We examine the role of inventor CEOs—those with personal hands-on experience of innovation—in the financing of innovation. Using a sample of technology initial public offerings (IPOs) in the US, we document that inventor CEOs are associated with lower underpricing at the time of the IPOs. Inventor CEOs also appear more capable of taking their firms public during “cold” IPO market periods when financing conditions are more difficult. Analyses based on regulatory changes and a founder-only sample suggest that these relationships are causal. Further, inventor-led firms appear to invest the IPO proceeds more productively, as reflected in the firms’ superior innovation outcomes in the post-IPO period. The stock market fails to fully understand these relationships, and IPOs led by inventor CEOs produce large positive abnormal returns in the three years following the offering. Our findings are consistent with inventor CEOs facilitating innovation financing for startup firms by effectively reducing information asymmetry and valuation uncertainty of firm's innovation capital for outside investors.

This paper documents pervasive evidence of intra-industry reversals in monthly returns. Unlike the conventional reversal strategy based on stock returns relative to the market portfolio, we document intra-industry return reversals that are larger in magnitude, consistently present over time, and prevalent across subgroups of stocks, including large and liquid stocks. These return reversals are driven by order imbalances and noninformational shocks. Consistent with reversals representing compensation for supplying liquidity, intra-industry reversals are stronger following aggregate market declines and volatile times, reflecting binding capital constraints and limited risk-bearing capacity of liquidity providers.

We find that analysts who issue more accurate earnings forecasts also issue more profitable stock recommendations. The average factor-adjusted return associated with the recommendations of analysts in the highest accuracy quintile exceeds the corresponding return for analysts in the lowest accuracy quintile by 1.27% per month. Our findings provide indirect empirical support for valuation models in the accounting and finance literatures (e.g., Ohlson, 1995) that emphasize the role of future earnings in predicting stock price movements. Our results also suggest that imperfectly efficient markets reward information gatherers, such as security analysts, for their costly activities in generating superior earnings forecasts.

We examine whether market-wide investor sentiment influences the stock price sensitivity to firm-specific earnings news. Using the recently developed measure of investor sentiment by Baker and Wurgler (2006), we find that the stock price sensitivity to good earnings news is higher during high sentiment periods than during periods of low sentiment, whereas the stock price sensitivity to bad earnings news is higher during periods of low sentiment than during periods of high sentiment. This influence of sentiment is especially pronounced for the earnings news of small stocks, young stocks, high volatility stocks, non-dividend-paying stocks, and stocks with extremely high and low market-to-book ratios. Further analysis suggests that the sentiment-driven mispricing of earnings contributes to the general mispricing of stocks due to investor sentiment.

Recent work documents a behavioral tendency of investors to expect excessively high upside potential for low-priced stocks. These expectations expose low-priced firms to greater pressure for short-term performance because their poor earnings news leads to greater investor disappointment and larger stock price declines. Therefore, we hypothesize that firms with a long-term focus, such as those that invest heavily in research and development (R&D), avoid low share prices. Consistent with our hypothesis, we find that firms with higher R&D capital decide on a higher filing price in their initial public offering, are less likely to undergo a stock split once listed, and upon a stock split, choose a higher post-split price. We establish a causal link between firms' R&D and share price management by exploiting the exogenous increases in R&D expenditures induced by the staggered introduction of state-level R&D tax credits in the US. Our study suggests that firms with large R&D capital target high share prices to shield their long-term investments from investor short-termism.

We show that the returns of individual stocks become more synchronous with the aggregate market during periods of high investor sentiment. We also document that the effect of sentiment on stock return synchronicity is especially pronounced for small, young, volatile, non-dividend-paying and low-priced stocks. This ‘difference in difference’ suggests that stocks with these characteristics are affected more by sentiment—consistent with previous studies. Our results support the hypothesis that greater constraints on arbitrage and the prevalence of sentiment-driven demand during periods of high sentiment lead to increased comovement among stocks.

Prior studies provide conflicting evidence as to whether managers have a general tendency to disclose or withhold bad news. A key challenge for this literature is that researchers cannot observe the negative private information that managers possess. We tackle this challenge by constructing a proxy for managers' private bad news (residual short interest) and then perform a series of tests to validate this proxy. Using management earnings guidance and 8-K filings as measures of voluntary disclosure, we find a negative relation between bad-news disclosure and residual short interest, suggesting that managers withhold bad news in general. This tendency is tempered when firms are exposed to higher litigation risk, and it is strengthened when managers have greater incentives to support the stock price. Based on a novel approach to identifying the presence of bad news, our study adds to the debate on whether managers tend to withhold or release bad news. Data Availability: Data used in this study are available from public sources identified in the study.