Don M. Autore

Failures to Deliver, Short Sale Constraints, and Stock Overvaluation

Studying a large sample of publicly available data on failures to deliver, we find that stocks reaching threshold levels of failures become significantly overvalued. Where short sale constraints are especially binding, we report extreme overpricing and subsequent reversals. These findings support the overvaluation hypothesis, although the mispricing is likely to be difficult to arbitrage because of extreme shorting costs. In addition, threshold stocks with low short interest become more overvalued than threshold stocks with high short interest. This suggests that the level of short interest reflects supply-side effects when the examination conditions on the difficulty of borrowing shares.

Accelerated Equity Offers and Firm Quality: Accelerated Equity Offers and Firm Quality

A series of deregulatory reforms has promoted accelerated equity issuance at the expense of adequate time for underwriter and market scrutiny. Today the majority of publicly listed companies can raise equity on a moments notice, but many eligible issuers choose to allow additional time for scrutiny. We hypothesise that issuers with less favourable inside information (i.e. lower quality issuers) prefer to avoid the pre�?issue scrutiny that could reveal their inside information and are therefore more likely to accelerate their offer. We find supportive evidence using measures of stock valuation and earnings quality as proxies for firm quality. The results suggest that investors are slow to capitalise the information embedded in the speed of issuance.

The Preholiday Corporate Announcement Effect

We find that investors react more favorably to corporate announcements of share repurchases, SEOs, earnings, dividend changes, and acquisitions if the announcement is made immediately prior to or on holidays. These announcements are associated with more positive reactions for favorable events and less negative reactions for unfavorable events. This effect is robust to controls for market conditions and a selection bias, is accompanied by subsequent reversals, and is present in several international markets. Our findings suggest that predictable individual mood changes can cause biases in market reactions to firm-specific news.We report that investors react more favorably to corporate announcements of share repurchases, SEOs, acquisitions, and quarterly earnings when the announcement is made immediately prior to or on a holiday (i.e. pre-holiday trading days). Corporate events that typically trigger stock price declines are associated with abnormal reactions that are 22 to 49 basis points less negative on pre-holiday trading days, and events that usually result in stock price increases are associated with reactions that are 14 to 78 basis points more positive on these days. The results are not explained by a pre-holiday up market, monthly investor sentiment, short selling, investor limited attention, or adverse selection of firm announcements. Using Gallup survey data, we provide evidence that people are happier and less worried immediately prior to holidays, suggesting that our findings could be explained by an optimistic pre-holiday investor mood. This paper contributes to the literature on the pre-holiday effect by providing novel evidence that investor anticipation of holidays elevates announcement reactions to corporate events.

Open Market Share Repurchases in the Presence of Activist Investors

This study examines open market share repurchases of firms targeted by activist campaigns. Compared with firms making ordinary share repurchases, firms making activist-involved repurchases have more cash holdings, are more undervalued, experience better subsequent stock performance and similar or better changes in operating performance, and eventually repurchase more shares. Moreover, repurchasing firms in which the activist investor claims to take a passive role exhibit no undervaluation. For repurchasing firms that make multiple repurchases, their stocks exhibit undervaluation only in repurchases where activists are involved. Lastly, an activist campaign that targets shareholder payout is more likely to be successful when the targeted firm holds more cash and is more undervalued. In all, our findings suggest that activist-involvement improves corporate repurchase decisions.