[We use a sample of 8,163 venture-backed companies over three decades to test the competing hypotheses that levels and relative shares of IPO (initial public offering) and M&A (mergers and acquisitions) exits are affected by market timing, versus pseudo-market timing that reflects market conditions. We find evidence of pseudo-market timing. Venture-backed issuers react to market or sector runups but do not predict downturns. We find no evidence that firm-specific market timing contributes to IPO or M&A waves. We also find that acquirers turn to acquisition when other opportunities are unattractive, and that the market may be slow to recognize that such opportunities are declining.]

Bakshi and Chen (1996) suggest that the spirit of capitalism affects stock prices by increasing society's aversion to risk. In this article, I show that the way in which the spirit of capitalism impinges upon asset prices depends on the interaction of impatience, willingness to substitute over time, and ordinal preferences between consumption and status, in addition to risk aversion. I develop a general model that charts the channels through which the spirit of capitalism affects asset prices. An increase in the capitalist spirit may increase or decrease risk aversion, and may actually decrease the prices of risky assets. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Despite the central importance of investors to all initial public offering (IPO) theories, relatively little is known about their role in practice. This article is based on a survey of how institutional investors assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. We find that investor characteristics, in particular brokerage relationships with the bookrunner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks. The survey raises doubts as to the extent of information production or revelation.

Responding to a September 2002 regulatory enforcement, the Island electronic communications network stopped displaying its limit order book in the three most active exchange-traded funds (ETFs) where it was the dominant venue. Island’s share of trading activity and price discovery fell, fragmenting the market. ETF prices adjust more slowly when Island goes dark, and there is substantial price discovery movement from ETFs to the futures market. Trading costs increase on Island and decrease off Island, with higher trading costs overall. When Island later redisplays its orders, market quality improves, with transparency and the reduction in fragmentation both playing important roles.

We find that Nevada, the second most popular state for out-of-state incorporations and a state with lax corporate law, attracts firms that are 30–40% more likely to report financial results that later require restatement than firms incorporated in other states, including Delaware. Our results suggest that firms favoring protections for insiders select Nevada as a corporate home, and these firms are prone to financial reporting failures. We provide some evidence that Nevada law also has a causal impact by increasing a Nevada firm's propensity to misreport financials after the firm has incorporated in Nevada.

[In this paper, we use call option prices to identify synergies and news from merger and acquisition (M&A) transaction announcements. We find that M&A announcements result in large and approximately equal gains to the bidder and the target on average, with the combined gains being large enough to justify the premium paid to target shareholders. On average, M&A announcements release good news about targets, but bad news about bidders. This suggests that market prices understate true synergy gains, and helps reconcile the generally negative market-based evidence on value-creation in takeovers with their continued prominence in everyday business strategy.]

In September 2008, the U.S. Securities and Exchange Commission (SEC) temporarily banned most short sales in nearly 1,000 financial stocks. We examine the ban's effect on market quality, shorting activity, the aggressiveness of short sellers, and stock prices. The ban's effects are concentrated in larger stocks; there is little effect on firms in the lower half of the size distribution. Although shorting activity drops by about 77% in large-cap stocks, stock prices appear unaffected by the ban. All but the smallest quartile of firms subject to the ban suffer a severe degradation in market quality.

We provide evidence that creditors play an active role in the governance of corporations well outside of payment default states. By examining the Securities and Exchange Commission's filings of all U.S. nonfinancial firms from 1996 through 2008, we document that, in any given year, between 10% and 20% of firms report being in violation of a financial covenant in a credit agreement. We show that violations are followed immediately by a decline in acquisitions and capital expenditures, a sharp reduction in leverage and shareholder payouts, and an increase in CEO turnover. The changes in the investment and financing behavior of violating firms coincide with amended credit agreements that contain stronger restrictions on firm decision-making; changes in the management of violating firms suggest that creditors also exert informal influence on corporate governance. Finally, we show that firm operating and stock price performance improve post-violation. We conclude that actions taken by creditors increase the value of the average violating firm. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

We use a sample of 8, 163 venture-backed companies over three decades to test the competing hypotheses that levels and relative shares of IPO (initial public offering) and M&A (mergers and acquisitions) exits are affected by market timing, versus pseudo-market timing that reflects market conditions. We find evidence of pseudo-market timing. Venture-backed issuers react to market or sector runups but do not predict downturns. We find no evidence that firm-specific market timing contributes to IPO or M&A waves. We also find that acquirers turn to acquisition when other opportunities are unattractive, and that the market may be slow to recognize that such opportunities are declining. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

We develop a model-free measure of the variance premium by constructing option portfolios whose returns are highly correlated with realized stock variance. This effectively decomposes returns into realized variance minus implied variance. We apply this decomposition to document a novel quarterly cross-sectional continuation pattern in both realized variance and implied variance of individual stocks. Implied variance underanticipates the seasonality of realized variance, so options that performed well at quarterly lags continue to earn high returns in the future. Quarterly periodicity in realized stock variance only occurs on days with analyst earning revisions, suggesting an informational channel for this pattern.