Existing literature argues that disparity in investment opportunities within diversified firms can erode firm value. We investigate this 'diversity cost' hypothesis in the context of spinoffs by using post-spinoff data to (1) 'reconstruct' the diversified firm after the spinoff and assess the...

This paper presents a rationale for divestiture consistent with one of the frequently cited reasons by divesting firms, namely, that the firm is undervalued and splitting the firm into its component businesses will make it easier for the market to value the components accurately. When firms are...

We show that when some investors hold levered portfolios by engaging in margin borrowing, repeated rounds of trading can result in market instability--in the sense that prices can move rationally--even in the absence of any change in fundamentals. We show this with a simple model in which all...

This paper provides a model that explains the structure of mutual funds. Specifically, the paper explains why funds structure as open- or closed-end funds, and why some open-end funds charge loads. In our model fund managers generate earn excess returns that, on the margin, are increasing in...

Should IPO investors pay attention to employees' views on firm quality and work satisfaction (e.g., work-life-balance)? We track employees' opinions (Glassdoor) in private firms that subsequently go public. Employees' pre-IPO views are informative: positive views on firm/manager quality predict...

Insurance companies often follow highly correlated investment strategies. As major investors in corporate bonds, their investment commonalities subject investors to fire-sale risk when regulatory restrictions prompt widespread divestment of a bond following a rating downgrade. Reflective of...

Overconfident CEOs tend to have over-positive views of their own skills and of future corporate performance. Thus, we hypothesize that overconfident executives are more likely to engage in reckless or intentional actions that give rise to SCAs. We find that executive-overconfidence increases...

We propose and test the hypothesis that overconfident-CEOs, with upwardly-biased estimates of own firm-value, are more predisposed to repurchasing stock. An implication is that the stock-market, recognizing overconfident-CEO behavior, will react less positively to repurchase announcements. The...

The literature posits that some CEO overconfidence benefits shareholders, though high levels may not. We argue adequate controls and independent viewpoints provided by an independent board mitigates the costs of CEO overconfidence. We use the concurrent passage of the Sarbanes-Oxley Act and...

Our model of the initial public offering process links the three main empirical IPO anomalies underpricing, hot issue markets, and long-run underperformance and traces them to a common source of inefficiency. We relate hot IPO markets (such as the 1999/2000 market for Internet IPOs) to the...