Rodney D Boehme

Short Sale Constraints, Differences of Opinion, and Overvaluation

Miller (1977) hypothesizes that dispersion of investor opinion in the presence of short-sale constraints leads to stock price overvaluation. However, previous empirical tests of Millers hypothesis examine the valuation effects of only one of these two necessary conditions. We examine the valuation effects of the interaction between differences of opinion and shortsale constraints. We find robust evidence of significant overvaluation for stocks that are subject to both conditions simultaneously. Stocks are not systematically overvalued when either one of these two conditions is not met.

The Long-run Performance Following Dividend Initiations and Resumptions: Underreaction or Product of Chance?

We examine the long-term stock performance following dividend initiations and resumptions from 1927 to 1998. We show that postannouncement abnormal returns are significantly positive for equally weighted calendar time portfolios, but become insignificant when the portfolios are value weighted. Moreover, the equally weighted results are not robust across subsamples. We also document postannouncement reductions in the risk factor loadings of underlying stocks. Cross-sectionally, these reductions are negatively related to the contemporaneous price drifts, suggesting the price drifts may be a sample-specific result of chance. Our results underscore the importance of testing for changes in risk loadings in future long-term event studies. Copyright The American Finance Association 2002.

Crash Risk and Seasoned Equity Offerings

Using a large sample of U.S. firms during 1987-2011, we find robust evidence that the issuance of seasoned equity is associated with abnormally high future stock price crash risk. The association between seasoned equity offerings and crash risk is stronger among offerings that involve the sale of secondary shares (existing shares sold by insiders or large blockholders). We also find that recent seasoned equity issuers are far less likely to experience sudden positive price jumps relative to firms that have not recently issued equity. Our findings of elevated crash risk and diminished jump risk, when taken together, are consistent with a heightened propensity for firms to hoard bad news but not good news when issuing equity. In analyses of open market insider trading prior to crashes, we find that net selling by CEOs and CFOs is abnormally high in years succeeded by crashes relative to years not succeeded by crashes and is especially high among seasoned equity issuers that subsequently crash, which is consistent with crashes, especially those that occur after SEOs, resulting from bad news hoarding.