and is not driven by firm fundamentals. Tax-induced cuts to repurchases are associated with an increase in cash but no increase in investment, consistent with long-standing finance theory that investment decisions precede payout decisions.

Keywords: Payout Policy, Excise Tax, Inflation Reduction Act of 2022

6. 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

7. Re(Purchasing) Activist Clientele with Don Autore, Nicholas Clarke, and Matthew Gustafson

Abstract: Firms that make large open-market share repurchases are more frequent targets of activist investors. This effect is driven by firms with market capitalizations under $2.5 billion, for which top quintile repurchasers are 31% more likely to be targeted in the following year. Compared to other activist targets, large repurchasers exhibit less change in payout and investment policy but a higher probability of CEO turnover following activist involvement. Overall, our findings suggest that activists agree with repurchasing managers about firm undervaluation but disagree on the best course forward.

Keywords: Share Repurchases, Activist Investors, Clientele Effect

JEL Codes: G32, G35

Presentations: 2023 Financial Management Association Annual Meeting*, 2023 Southern Finance Association Annual Meeting*

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