- ‘Flying under the Radar: Confidential Filings and IPO Lawsuits‘ with N. Bugra Ozel and Suhas A. Sridharan, forthcoming, The Accounting Review.
- Honorable Mention for the Best Paper Award, 2022 FARS Conference
We examine whether IPO registration disclosures expose firms to greater nonshareholder litigation risk. Using hand-collected data on lawsuits initiated at federal and state courts against IPO firms, we show that firms that submit their IPO registration statement with the SEC publicly experience a 16% increase in litigation risk between the registration filing and issuance date. Consistent with the public filing of the registration driving this heightened litigation risk, firms that file their registration confidentially under the JOBS Act do not experience such an increase in litigation risk. The effects of confidential filing are concentrated among business-initiated lawsuits, intellectual property/ contract lawsuits, and potentially meritless lawsuits. We find no disproportionate increase in post-IPO lawsuits for confidential filers, suggesting that withholding information during the IPO registration period mitigates litigation risk.
- ‘Temporary Price Changes During Replenishment Leadtime‘ with Nagihan Comez-Dolgan, Mohamad Y. Jaber, and Lama Moussawi, 2020, Applied Mathematical Modelling, Volume 78, 217-231.
- ‘Creditor Control and Product-Market Competition’ with Matthew T. Billett and Miaomiao Yu, 2018, Journal of Banking & Finance, Volume 86, 87-100.
- ‘Creditor Control Rights and Managerial Risk Shifting‘, 2017
Recent studies argue that creditors increase their influence over borrowing firms following loan covenant violations, resulting in significant changes in firms’ policies. These creditor-induced changes arguably benefit shareholders by limiting managerial discretion, alleviating shareholder-debtholder conflicts. I revisit this argument and examine the relation between volatility and firm investment around covenant violations. I find that the negative relation between volatility and firm investment reverses following violations, consistent with the risk-taking behavior. This behavior is more pronounced when borrowers have strong bargaining power and when managers have strong risk-taking incentives (high vega and equity ownership). I also show that firm risk significantly increases following violations. These findings indicate that covenant violations do not necessarily lead to stronger congruence between shareholder and debtholder incentives.
Do managers time the market when they make merger decisions? Merger and acquisition waves seem to correspond with market tides, cresting with bull markets. A contentious debate exists over whether this trend indicates managerial market timing ability. Pseudo market timing, introduced by Schultz (2003, Journal of Finance 58, 483–517), provides an alternative hypothesis to explain abnormal performance following events even when managers cannot time the market. I find that acquiring firms which use stocks as the method of payment exhibit negative long-run abnormal returns in event-time, but not in calendar time. Simulations reveal that even when ex ante expected abnormal returns are zero (i.e. managers have no market timing ability), median ex post performance for acquirers is significantly negative when event-time is used. These findings support pseudo market timing as an explanation for acquiring firm underperformance in the context of stock mergers.