We examine whether managerial cognitive heuristics spill over from personal to corporate decisions. We identify “anchoring CEOs” who anchor on the 52-week high in personal stock trading and show that this behavior extends to corporate financial decisions. These CEOs are more likely to issue seasoned equity offerings near the 52-week high and place greater weight on the target’s 52-week high in acquisition pricing, with the latter associated with negative abnormal returns. The effect is stronger under competitive pressure and uncertainty but weaker with stronger governance and CEO experience. Our findings highlight cross-domain persistence in managerial heuristics and the role of governance in mitigating behavioral distortions.

We find that analysts are more likely to downgrade stocks when prices approach the 52-week high. The results are stronger for stocks with higher information asymmetry but moderated by analysts' reputation, work experience, and educational background. We also find a strategy that shorts stocks with recommendation downgrades is less profitable for the downgrades near 52-week high than for other downgrades. Moreover, these downgraded firms with prices near 52-week high subsequently experience relatively less negative earnings forecast revisions. These results suggest that these downgrade decisions are less likely to be information-driven and consistent with our anchoring interpretation.

This study examines how options trading influences brand development strategies by encouraging managerial risk-taking. We find that firms with higher levels of options trading tend to introduce more new trademarks, which exhibit lower citation rates from subsequent trademarks. These firms favor brand creation over extension, leading to increased brand riskiness, as evidenced by greater trademark diversity. Potential channels for these effects include increased institutional ownership by transient investors and enhanced managerial hedging opportunities. These effects are more pronounced in firms with weaker governance, managers with higher pay-risk sensitivity, younger managerial teams, and intense competition. Additionally, we observe a negative relation between unrelated brand diversification, driven by options trading, and firm value. Our findings support the notion that active options markets incentivize managers to pursue riskier brand strategies.

This paper explores whether firms manage their earnings after stock splits to meet the raised expectations from the market due to the positive signal sent by the splits. We first document that post-split drift mainly exists in the first three months and is positively associated with post-split standardized unexpected earnings (SUE). However, the higher post-split SUE of split firms is associated with higher discretionary accruals and abnormally lower R&D expenses. This result is consistent with our hypothesis that split firms overstate their post-split earnings by manipulating accruals and reducing R&D spending. Moreover, post-split abnormal returns increase with discretionary accruals and R&D reduction for about six months and tend to reverse over longer horizons, especially for firms with negative pre-split SUE. Overall, our results indicate that the post-split drift is a short-term phenomenon and partly attributable to the earnings management after the splits.

We propose that firms use stock splits as a means of attracting attention and inducing information production to correct price distortion caused by investors’ 52-week high anchoring bias. Our analysis shows that firms are more likely to split stocks when their prices are near 52-week highs, especially if they are highly profitable and undervalued. After splits, undervaluation gradually disappears. Moreover, these splits are associated with a slower market reaction and a more positive post-split drift, consistent with the notion that investors’ anchoring bias hinders price adjustment, leading to a gradual price correction. In addition, the likelihood of such splits increases with CEO wealth-performance sensitivity, and investment-price sensitivity increases following splits. Our evidence suggests that firms utilize stock splits to correct mispricing induced by investors’ 52-week high anchoring bias.

We hypothesize that high stock price levels impede informed trading on the stocks and reduce price informativeness. This is because uninformed trading is needed to facilitate informed trading, and high stock prices may impose budget constraints on uninformed investors. Indeed, we find, for high-price firms, (i) options to stock trading volume (O/S), an informed trading measure in options market, is higher, (ii) price informativeness about future earnings is lower, and (iii) investment sensitivity to price is lower. We also find these patterns reverse after stock splits, suggesting that firms can use splits to improve informed trading and enhance price informativeness.