Earnouts address merger valuation risk by deferring payment of a large part of deal consideration and making it contingent on targets’ future performance. We find acquirers of unlisted targets using earnouts gain more (less) than those making full up-front payments in cash (stock). Larger and older acquirers benefit more from earnout-based deals, as do foreign acquirers and acquirers advised by top-tier

We compare the 2007–2009 post-financial-crisis performance of US banks with their performance before the financial crisis, based on bank size using financial ratios. We find bank performance declined in the post-financial-crisis period as compared to its pre-financial-crisis performance, evidenced by reduced return on equity (ROE) and return on assets (ROA), higher debt ratios, lower net interest margin

We examine the effect of investor attention on value loss due to securities class action lawsuits and litigation-based fraud discovery. We find that investor attention is positively associated with damage to corporate reputation and the magnitude of the value losses suffered by defendant firms. The reputational damage to defendant firms with higher investor attention is evident from poor operational

Using a unique, comprehensive data set of 6110 Moody's rating reports from 2004 to 2019, I find that the textual tone of credit rating reports has a significant effect on the credit default swap (CDS) and stock markets. This effect is driven by negative watchlist reports. The results show that the negative tone of these watchlist reports, in particular, leads to a widening in CDS spreads and lower

In this study, we address two research questions: Do recently developed economic uncertainty measures matter for household portfolio choices? If so, which measure is most important? Using household data, we compare 16 uncertainty measures in our unified framework. We find that the economic policy uncertainty (EPU) measure is the most important for household portfolios. We further find that married

I extend the financial economic literature by presenting and testing a model that expresses a firm's expected stock return as a function of its expected free cash flow growth. Results suggest that cash flow growth is positively associated with stock returns. Furthermore, additional information is reflected through cash flow growth relative to cash flow, profits, and dividends. Evidence additionally

By observing changes in stock price comovement for individual firm-pairs, we can infer which types of information are consumed and incorporated into asset prices. Consistent with the predictions of the information-driven comovement hypothesis, we find that stock price comovement is stronger when investors consume qualitative information about firms whose payoffs covary strongly with many others. Furthermore

We examine the implications of active mutual fund management across manager skill levels. We find that funds in the highest active share quintile outperform funds in the lowest active share quintile on a risk-adjusted basis. When sorted on both active share and capture ratio, only managers with high skill and high active share experience positive future performance. Funds with high active share and

We investigate new institutional investors that do not receive initial public offering (IPO) allocations but invest in the newly public firms after IPOs. We find that many institutions buy the stocks of IPO firms in the post-IPO secondary market over time. In contrast to retail investors who chase hot IPOs, these new institutions invest in IPO firms with lower valuations at offerings and better fundamentals

In this article I investigate whether the round-number heuristic affects investors' selection of trading time in the international market. I document the existence of round-time biases, as evidenced by trading activities intensifying at second 0 of 1 min. Further examination suggests that the round-time anomaly is likely driven by algorithmic trading from institutional investors. Consistent with this

We investigate the second-moment response to tweets from US President Donald J. Trump in the US stock market. We find that Trump's tweeting positively and significantly affects the volatility and jumps during our sample's later period. The response of realized volatility to tweets is greater than that of continuous volatility because of the jump component in realized volatility. These results suggest

Using propensity score matching, we provide new evidence of a nonmonotonic relation between the number of anti-takeover provisions (ATPs) a firm adopts, relative to peer-matched firms, and takeover likelihood. Firms with either a relatively low or high number of ATPs are significantly less likely to be a takeover target. We argue that this outcome is a result of the expected benefits versus costs of

Common explanations for the observed rise in excess bank reserves include payment of interest on reserves and liquidity regulations, but capital regulations may also matter. We show that a profit-maximizing bank substitutes from higher risk-weighted loans to lower risk-weighted reserves and Treasuries if the risk-based capital ratio, but not the leverage ratio, increases. Estimated treatment effects

We identify new country characteristics that influence cross-border equity flows: income inequality, autocracy, and sovereign wealth funds. Using 149 source countries and 34 Organisation for Economic Co-operation and Development (OECD) host countries for 2002–2013, we find that OECD host countries receive higher foreign portfolio investment (FPI) inflows from source countries with high income inequality

We analyze the role of firm‐level corporate governance in determining the precommitment payout policy of emerging market firms and investigate whether there is a precommitment life‐cycle effect. Unlike previous studies of U.S. firms, we find evidence of precommitment only among relatively well‐governed firms, which combine good governance with large dividend payouts to shareholders and large debt‐related

We examine whether the presence of loan covenants leads firms to choose either an asset or equity acquisitions. Asset acquisitions involve the selective purchase of a target company's assets, and equity acquisitions involve acquisitions of common stocks. We document that firms with loan covenants are more likely to engage in asset acquisitions as opposed to equity acquisitions. Our results are robust

