External Monitoring and Returns to Hedge Fund Activist Campaigns (with Matthew E. Souther)

Firms targeted by hedge fund activists experience significantly higher returns when there are fewer external monitors in place at the target firm. Using analyst coverage and institutional ownership as measures of external monitoring presence, we find that low-monitored activist targets experience abnormal returns 18.94% (1,894 bp) above that of high-monitored targets in the two-year period following the initial activist disclosure filing. The significant effect of external monitoring remains after controlling for target firm and activist characteristics. We also document improvements in traditional operating performance measures at low-monitored target firms across the same two-year period, consistent with the observed market performance.


The Trend is an Analyst's Friend: Analyst Recommendations and Market Technicals

Analyst recommendations and market technicals have long been critical resources used by market participants, but rarely are these resources considered complementary. In this paper, I show market technicals influence the profitability of analyst recommendations. I find conditioning Buy and Sell recommendations with a firm's current price trend enhances risk-adjusted returns by 0.81% per month. Furthermore, firms with a positive stock price trend have a higher consensus recommendation level, experience greater changes to their consensus recommendation, and are 9.54% more likely to receive a consensus recommendation upgrade. Overall, this study demonstrates that market technicals are an important complement to analyst content.


Hedge Fund Activism and Analyst Uncertainty (with John S. Howe)

Using a sample of hedge fund activist events from the years 2001 to 2014, we assess analysts’ reaction to hedge fund activism by considering changes in their recommendations and their earnings forecast accuracy. Following the arrival of a hedge fund activist, we find a preponderance of recommendations that move to or are reinstated at the Hold level, a decrease in analyst earnings forecast accuracy, and a decrease in analyst forecast activity over the course of a campaign. Overall, our findings suggest hedge fund activism increases analyst uncertainty, limiting their ability to add value in this setting.


Do Tone Changes In Financial Statements Predict Acquisition Behavior? (with John Berns, Patty Bick, and Reza Houston)

In this paper, we find changes in managerial tone are indicative of acquisition activity, merger wave activity, and investor response to merger announcements. Increases in tone of a firm’s management discussion and analysis (MD&A) statement increase the likelihood of future acquisitions. This increased acquisition probability endures for three years after the increase in MD&A tone. Furthermore, the average change in tone within an industry is positively associated with future merger wave activity. Finally, we find a positive relationship between target tone changes and merger announcement returns, but only for relatively larger target firms. Our results indicate that using textual analysis to ascertain changes in tone is a valuable tool for predicting firm decision-making in the corporate control market.

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