ABSTRACT This study provides descriptive evidence on how firms respond to activist short seller reports and how these responses are associated with outcomes for the targeted firms. We show that the frequency of these reports has grown substantially in recent years. Although we find that firms respond only 31% of the time, this rate increases substantially when the report is accompanied by significantly negative abnormal returns and when the report contains new evidence. Not responding is associated with a less negative stock price response at report release and fewer adverse outcomes. Firms that launch internal investigations following the report release have significantly higher subsequent rates of stock exchange delisting and SEC enforcement actions, and lower rates of being acquired. Overall, our results highlight the impact of activist short sellers on target firms and that firm responses are associated with material outcomes.

To mitigate information asymmetry in acquisitions, the seller makes contractual representations and warranties (referred to as “R&W” or “reps”) about the state of the target, such as attesting to the accuracy of the target’s financial statements. While seller indemnities allow buyers to impose costs due to breaches in the reps discovered after the deal’s close, these indemnities involve significant contracting costs. To mitigate these costs, the acquisition parties have increasingly turned to purchasing representations and warranties insurance. Using a proprietary and novel sample of R&W insurance policies issued worldwide for acquisitions of non-public targets, we find that the demand for R&W insurance, the premium charged for it, and the likelihood of a claim being filed are correlated with industry metrics for valuation uncertainty, the type of acquirer and seller, and the target’s legal regime. In particular, we find higher demand for R&W insurance and a higher R&W insurance premium charged when the target belongs to an industry with weaker internal controls. We also find that a higher premium is charged when the target is in an industry with relatively high levels of R&D to sales, indicating that the insurance company expects unrecognized intangible assets to have a greater risk of future claims. Our study adds to our understanding of how parties reduce target valuation uncertainty and the role of disclosures and R&W insurance policies in private mergers and acquisitions transactions.

This study presents a field experiment in which media articles for a random sample of firms with earnings announcements are promoted to a one percent subset of Yahoo Finance users. Promoted firms have higher abnormal returns and some evidence of lower bid-ask spreads on the day of the earnings announcement. These results are more pronounced for less visible firms, negative earnings news, and on days with fewer promoted firms. These findings suggest that investor attention affects the pricing of earnings and that retail investors buy stocks that catch their attention, in a setting where attention is randomly assigned.

ABSTRACT We investigate the effects of audit partner rotation among U.S. publicly listed firms, utilizing the fact that audit partners are periodically copied by name in public correspondence between issuers and the Securities and Exchange Commission. Relative to non-rotation firms, we find no evidence of a change in the frequency of misstatements following the partner rotation; however, there is an increase in the frequency of restatement discoveries and announcements. We also find an increase in deferred tax valuation allowances. Overall, the results provide some evidence suggesting that U.S. partner rotations support a fresh look at the audit engagement. JEL Classifications: M41; M42; M48. Data Availability: Data are publicly available from sources identified in the article.

ABSTRACT We use daily page views of analyst estimates, ratings, and target prices on Yahoo Finance to understand when users seek sell-side analyst research. Demand for this information is most pronounced on days with earnings announcements, management guidance, and All-Star analyst reports. Surprisingly, demand does not increase at Form 10-K and Form 10-Q filings. While the overall demand for analyst estimates is 19.9 percent less than for analyst ratings and target prices, on earnings announcement and management guidance days, this preference is reversed. Moreover, the demand for analyst information substantially trumps that of SEC filings and financial statement information. JEL Classifications: M41; G14; G24.

ABSTRACT We document that insider trading is significantly higher than normal levels prior to the public disclosure of SEC comment letters relating to revenue recognition. Furthermore, insider trading is triple its normal level for firms with high short positions. We find a small negative return at the comment letter release date and a negative drift in returns of 1 to 5 percent over the next 50 days following the release. We also find that greater pre-disclosure sales are associated with a stronger negative drift. This evidence suggests that insiders appear to benefit from trading prior to revenue recognition comment letters. We investigate whether the delayed price reaction to comment letter releases is due to investor inattention. Consistent with this explanation, we document that comment letters are downloaded infrequently from EDGAR in the days following their public disclosure. JEL Classifications: M41; M48; K42