Industry classifications are used by investors, economists, and policy makers for a great variety of purposes. The traditional economic‐activity‐based systems (Global Industry Classification Standard, North American Industry Classification System, Standard Industrial Classification, and Fama–French) have been supplemented in recent years by alternative classification systems. Our purpose is to provide

Depending on whether the existing debt is below or above target debt level, some firms are more willing to raise debt (if needed) than others. In this article, I show that firms are more likely to both increase and smooth dividends when they have below‐target debt after controlling for access to debt. Additionally, I show that when firms have below‐target debt, they use a greater fraction of proceeds

In this article, we investigate how institutional investors help mitigate business‐related risks in a corporate environment. Using a large sample of employment disputes, litigations, and court cases, we find that institutional investors play a significant role in reducing employment litigation. We observe that firms with larger shares of institutional ownership have a lower incidence of employment

We analyze limit order book resiliency following liquidity shocks initiated by large market orders. Based on a unique data set, we investigate whether high‐frequency traders are involved in replenishing the order book. Therefore, we relate the net liquidity provision of high‐frequency traders, algorithmic traders, and human traders around these market impact events to order book resiliency. Although

I examine the relation between intermarket sweep order (ISO) order imbalances and the daily returns of individual stocks. First, I show that ISO order imbalances are positively related to contemporaneous returns. Second, I find that price pressures emanating from ISO imbalances are persistent and predict cumulative abnormal returns up to 2 months. The predictive power of ISO order imbalances on contemporaneous

We examine the impact of social capital on board gender diversity among U.S. firms. We test whether trust and social networks in a county lead to an increase in female board representation. We find that firms headquartered in high‐social‐capital counties have higher diversity in their corporate board. Economically, we estimate that a 1 standard deviation (SD) increase in social capital leads to a 0

Using both marketwide and firm‐level illiquidity measures of the stock, bond, and credit default swap markets, we find that comovements of illiquidity across markets increase significantly during the recent global financial crisis. Moreover, the degree of comovement remains significantly higher in the postcrisis period and regulatory period than in the precrisis period. Specifically, the distribution

Researchers have argued that the uncertainty surrounding innovative activities causes firms to either underinvest or overinvest in research and development (R&D). We examine whether the information gained by boards through directors’ connections helps mitigate such distortions. We find that an increase in directors’ connections has an asymmetric impact on under‐ and overinvesting firms. R&D expenditures

Using panel data of U.S. firms, we focus on an important yet understudied facet of the chief executive officer's (CEO) personality—extraversion—and how it affects corporate capital structure decisions. We examine how this relation is moderated by financing (tax) benefits, financial crisis, firm size, growth opportunities, and collateralization. The results show that firms managed by extraverted CEOs

We analyze changes in lending by U.S. banks to businesses from 1994 to 2011. We find that lending to businesses, and in particular to small businesses, declined precipitously following onset of the financial crisis. We also examine the relative changes in business lending by banks that did, and did not, receive Troubled Asset Relief Program (TARP) funds from the U.S. Treasury, and find that banks receiving

We exploit a criteria change by Standard & Poor's (S&P) to examine the real effects of a credit ratings change. Using a recalibration by S&P, unrelated to firms’ fundamentals, as a quasi‐natural experiment we analyze the impact of a ratings upgrade on the issuance activity, investment, cash holdings, and payout policy of companies. Our findings suggest upgraded firms subsequently issue more debt relative

In this study, we extend the standard economic model of suicide by considering a new influential factor driving the voluntary death rate. Using an international sample, we estimate the model and document a robust and significant inverse relation between stock market returns and the percentage increase in suicide rates. Trends in male and female suicide are affected by market fluctuations, both contemporaneously

We detect jumps in a high‐frequency price series of exchange‐traded funds (ETFs) that track the broad indexes of U.S. equity markets. Although many jumps (43%) are related to macroeconomic news, more jumps (57%) are not. No‐news jumps are followed by significant return reversals for at least 60 minutes. The return dynamics after news‐related jumps vary with the news characteristics. Scheduled‐news

I examine the effect of product market competition on the yield spread of corporate bonds. I find that firms that face more competitive threats also face a higher cost of corporate bond debt. After controlling for common bond‐level, firm‐level, and macroeconomic variables, my results show that bondholders of firms that are subject to increased competition demand significantly higher credit spreads

We examine whether economic policy uncertainty (EPU) affects a board's chief executive officer (CEO) replacement decision. We find that high EPU reduces the likelihood of forced CEO turnover. Our results support the idea that performance assessment may be more difficult when uncertainty is high. We provide evidence that succession planning may be important to firms in reducing the effects of EPU, as