Three Essays on Financial Economics Open Access
Wang, Cong (Spring 2019)
Published
Abstract
This dissertation contains three essays on financial economics. The first paper (Information Acquisition of Institutional Investors: Implications for Institutional Herding) studies the extent and implication of institutional investors acquiring holdings information of other institutional investors. Using a novel data on institutional investors' access of 13-F filings, I provide the first direct evidence of institutional investors seeking institutional holding information. Surprisingly, institutional investors follow the institutional crowd, but trade against other institutional investors whose holding information was acquired. This 13F-contrarian strategy manifests strongly in a sell-buy relationship and is warranted by abnormal stock returns. I find evidence consistent with institutional investors use 13-F filings to identify stocks experienced institutional selling price pressure. The second paper (Public Market Players in the Private World: Implications for the Going-Public Process) studies a new trend in the private financial market. Recent years have seen a dramatic increase in investment by public market institutional investors in startups. We study the economic consequences of these investments for the initial public offerings of startups. We find that institutions' pre-IPO participation is associated with lower IPO underpricing for VC-backed startups. Our further analysis shows that the reduction in IPO underpricing does not appear to be driven by endogenous matching between startups and institutions. We explore the underlying economic mechanisms, and our results are consistent with a substitution effect between institutions and all-star analysts. The third paper (CEO vs. Consumer Confidence: Investment, Financing, and Firm Performance) examines to what degree corporate managers take cues for investors. Using similarly constructed measures of CEO optimism and consumer optimism, our analysis provides evidence that, holding CEO optimism constant, CEOs substantially increase their capital expenditures and net financing when investors are more optimistic. CEOs, however, trade against investor optimism in their own personal trading accounts. And, while CEO optimism positively predicts firm performance, investor optimism negatively predicts firm performance and subsequent earnings surprises. Taken together, our findings suggest that investor beliefs strongly affect corporate investment; in particular, it appears that better-informed managers sometimes succumb to investor pressure or use times of high investor optimism to empire build.
Table of Contents
Information Acquisition of Institutional Investors: Implications for Institutional Herding............1
Introduction............2
Data and Variables............9
EDGAR Log Files and “Unmasking” Users............9
Institutional Trade Variables............11
Other Variables............11
Direct Evidence of Information Acquisition............12
Descriptive Statistics............12
Institution Characteristics............13
Determinant of Information Acquisition Activities............13
Implications of Information Acquisition............14
Baseline Analysis............14
Subsample Analysis............17
Alternative Explanations............18
Propensity Score Matching Analysis............18
Common Information............19
Profitability and Mechanism............20
Return Predictability............20
Potential Mechanism............21
Buying Price Pressure............22
Return Reversal............22
Conclusion............25
Public Market Players in the Private World: Implications for the Going-Public Process............26
Introduction............27
Data and Summary Statistics............35
IPO Data............35
IPO Underpricing............35
Institutions' Participation............36
Measure of Successful Exit............36
Control Variables............36
Summary Statistics............37
Institutions and IPO Underpricing............38
OLS Specification............38
Propensity Score Matching............39
Evidence from the 2003 Mutual Fund Scandal............40
Possible Mechanisms............43
Institutional Investment as a Substitute for All-Star Analyst............43
Institutional Investment and Information Asymmetry............47
Institutions as Pure Financing Providers............48
Additional Mechanisms............49
Institutions and Startup Governance............49
Institutions' Participation and Ownership Concentration............50
Conclusion............50
CEO vs. Consumer Confidence: Investment, Financing, and Firm Performance............52
Introduction............53
Data............56
CEO Optimism............56
Consumer Optimism............58
Macroeconomic Data............60
CEO versus Consumer Optimism............60
Sample and Methodology............61
Optimism and Firm Performance: CEOs and Consumers............63
Optimism and Subsequent Earnings Surprises............65
Optimism and Subsequent Stock Market Performance............66
Optimism and Corporate Finance: CEOs and Consumers............67
Investment............67
Financing............68
Optimism and Insider Trading: CEOs and Consumers............70
Conclusion............71
Tables............73
Figures............120
References............128
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