Does Advertising Improve Access to Capital for Small Businesses?

Private markets have contributed significantly to capital formation in the U.S. economy, particularly for small companies that are often considered the engine for creating new jobs and for accelerating economic growth (see, e.g., Zhao, Harris, and Lam, 2019). The amount of capital raised in private markets has, in fact, outpaced that raised in public markets during recent years. In 2017, for example, $2.4 trillion was raised in U.S. private markets and $2.1 trillion raised in public ones. Almost 70 percent of the former amount came from private placements: sales of unregistered securities in private offerings, mostly to accredited investors.[1]Read more

The Dark Side of Hedge Fund Activism: Evidence from Employee Pension Plans

Shareholder activism is an investment strategy that investors such as hedge funds (HFs) use to increase the value of their investment by intervening in the management of a targeted firm. Activists can nudge management to take shareholder-friendly actions such as increasing dividends or share buybacks, doing spinoffs, or being acquired. Prior studies (reviewed by Brav, Jiang and Kim, 2009, 2015b) find that HF activism is quite successful in increasing shareholder wealth of targeted firms. However, there are two opposing views about how that happens. In the first view, activism increases the value of the target firm by enhancing firm productivity … Read more

Is Positive Sentiment in Corporate Annual Reports Informative?

Recent advances in machine learning and natural language processing (NLP) enable machines to better understand human languages. E-mail systems now routinely warn us when an email we receive may be a spam, suggest a quick response to an email, correct our grammatical errors, and suggest words or an entire sentence to an email we are writing. The main advantage machines have over humans is that they can quickly process huge amounts of data. In a new paper, we examine the extent to which machines can help us understand the functioning of financial markets.

Public companies provide detailed information about their … Read more

Do Women Stay Out of Trouble? Evidence from Corporate Litigation

An estimate by John B. Henry in the Metropolitan Corporate Counsel (February 2008, p. 28) suggests that the annual direct litigation cost of Fortune 500 companies was a whopping $210 billion in 2006, i.e., about one-third of their after-tax profits that year. Apart from direct litigation cost, lawsuits also hurt firms’ reputations. Not surprisingly, companies lose significant market values upon the filing of lawsuits against them. Given the substantial impact of litigation, it is surprising that little research has been done to identify the determinants of various types of lawsuits against firms. Our paper aims to fill this gap by … Read more