Thomas Jason Boulton

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.

Naked Short Selling and Market Returns

Boulton and Braga-Alves study persistent failures to deliver (fails) to better understand naked short sellers’ trading strategies, their ability to profit from their trades, and the market’s reaction to information about their activities. Contrary to recent claims that naked short sellers are momentum traders who drive down stock prices, they find that returns are typically positive just prior to periods of increased naked short selling that result in persistent fails and that returns generally remain positive for several weeks afterward. Their results also suggest that stocks that experience persistent fails are susceptible to short squeezes as shares move from a normal state in which short exposure is established by borrowing and selling to a hard-to-borrow state in which fails become a more attractive option for establishing short exposure.

The Impact of the Corporate Control Market on IPO Decisions

Entrepreneurs who take their firm public during an active corporate control market face an increased risk of losing control through a takeover. I examine the extent to which the threat of takeover impacts IPO firms’ decisions and find that an active takeover market in an IPO firm’s industry increases the probability that the firm incorporates in a state with state-level antitakeover provisions. IPO firms backed by venture capital investors and reputable underwriters are less likely to incorporate in a state offering antitakeover provisions. A closer examination of equity carve-outs suggests that control is not a first-order consideration for some IPO firms.

Managerial Confidence and Initial Public Offerings

Information asymmetry may act as a catalyst for an association between managerial confidence and initial public offering (IPO) outcomes. This could occur if overconfident managers overinvest in producing information prior to going public, time offerings during periods when disagreement between managers and investors is low, or attempt to signal their beliefs to less informed market participants. Our evidence suggests that highly overconfident managers attempt to use underpricing to signal their beliefs to the market in an unsuccessful effort to receive greater value for their shares in follow-on offerings. This further suggests managerial overconfidence can be harmful to the firm.

Industrial Diversification and Underpricing of Initial Public Offerings

Diversified IPOs, firms reporting more than one business segment at the time of going public, experience less underpricing than do IPOs by focused issuers. We explore two explanations for this phenomenon. Diversification may benefit IPO firms by reducing information asymmetries and hence, lowering underpricing costs. Alternatively, higher quality focused firms may underprice their shares more to signal their quality to the market. Though we find at least some evidence consistent with each explanation, a majority of the evidence favors a signaling story.

