- ‘Flying under the Radar: Confidential Filings and IPO Lawsuits‘ with N. Bugra Ozel and Suhas A. Sridharan, 2020, under review.
IPO firms face strong concerns about proprietary disclosure, prompting regulators to allow submission of IPO registration statements confidentially under the JOBS Act. Prior research documents severe underpricing and other asymmetric information costs associated with obscuring information prior to an IPO. Nonetheless, the vast majority of eligible firms elect the confidential filing provision. In this study, we examine reducing non-shareholder litigation risk as a specific and quantifiable benefit that justify the use of this provision. We show that firms that publicly submit their registration with the SEC experience a 25% increase in non-shareholder lawsuits during the pre-IPO period. In contrast, a matched sample of firms that utilize the confidential filing provision do not experience such an increase. The difference between the two groups is concentrated among lawsuits in which the plaintiff is a business, rather than an individual, and among lawsuits that are more likely to be meritless. We find no disproportionate increase in non-shareholder lawsuits for the confidential filers following the IPO, which suggests that withholding information before the IPO period mitigates, rather than delays, opportunistic litigation.
- ‘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.