In this paper, we develop and test five hypotheses relating the takeover premium paid for a target to the investors' divergence of opinion on the target's equity value. For a sample of acquisitions of publicly traded targets, we show that the total takeover premium is higher when investors have...

Prior research uses the basic one-period European call-option pricing model to compute default measures for individual firms and concludes that both the size and book-to-market effects are related to default risk. For example, small firms earn higher return than big firms only if they have...

The paper investigates whether stock liquidity of firms is valued by lending banks revealing that firms with higher liquidity in the capital market pay lower spreads for the loans they obtain. This relationship is causal as evidenced by using the decimalization of tick size as an exogenous shock...

We investigate the cross-sectional predictive relations between stock returns of two public firms with one firm, the parent, owning partial equity of the other, the subsidiary. We find that high past returns of the subsidiary (parent) predict high future returns of the parent (subsidiary). The...

We find evidence that firms commit to corporate social responsibility (CSR) activities to cater to mutual funds’ preference for CSR. To address potential endogeneity between firm CSR activities and mutual funds’ CSR preference, we use mutual fund mergers as exogenous shocks. We further...

In the paper, we study the effect of multiple industry operations on the heterogeneity of investor beliefs. In particular, we compare the levels of heterogeneous beliefs between diversified firms and focused firms. We study the change in the level of heterogeneous beliefs subsequent to...

We observe that public firms are more likely to issue seasoned stocks rather than bonds when theirs boards are more socially-connected. These connected issuers experience better announcement-period stock returns and attract more institutional investors. This social-connection effect is stronger...

This paper studies the effect of advertising on stock returns both in the short run and in the long run. We find that a greater amount of advertising is associated with a larger stock return in the advertising year but a smaller stock return in the year subsequent to the advertising year, even...

Using a sample of debt and seasoned equity issues from 1980-2004 and different proxies of investor optimism and the dispersion in investor beliefs, we empirically analyze, for the first time in the literature, the effect of heterogeneous beliefs among outside investors on the capital structure...