How Earnings Announcements Discipline Markets Skewed by Media Coverage

By Eric Holzman, Brian Miller and Brady Twedt June 12, 2023 by renholding

Earnings announcements serve a well-recognized role of conveying important information about firm performance to the market. However, an often-overlooked role of earnings releases is their ability to discipline market expectations.

Our study examines this disciplining role in the context of …

The Social Functions of the Stock Market: A Primer

By Merritt B. Fox April 12, 2019 by renholding

A stock market is a key feature found in any economy with a substantial private sector. For example, in the United States, we see the New York Stock Exchange and Nasdaq, in the U.K, the London Stock Exchange, and in …

Why “Sunset” Provisions for Dual Class Stock Are Not the Answer

By David J. Berger March 29, 2019 by renholding

On March 28, 2019 the Nasdaq Listing Council invited me to respond to the recent proposal by the Council of Institutional Investors (“CII”) to Nasdaq, requesting it to adopt a rule requiring any company going public with dual class shares …

The Effect of SEC Comment Letters on M&A Outcomes

By Bret A. Johnson, Ling Lei Lisic, Joon Seok Moon and Mengmeng Wang March 14, 2019 by renholding

Recent research on the effectiveness of the SEC’s filing review and comment letter process has focused almost exclusively on reviews of Forms 10-K and other periodic filings. Reviews of filings involving transactions such as mergers and acquisitions (M&A) have received …

What Can We Learn from Stock Prices?

By Joshua Mitts December 18, 2018 by renholding

Prices convey information. Hayek (1945) put it this way: Prices “coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.” Stock prices, in particular, matter a …

Corwin at a Crossroads: Could DVMT Stock Be the Tracker Jacker in Dell’s Hunger Games?

By Eric Talley September 25, 2018 by renholding

Of all the conjured hazards faced by the teenage gladiators in the dystopian novel The Hunger Games, the Tracker Jacker (a genetically engineered wasp) was the most deadly and unpredictable when provoked. Dell Technologies Inc. may soon have to …

Is Silence Golden? Negative Effects of Mandatory Disclosure

By Sudarshan Jayaraman and Joanna S. Wu July 30, 2018 by renholding

“When you talk, you are only repeating what you already know. But if you listen, you may learn something new.” – Dalai Lama XIV

Disclosure regulation is a cornerstone of modern securities markets. Its economic consequences have been extensively studied …

How M&A Laws Affect the Risk of Stock Price Crashes

By Balasingham Balachandran, Huu Nhan Duong, Hoang Luong and Lily Nguyen July 5, 2018 by renholding

In a new cross-nation study, we discuss our findings on how the takeover market affects stock-price crash risk, defined as the likelihood of a sudden, drastic decline in the stock price of a firm. An important consideration for risk management …

How Institutional Cross-Ownership Affects Corporate Financing of Investment Opportunities

By Yangyang Chen, Qingyuan Li and Jeffrey Ng June 27, 2018 by renholding

Public firms are increasingly connected through institutional investors’ stock ownership, largely due to individual investors who invest excess cash and retirement savings through financial institutions. Firms with institutional cross-ownership have institutional stockholders with significant stakes in other firms within the …

SEC’s Jackson Calls for Curbing Executives’ Ability to Cash Out on Buybacks

By Robert J. Jackson, Jr. June 12, 2018 by renholding

Thank you so much, Neera [Tanden], for that very kind introduction. I’ve long admired all that you and everyone here at the Center for American Progress do to promote a progressive economic agenda. And I share your commitment to making

…

Post-Earnings Announcement Drift and Corporate Insider Trading

By Christina Dargenidou, Ian Tonks and Fanis Tsoligkas June 5, 2018 by renholding

Post-earnings announcement drift (PEAD) is a well-documented and puzzlingly persistent market anomaly. Companies that report earnings higher than expected typically experience an upward drift in their stock prices while those that report earnings below what was anticipated see a downward …

Following the Corporate Governance Canon Pays Off for Chinese Companies

By Say Hak Goo and Bryane Michael February 19, 2018 by renholding

Over the years, a consensus on the best corporate governance practices has emerged. The OECD Guidelines of Corporate Governance epitomize a canon of such practices, including things like having non-executive shareholders on boards, having an audit committee, and following special …

How Changes in the Likelihood of Shareholder Litigation Affect M&A Decisions

By Chune Young Chung, Incheol Kim and Monika K. Rabarison February 1, 2018 by renholding

Evidence shows shareholders’ wealth is protected from self-serving managers, who are often motivated to divert corporate resources, by both internal and external corporate governance mechanisms (Jensen and Meckling, 1976; Fama, 1980; Fama and Jensen, 1983). However, due to high monitoring …

Why Do Retail Investors Ignore Accounting Information?

By Elizabeth Blankespoor, Ed deHaan, John Wertz and Christina Zhu November 21, 2017 by renholding

Prior research finds that individual (retail) investors often fail to use accounting information when making stock trading decisions. Instead, many individuals underperform by trading on attention-grabbing technical trends such as high past stock returns.

A number of Securities and Exchange …

How Executive Compensation Affects Firms’ Choice of Financing

By Steven Freund, Saira Latif and Hieu V. Phan November 10, 2017 by renholding

The separation of corporate ownership from control leads to an agency problem caused by the divergent interests of shareholders (the principals) and management (the agent). One area of contention is the level of risk-taking by the firm. Managers’ investment in …

What Do Corporate Insiders Do with Newly Vested Equity?

By Erik Johannesson and Seil Kim November 8, 2017 by renholding

In a new study, we examine restricted-stock vesting events, through which directors and high-level executives (“insiders”) receive stock but face fewer reporting requirements and selling restrictions than if the stock had been purchased on the open market. Using a detailed …

How Short-Term Institutional Ownership Helps Firms Adapt to Radical Change

By Mariassunta Giannetti and Xiaoyun Yu September 28, 2017 by renholding

Technological shocks, import competition, and shifts in regulatory policies lead with increasing frequency to major industry shakeouts and radical change in economic environments. Whether firms succumb or thrive depends on the extent to which they restructure and reinvent their business …

How Financial Constraints Affect Stock-Price Crash Risk

By Guanming He and Helen Mengbing Ren August 30, 2017 by renholding

Financial crises and corporate scandals like those involving Enron, Worldcom, or Fannie Mae have triggered increased academic research into the probability of stock price crashes. Stock price crashes have a material impact on investor welfare, and so are of interest …

Are All Insider Stock Sales Created Equal?

By Amir Amel-Zadeh January 5, 2017 by renholding

Company insiders trade for a variety of reasons. While there has been empirical evidence suggesting that insiders buy their firm’s shares ahead of good news, in the case of insider sales, the evidence has been mixed. In particular, the academic …

A Comparative Analysis of Dual Class Share Structures

By Junzheng Shen November 4, 2016 by renholding

The efficiency of dual class share structures is controversial, and whether to allow them is a difficult choice. Though much has been written about this topic, no comprehensive picture of dual class structures’ governance effects has emerged.

Although dual class …

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