Research

Abstract: This paper examines the flow of private information from firms to large-holding shareholders during activist campaigns and its consequences. We find that informed trading by mutual fund families with large holdings in the target firm increases during activist campaigns compared to other mutual fund families invested in the firm. The effect is stronger for firms that attend more invitation-only investor events, face greater threats from activist campaigns, and are harder to value. Consistent with information flowing from management to large-holding mutual fund families, the effect strengthens during periods of lax enforcement of Regulation Fair Disclosure. Furthermore, the increased information advantage is associated with these investor’s management-friendly voting behavior and a higher likelihood of target firms winning activist campaigns and retaining board seats. Overall, our findings suggest a potential quid pro quo relationship between large shareholders’ access to private information and their voting support for management. 

Abstract: Combining customer-supplier relationships with loan contract data, we first show that firms positioned more centrally in a production network are exposed to higher systematic risk. Secondly, we show that centrally connected borrowers whose banks are exposed to higher systematic risk reduce excessive risk-taking, leading to lower systematic risk and lower CEO wealth to stock volatility sensitivity (Vega) and CEO pay-performance sensitivity (Delta). The result suggests that firms internalize creditors’ objectives in their compensation design. I also document that conditional on having common bank relationships, more central firms reduce risky investment, increase cash holdings, and improve financial performance. Overall, the results highlight a mechanism based on executive compensation through which banks reduce ex-ante systematic risk.

Abstract: We examine the impact of common banks on sell-side analyst behaviors. Using bank mergers as the plausibly exogenous shocks to firm-common bank relationships and a stacked difference-in-differences design, we find that analysts improve forecast accuracy and lower forecast optimism of firms exogenously sharing a common bank (treated firms) following the bank mergers. We also find that treated firms reduce discretionary accruals and real earnings management after sharing a common bank. We explore the market impact of these changes. We find that treated firms experience faster stock price discovery, lower stock illiquidity, higher abnormal trading volume, lower idiosyncratic volatility, and crash risk. Our findings suggest that common banks’ concerns about systematic risk lead to an improved capital market information environment.

Abstract: Using the 2004 SEC regulation that requires more frequent mutual fund disclosure, we examine whether increasing the frequency of mutual fund disclosure spills over to improve corporate financial reporting. In difference-in-differences tests, we find that an investee firm’s financial reporting quality improves after the regulatory shock to mutual funds. The effects are more pronounced when mutual fund managers face low fund flows, low cash holdings,  or poor fund performance and when corporate CEO compensation is more closely linked to short-term stock price. The mutual fund change is also associated with faster corporate stock price discovery around earnings announcements. Our results suggest that the frequent disclosure of fund performance alters mutual funds’ portfolios and preferences leading to improved corporate reporting.

Abstract: We examine how institutional investors’ short-term focus influences portfolio firms’ scope expansion decisions. Using a difference-in-differences design centered on the 2004 SEC-mandated mutual fund portfolio disclosure regulation, we find that firms with greater ownership by affected mutual funds significantly increase their scope intensity following the shock. These effects are particularly pronounced among firms held by mutual funds whose managers face stronger career concerns, proxied by lower fund returns, weaker investor flows, limited cash reserves, smaller net assets, and higher ownership concentration. In this setting, scope expansion leads to improvements in firm value, sales growth, and SG&A efficiency through increased M&A activity and R&D investment. In contrast, firms that expand through traditional diversification do not exhibit comparable performance gains. Further analysis shows that the effects are stronger when portfolio firm CEOs have shorter pay duration and greater wealth sensitivity to stock prices. Overall, our findings highlight a potential bright side of short-term pressure from institutional investors: when combined with transparent disclosures and well-aligned managerial incentives, a short-term focus can encourage strategic scope expansion that enhances long-term value creation