Nataliya S. Zaiats

Does Shareholder Approval Requirement of Equity Compensation Plans Matter

This paper studies the impact of the 2003 SEC Regulation requiring shareholder approval of all equity-based executive compensation plans on executive compensation policies and practices at S&P 500 firms. Following the 2003 Regulation, firms with shareholder approved equity plans in place or those with strong performance, while not those with non-approved plans or weak performance, increase their equity compensation proposal submission activity. The quality of equity compensation proposals improves in the after-regulation period, and shareholders exhibit greater scrutiny and monitoring of executive compensation through increased voting rights. We find a decline in the equity pay component while an increase in the cash component of total executive compensation after the 2003 Regulation and also provide evidence that the 2003 Regulation contributes to this change in compensation structure.

Equity and Debt Issuance by Firms Violating GAAP

We examine security issuance in restated periods by firms that misreport financial statements and find that only a small per cent of such firms issues securities in the restated period. Investors are misled by mistakes made by firms issuing equity more so than other restating firms at the initial announcement of misreported earnings, but are not misled by mistakes made by debt‐issuing firms. Equity‐issuing firms that manage earnings to beat analyst expectations experience abnormally high returns in the restated period prior to security issuance. Firms that restated more reports and have higher pre‐mistake returns are more likely to issue equity. High leverage, firm size and number of restated periods are positively associated with the likelihood of debt issuance by restating firms.

Do Short Sellers Exploit News of Related Firms

This paper examines whether short sellers exploit information in economically linked firms to undertake profitable trades. Using newly available information on firm-level customer-suppliercompetitor relationships and Reg SHO daily short sales data, we find that the short selling of supplier stock increases with negative post-news customer returns, and that the relation becomes more pronounced in supplier information asymmetry. The results show no relationship between short selling of the upstream supplier and downstream customer news in 3-party economic links, but suggest increased short selling of the supplier’s closest rival based on unfavorable customer news even if the rival is not the customer’s supplier. Finally, short sellers do not trade supplier stock prior to customer news announcements, suggesting evidence of trades based on public information. Overall, these results indicate an information intermediary role of short sellers in economically linked firms.This paper provides robust evidence that short sellers have high information processing ability to exploit news of related firms. Using newly available data on firm-level customer-supplier-competitor relationships and Reg SHO daily short sales data, we find that abnormal short selling of supplier stock is negatively related to post-news customer returns, and that the relation becomes more pronounced in supplier information asymmetry. Our results show that short sellers’ disproportionate trades in supplier stock on customer news are associated with lower future cumulative supplier stock returns, suggesting that short sellers are skillful in exploiting valuable trading opportunities in related firms. However, we find no significant relationship between short selling of the upstream supplier and downstream customer news in 3-party economic links, nor do we find that short sellers trade supplier stock prior to customer news announcements.

Measuring Residential Real Estate Risk and Return

This article explains how common misconceptions about residential real estate returns contribute to unrealistic expectations about house price appreciation. The article evaluates several comprehensive ways of computing residential real estate returns and discusses the relation between real estate return and risk. We review the role of real estate in household portfolios, the overall economy, and the financial crisis and discuss why decline in the real estate market imposes economy-wide risks.