Does corporate diversification reduce shareholder value? Since firms endogenously choose to diversify, exogenous variation in diversification is necessary to draw inferences about the causal effect. We examine changes in the within-firm dispersion of industry investment, or “diversity”. We find that exogenous changes in diversity, due to changes in industry investment, are negatively related to firm value. Thus diversification destroys value, consistent with the inefficient internal capital markets hypothesis. Measurement error does not cause this finding. We also find that exogenous changes in industry cash flow diversity are negatively related to firm value.

Stocks can be overpriced when short-sale constraints bind. We study the costs of short-selling equities from 1926 to 1933, using the publicly observable market for borrowing stock. Some stocks are sometimes expensive to short, and it appears that stocks enter the borrowing market when shorting demand is high. We find that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis. Size-adjusted returns are 1–2% lower per month for new entrants, and despite high costs it is profitable to short them.

The Morning Call and Midday Call segments on CNBC TV provide a unique opportunity to study the efficient market hypothesis. The segments report analysts’ views about individual stocks and are broadcast when the market is open. We find that prices respond to reports within seconds of initial mention, with positive reports fully incorporated within one minute. Trading intensity doubles in the first minute, with a significant increase in buyer- (seller-) initiated trades after positive (negative) reports. Traders who execute within 15 seconds of the initial mention make small but significant profits by trading on positive reports during the Midday Call.

This paper examines the hypothesis that non-US firms cross-list in the United States to increase protection of their minority shareholders. Cross-listing on the NYSE or Nasdaq subjects a non-US firm to a number of provisions of US securities law, and requires the firm to conform to US GAAP. It therefore increases the expected cost to managers of extracting private benefits, and commits the firm to protect minority shareholders’ interests. The expected relation between the quantity of cross-listings and shareholder protection in the home country is ambiguous, because managers will consider both expected private benefits and the public value of their shares. However, there are clear predictions about the relation between subsequent equity issues, shareholder protection, and cross-listings:(1)Equity issues increase following all cross-listings, regardless of shareholder protection.(2)The increase should be larger for cross-listings from countries with weak protection.(3)Equity issues following cross-listings in the US will tend to be in the US for firms from countries with strong protection and outside the US for firms from countries with weak protection.We find evidence consistent with each of these predictions. Overall, the desire to protect shareholder rights appears to be an important reason why some non-US firms cross-list in the United States.

We develop and estimate an econometric model of limit-order execution times using survival analysis and actual limit-order data. We estimate versions for time-to-first-fill and time-to-completion for both buy and sell limit orders, and incorporate the effects of explanatory variables such as the limit price, limit size, bid/offer spread, and market volatility. Execution times are very sensitive to the limit price, but are not sensitive to limit size. Hypothetical limit-order executions, constructed either theoretically from first-passage times or empirically from transactions data, are very poor proxies for actual limit-order executions.

A large body of literature suggests that firm-level stock prices “underreact” to news about future cash flows; i.e., shocks to a firm's expected cash flows are positively correlated with shocks to expected returns on its stock. We examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Institutions buy shares from (sell shares to) individuals in response to positive (negative) cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up (down) in the absence of any cash-flow news, institutions sell shares to (buy shares from) individuals. Although institutions are trading in the “right” direction, institutions as a group outperform individuals by only 1.44% per annum before transaction and other costs, because they are extremely conservative in deviating from the value-weighted market index.

Acquisitions among New York Stock Exchange specialist firms can increase specialist firm size, capitalization, and market concentration, and thereby affect the market quality of the stocks they trade. We find that while traded stocks show significant improvement in several market quality measures following acquisitions, similar changes are evident in matched control stocks not involved in acquisitions. We conclude that specialist firm acquisitions either do not improve market quality, or improve market quality, but competitive and other pressures (resulting partly from the acquisitions themselves) force improvements in market quality for control stocks also. Either interpretation implies that specialist acquisitions have not had deleterious effects on market quality.

The liquidity of the market for corporate assets plays an important role in explaining whether a firm divests a business segment, which segment the firm divests, and whether it divests a core segment or an unrelated segment. Firms are more likely to divest segments from industries with a more liquid market for corporate assets, unrelated segments, poorly performing segments, and small segments. Strikingly, the segment with the least liquid market is less likely to be divested than the best-performing segment, while the worst-performing segment is less likely to be divested than the segment with the most liquid market.