The Journal of Finance

The New Game in Town: Competitive Effects of IPOs

Published: 03/19/2010   |   DOI: 10.1111/j.1540-6261.2009.01542.x

HUNG‐CHIA HSU, ADAM V. REED, JÖRG ROCHOLL

We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to completed IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, they show significant deterioration in their operating performance. These results are consistent with the existence of IPO‐related competitive advantages through the loosening of financial constraints, financial intermediary certification, and the presence of knowledge capital. These aspects of competitiveness are significant in explaining the cross‐section of underperformance as well as survival probabilities for competing firms.

A Multiple Lender Approach to Understanding Supply and Search in the Equity Lending Market

Published: 11/26/2012   |   DOI: 10.1111/jofi.12007

ADAM C. KOLASINSKI, ADAM V. REED, MATTHEW C. RINGGENBERG

Using unique data from 12 lenders, we examine how equity lending fees respond to demand shocks. We find that, when demand is moderate, fees are largely insensitive to demand shocks. However, at high demand levels, further increases in demand lead to significantly higher fees and the extent to which demand shocks impact fees is also related to search frictions in the loan market. Moreover, consistent with search models, we find significant dispersion in loan fees, with this dispersion increasing in loan scarcity and search frictions. Our findings imply that search frictions significantly impact short selling costs.

Short‐Selling Risk

Published: 12/15/2017   |   DOI: 10.1111/jofi.12601

JOSEPH E. ENGELBERG, ADAM V. REED, MATTHEW C. RINGGENBERG

Short sellers face unique risks, such as the risk that stock loans become expensive and the risk that stock loans are recalled. We show that short‐selling risk affects prices among the cross‐section of stocks. Stocks with more short‐selling risk have lower returns, less price efficiency, and less short selling.

Leaning for the Tape: Evidence of Gaming Behavior in Equity Mutual Funds

Published: 12/17/2002   |   DOI: 10.1111/1540-6261.00438

Mark M. Carhart, Ron Kaniel, David K. Musto, Adam V. Reed

We present evidence that fund managers inflate quarter‐end portfolio prices with last‐minute purchases of stocks already held. The magnitude of price inflation ranges from 0.5 percent per year for large‐cap funds to well over 2 percent for small‐cap funds. We find that the cross section of inflation matches the cross section of incentives from the flow/performance relation, that a surge of trading in the quarter's last minutes coincides with a surge in equity prices, and that the inflation is greatest for the stocks held by funds with the most incentive to inflate, controlling for the stocks' size and performance.

Vote Trading and Information Aggregation

Published: 11/28/2007   |   DOI: 10.1111/j.1540-6261.2007.01296.x

SUSAN E.K. CHRISTOFFERSEN, CHRISTOPHER C. GECZY, DAVID K. MUSTO, ADAM V. REED

The standard analysis of corporate governance assumes that shareholders vote in ratios that firms choose, such as one share‐one vote. However, if the cost of unbundling and trading votes is sufficiently low, then shareholders choose the ratios. We document an active market for votes within the U.S. equity loan market, where the average vote sells for zero. We hypothesize that asymmetric information motivates the vote trade and find support in the cross section. More trading occurs for higher‐spread and worse‐performing firms, especially when voting is close. Vote trading corresponds to support for shareholder proposals and opposition to management proposals.