When a security trades at multiple locations simultaneously, an informed trader has several avenues in which to exploit his private information. The greater the proportion of liquidity trading by “large” traders who can split their across markets, larger is correlation between volume different markets and smaller informativeness prices. We show that one emerges as dominant location for security. use information more than period, timely release price market makers adversely affects profits...

Our model of the initial public offering process links three main empirical IPO 'anomalies' -underpricing, hot issue markets, and long-run underperformance -and traces them to a common source inefficiency.We relate markets (such as 1999/2000 market for Internet IPOs) presence class investors who are 'irrational' in sense having exuberant expectations regarding future performance.Underpricing emerge underwriters attempt maximize profits from sale equity, at expense these...

ABSTRACT We argue that some powerful CEOs induce boards to shift the weight on performance measures toward better performing measures, thereby rigging incentive pay. A simple model formalizes this intuition and gives an explicit structural form rigged portion of CEO wage function. Using U.S. data, we find support for model's predictions: accounts at least 10% compensation sensitivity it increases with human capital firm volatility. Moreover, a pay is one standard deviation above mean faces...

Journal Article Board Expertise: Do Directors from Related Industries Help Bridge the Information Gap? Get access Nishant Dass, Dass Scheller College of Business, Georgia Institute Technology Search for other works by this author on: Oxford Academic Google Scholar Omesh Kini, Kini Robinson State University Vikram Nanda, Nanda Rutgers Business School Bunyamin Onal, Onal Aalto Jun Wang Baruch The Review Financial Studies, Volume 27, Issue 5, May 2014, Pages 1533–1592,...

We rely on a model with incomplete contracts and bargaining power to argue that trade credit (TC) can serve as commitment device for making relationship-specific investments (RSIs). Unlike existing theories, we explain within single theoretical framework why TC is affected by firms’ the specialized nature of transacted goods. Using large panel publicly listed firms innovation-based proxies RSI, find strong support model’s predictions: increases in upstream firm’s RSI downstream market power....

Journal Article Restraining Overconfident CEOs through Improved Governance: Evidence from the Sarbanes-Oxley Act Get access Suman Banerjee, Banerjee College of Business, University Wyoming Search for other works by this author on: Oxford Academic Google Scholar Mark Humphery-Jenner, Humphery-Jenner UNSW Business School, Australia Vikram Nanda Rutgers and Texas at Dallas The Review Financial Studies, Volume 28, Issue 10, October 2015, Pages 2812–2858, https://doi.org/10.1093/rfs/hhv034...

ABSTRACT We investigate the potential for manipulation due to interaction between secondary market trading prior a seasoned equity offering (SO) and pricing of offering. Informed traders acting strategically may attempt manipulate prices by selling shares SO, profit subsequently from lower in The model predicts increased leading increases maker's inventory temporary price decreases. Further, since conceals information, ratio permanent components movements is predicted increase.

Journal Article Internal Capital Market and Dividend Policies: Evidence From Business Groups Get access Radhakrishnan Gopalan, Gopalan Olin School, Washington University in St. Louis Search for other works by this author on: Oxford Academic Google Scholar Vikram Nanda, Nanda Ernest Scheller Jr. College of Business, Georgia Institute Technology Amit Seru Booth School Chicago NBER The Review Financial Studies, Volume 27, Issue 4, April 2014, Pages 1102–1142, https://doi.org/10.1093/rfs/hhu004...

Are powerful chief executive officers (CEOs) more effective in responding to pressure from the economic environment? Concentrating decision‐making power may facilitate rapid decision making; however, quality of making be compromised, with severe consequences for firm if a CEO is less likely receive independent advice or have her decisions scrutinized. We empirically investigate performance firms CEOs when industry conditions deteriorate. focus on downturns as these represent an exogenous...

Overconfident CEOs/senior executives tend to have excessively positive views of their own skills and company’s future performance. We hypothesize that overconfident managers are more likely engage in reckless or intentional actions/disclosures give rise securities class actions (SCAs). Empirical evidence is supportive: increase SCA likelihood, though litigation risk ameliorated through improved governance, such as following the Sarbanes–Oxley Act 2002. Post-SCA, companies less hire an CEO....

Is bank financing compatible with innovation? We show that an exogenous enhancement in the value of borrowers’ patents, either through greater patent protection or creditor rights over collateral, results cheaper loans. Using regression discontinuity design, we although R&D investment sharply drops following a financial covenant violation, reduction is concentrated firms less productive R&D. Consequently, does not impair innovative output. Our suggest property patents confer to...

We study the relation between state-level public corruption in United States and firm-value firms' disclosure policies. Consistent with our hypotheses, firms have significantly lower value (Tobin's q) informational transparency more corrupt areas. Local has a less negative effect on industries that sell primarily to government, suggesting quid pro quo these officials. Several tests address endogeneity concerns: for example, located different states but close state borders are affected by...

We argue that in the after-market trading of an IPO, underwriting syndicate, by standing ready to buy back shares at offer price (price stabilization), compensates uninformed investors ex post for adverse selection cost they face bidding IPOs. This domi? nates ante compensation underpricing. The reason is stabilization exploits information about investor demand whereas underpricing must be based on infor? mation. However, liquidity and syndication costs constrain use which, equilibrium,...

We model an IPO company's optimal response to the presence of sentiment investors and short sale constraints. Given regulatory constraints on price discrimination, mechanism involves issuer allocating stock 'regular' institutional for subsequent resale investors, at prices regulars maintain by restricting supply. Because hot market can end prematurely, carrying in inventory is risky, so break even expectation require be underpriced - absence asymmetric information. However, offer still...

The authors show that, when some investors hold levered portfolios by engaging in margin borrowing, repeated rounds of trading can result market instability--in the sense that prices move rationally--even absence any change fundamentals. They this with a simple model which all agents are rational and symmetrically informed. discuss welfare implications price stability explore effects composition rules on market. A major article is limits might enhance excluding potentially destabilizing...

We hypothesize that public firms create novel innovations rely more on arm's length financing (equity and debt) than relationship based bank financing. A primary reason is banks, unable to evaluate technologies, will tend discourage investing in innovative projects be prone shut down ones are ongoing. Using a large panel of US companies from 1974-2000, we find consistent with our predictions, have larger number patents these significant terms influencing subsequent patents. confirm findings...