“À la Carte” versus “Prix Fixe” Regulation: Evidence from Investors’ and Managers’ Reactions to Post-IPO Provisions in the JOBS Act

Employing a unique retroactive application in regulation, we examine investors’ and managers’ reactions to a shock that introduces “à la carte” elements to the post-IPO mandatory framework. Relative to “prix fixe” mandates, à la carte elements shift the tradeoff between compliance costs and investor protection from regulators to the regulated firm, which enables local optimization. Upon the enactment of the JOBS Act, retro-activated emerging growth companies (EGCs) report higher short-window returns than the control group. Retro-activated EGCs’ return is lower when sales and sales growth rate are higher, both of which indicate a shorter expected duration of EGC status. Furthermore, managers act in investors’ interests and for their own benefit while using the à la carte elements in post-IPO years. The evidence suggests that investors perceive the benefits from local optimization associated with à la carte elements exceed potential costs from managerial opportunism and the loss of information and commitment

Trading incentives to meet the analyst forecast

We examine stock sales as a managerial incentive to help explain the discontinuity around the analyst forecast benchmark. We find that the likelihood of just meeting versus just missing the analyst forecast is strongly associated with subsequent managerial stock sales. Moreover, we provide evidence that managers manage earnings prior to just meeting the threshold and selling their shares. Finally, the relation between just meeting and subsequently selling shares does not hold for non-manager insiders, who arguably cannot affect the earnings outcome, and is weaker in the presence of an independent board, suggesting that good corporate governance mitigates this strategic behavior

Trading incentives to meet the analyst forecast

We examine stock sales as a managerial incentive to help explain the discontinuity around the analyst forecast benchmark. We find that the likelihood of just meeting versus just missing the analyst forecast is strongly associated with subsequent managerial stock sales. Moreover, we provide evidence that managers manage earnings prior to just meeting the threshold and selling their shares. Finally, the relation between just meeting and subsequently selling shares does not hold for non-manager insiders, who arguably cannot affect the earnings outcome, and is weaker in the presence of an independent board, suggesting that good corporate governance mitigates this strategic behavior

Isolating the effect of disclosure on information risk

This study examines companies with two classes of shares that entitle their holders to identical cash flow and voting rights but that are available to mutually exclusive sets of investors: A shares to domestic investors and B shares to foreign investors. Price differences between A and B shares are higher in firms with a greater disparity in the disclosures that they make to domestic and foreign investors. This association is more pronounced when the cost (benefit) of information transfer is higher (lower). The results suggest that disclosure disparity creates meaningful differences in investors' average information precision across A and B shares and thus influences the cross-sectional variation in price differences.Disclosure Information risk Information cost Language Protection of property rights China

Regulation, Tax, and Cryptocurrency Pricing

This paper examines whether and how jurisdictional gaps in crypto regulations partially explain the persistent price differentials of the same cryptocurrency across different jurisdictions. Using Bitcoin prices from twelves exchanges located in eight jurisdictions, we discover that variations in both the regulatory framework and specific crypto policies have a significant incremental explanatory power for the cross-jurisdiction disparity in Bitcoin prices. First, greater uncertainty in the regulatory framework for cryptocurrencies is associated with lower Bitcoin prices (denominated in U.S. dollars). Second, Bitcoin prices are lower in jurisdictions that impose income taxes on crypto transactions and mandates banks’ real name verification of crypto accounts that removes anonymity. Bitcoin prices are, however, higher in jurisdictions that apply anti–money laundering laws directly to crypto exchanges and take strong exchange-related enforcement actions. Interestingly, Bitcoin prices are lower in jurisdictions with a larger supply of fiat currencies, suggesting the influence of monetary policies on Bitcoin pricing. Utilizing staggered adoptions of specific cryptocurrency polices, we identify the influence of regulation on crypto pricing using both the difference-in-differences design and the regulatory event study methodology

Wining, Dining, and Contracting in M&A

Wining and dining, as a socially embedded venue for bonding and face-face communication, induces more favorable M&A outcomes. On average, an increase in wining and dining fees of 1 million is associated with a reduction in goodwill impairment that accounts for 2.67% of the purchase price. Utilizing an exogenous shock that curbs wining and dining for a subset of acquisitions as the identification strategy, we find that affected deals experience a greater increase in goodwill impairment, but a greater decline in integration and performance target achievability than unaffected deals, suggesting trust building and information acquisition as two underlying channels

Earnings volatility and earnings predictability

Survey evidence indicates widely held managerial beliefs that earnings volatility is negatively related to earnings predictability. In addition, existing research suggests that earnings volatility is determined by economic and accounting factors, and both of these factors reduce earnings predictability. We find that the consideration of earnings volatility brings substantial improvements in the prediction of both short- and long-term earnings. Conditioning on volatility information also allows one to identify systematic errors in analyst forecasts, which implies that analysts do not fully understand the implications of earnings volatility for earnings predictability.Earnings volatility Earnings predictability Analyst forecasts Fundamental analysis