American IPOs are priced after a process of bookbuilding, during which issuers can withdraw at any time. We hypothesize that the option to withdraw reduces underpricing by strengthening the issuers’ bargaining power with respect to investors. Empirical analysis reveals that underpricing is lower when investor perception of an IPO's likelihood of withdrawal is higher. Withdrawing issuers are neither smaller nor less profitable than issuers completing their IPOs, and engage underwriters that are as reputable as those managing completed offerings. Withdrawal is correlated with leverage, intended use of proceeds, expected issue size, venture backing, revenues, NASDAQ returns, and IPO activity.

Analysts are recognized for their expertise in predicting industry growth, yet little is known about whether CEOs learn from analysts’ insights to guide investment decisions. Focusing on conglomerates where CEOs are underinformed about segment growth opportunities, we find that CEOs learn industry insights from analysts to adjust internal capital allocation. The extent of learning increases when analysts have closer proximity to CEOs or expertise in segments where CEOs face larger internal knowledge gaps. CEOs likely learn from analysts through private communications, as the insights learned are not yet publicly available, difficult to replace with other sources, and persistently impactful for firms. CEOs also exploit conference calls as another way to learn from analysts. As a result, learning analysts’ insights enhances firm value. We employ brokerage mergers/closures as a quasi-experiment to address endogeneity concerns. Overall, our study provides novel evidence on a learning channel through which analysts add value to firms.

We argue that the empirical evidence against the capital asset pricing model (CAPM) based on stock returns does not invalidate its use for estimating the cost of capital for projects in making capital budgeting decisions. Because stocks are backed not only by projects in place, but also by the options to modify current projects and undertake new ones, the expected returns on stocks need not satisfy the CAPM even when expected returns of projects do. We provide empirical support for our arguments by developing a method for estimating firms' project CAPM betas and project returns. Our findings justify the continued use of the CAPM by firms in spite of the mounting evidence against it based on the cross section of stock returns.

We examine cases where managers announce an intention to de-stagger their boards via proxy proposals or board action. The literature has established the staggered board as the most consequential of all takeover defenses and one that destroys wealth. Thus, dismantling staggered boards benefits shareholders. We study the wealth effects and motives behind this change in governance within a conditional event study. We find that de-staggering the board creates wealth and that shareholder activism is an important catalyst for pushing through this change. Moreover, in the period preceding Sarbanes–Oxley, investor reaction indicates a perception that de-staggering firms are more likely to be takeover targets.

This study empirically examines the impact of various competitive cost proxies on the extent of product‐related information disclosed by biotech initial public offerings (IPOs) in their prospectuses. The choice of biotech companies, which operate in a fiercely competitive environment, crystalizes the importance of competitive disclosure costs. The focus on product‐related information is aimed at a disclosure set for which potential competitive harm is a priori substantial. Our empirical analyses establish three disclosure determinants: the stage of product development, availability of patent protection, and venture capital backing. Additionally, we find the relative size of ownership retained by pre‐IPO owners to be negatively related to the extent of disclosure, as predicted by signaling models. We also document the expected inverse relation between the extent of information conveyed by the biotech IPOs and widely used measures of information asymmetry: the bid‐ask spread and quoted depth, as well as stock return volatility.

This study examines the ability of analysts to forecast future firm performance, based on the selective coverage of newly public firms. We hypothesize that the decision to provide coverage contains information about an analyst's underlying expectation of a firm's future prospects. We extract this expectation by obtaining residual analyst coverage from a model of initial analyst following. We document that in the three subsequent years, initial public offerings with high residual coverage have significantly better returns and operating performance than those with low residual coverage. This evidence indicates analysts have superior predictive abilities and selectively provide coverage for firms about which their true expectations are favorable.