Conservatism and international IPO underpricing

We study the impact of country-level accounting conservatism on international IPO underpricing. Examining 13,285 IPOs from 36 countries, we find that IPOs are underpriced less in countries in which existing public firms practice more accounting conservatism. The link between conservatism and underpricing is robust to alternative measures of conservatism, country mean regressions, sample country exclusions, and endogenous treatment models. Consistent with the hypothesis that conservatism reduces underpricing by mitigating the impact of information asymmetries, we find that higher country-level conservatism is associated with lower country-level PIN values and that the negative relation between conservatism and underpricing is strongest for IPOs involving small firms in which information asymmetries are likely to be high. Lastly, we find evidence that legal origin, a factor linked to the practice of conservatism, influences the relations between underpricing and conservatism.RésuméNous étudions l’impact du conservatisme comptable d’un pays sur la sous-évaluation des offres publiques initiales (OPI) internationales. Examinant 13 285 OPI dans 36 pays, nous constatons que les offres publiques initiales sont moins sous-évaluées dans les pays où les entreprises publiques existantes pratiquent plus de conservatisme comptable. Le lien entre le conservatisme et la sous-évaluation est solide par rapport aux mesures alternatives au conservatisme, aux régressions moyennes par pays, aux exclusions d’un échantillon de pays et aux modèles de traitement endogène. Conformément à l’hypothèse que le conservatisme réduit la sous-évaluation en atténuant l’impact des asymétries d’information, nous constatons qu’un niveau plus élevé de conservatisme au niveau d’un pays est associé à des valeurs plus faibles de probabilités de négoce basées sur l’information (PBI) d’un pays et que la relation négative entre le conservatisme et la sous-évaluation est plus forte pour les OPI qui concernent des petites entreprises pour lesquelles les asymétries d’information risquent d’être élevées. Enfin, nous constatons que l’origine légale, un facteur lié à la pratique du conservatisme, influence les relations entre la sous-évaluation et le conservatisme.ResumenEstudiamos el impacto del conservadurismo contable a nivel país sobre la subvaloración de las ofertas públicas iniciales (IPO) internacionales. Examinamos 13.285 IPOs de 36 países, encontramos que las IPOs se subvaloran menos en países en los cuales existen empresas públicas que practican más conservadurismo contable. El vínculo entre conservadurismo y subvaloración es robusto a las medidas alternativas de conservadurismo, las regresiones de las medias de los países, las exclusiones del país de la muestra, y los modelos de tratamiento endógeno. Consistente con la hipótesis que el conservadurismo reduce la subvaloración mediante la mitigación del impacto de las asimetrías de información, encontramos que un nivel más alto de conservadurismo es asociado con un nivel más bajo en los valores PIN a nivel país y que la relación negativa entre el conservadurismo y las subvaloración es más fuerte en las IPOs que involucran empresas pequeñas en donde las asimetrías de información es probable sean altas. Finalmente, encontramos evidencias que el origen legal, un factor vinculado a la práctica de conservatismo, influencia las relaciones entre subvaloración y conservadurismo.ResumoNós estudamos o impacto do conservadorismo contábil ao nível do país na subprecificação de ofertas públicas iniciais (IPO) internacionais. Examinando 13.285 IPOs de 36 países, descobrimos que os IPOs são menos subprecificados nos países em que as empresas listadas existentes praticam um maior conservadorismo contábil. O vínculo entre conservadorismo e subprecificação é robusto para métricas alternativas de conservadorismo, regressões à média de países, exclusões de países de amostra e modelos de tratamento endógeno. Em consonância com a hipótese de que o conservadorismo reduz a subprecificação ao mitigar o impacto de assimetrias de informação, verifica-se que o maior conservadorismo a nível nacional está associado a valores PIN mais baixos e que a relação negativa entre conservadorismo e subprecificação é mais forte para IPOs envolvendo pequenas empresas, em que as elevadas assimetrias de informação são mais prováveis. Por fim, encontramos evidências de que a origem jurídica, um fator vinculado à prática do conservadorismo, influencia as relações entre subprecificação e conservadorismo.概要我们研究国家层面的会计保守主义对国际IPO抑价的影响。研究来自36个国家的13,285个IPO,我们发现,在现有公共公司实行更多会计保守主义的国家IPO定价较低。保守主义和抑价之间的关系对于保守主义措施替代,国家平均回归,国家排除抽样,以及内生处理模型是强的。与保守主义通过减轻信息不对称的影响来减少抑价的假设一致,我们发现,较高国家层面的保守主义与较低国家层面的PIN值相关,并且保守主义和抑价之间的负关系对于信息不对称可能性高的小公司的IPO来说是最强的。最后,我们发现证据表明,法律起源,与保守主义实践相关联的一个因素,影响抑价和保守主义之间的关系。

The Lingering Effects of Country-Level Governance on Cross-Listed Firms

Consistent with studies suggesting that home-country institutions have lingering effects on cross-listed firms, we find that the liquidity of NYSE-listed, non-U.S. firms is related to the perceived institutional quality and governance of the firm‟s home country. Firms from countries perceived as having stronger institutional quality and governance exhibit lower trading costs and less asymmetric information. The enduring effect of home-country institutions extends to non-microstructure measures of information asymmetry, as we find that analyst coverage is positively related to perceived institutional quality and governance. Perception-based measures better explain differences in trading costs than quantitative measures of shareholder rights and earnings quality.

Angels or Sharks? The Role of Personal Characteristics in Angel Investment Decisions

We use actual negotiations between angel investors and entrepreneurs to study the impact of personal characteristics on investment outcomes. We construct a unique dataset with 707 investment requests led by 1,089 entrepreneurs and find that the personal characteristics of the entrepreneur, including gender, race, and age, are correlated with requested valuations, the likelihood that an offer is received, and the implied valuation when an angel investor extends an offer. Shared personal characteristics between entrepreneurs and investors also affect the likelihood that an investor makes an offer, the entrepreneur accepts an offer, and the implied valuation when an offer is extended.