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In this contribution, we present a partitioned‐domain method coupling a particle domain and a continuum domain for multiscale simulations of inelastic amorphous polymers under isothermal conditions. In the continuum domain, a viscoelastic–viscoplastic constitutive model calibrated from previous molecular dynamics (MD) simulations is employed to capture the inelastic properties of the polymer. Due to the material's rate‐dependence, a temporal coupling scheme is introduced. The influence of the time‐related parameters on the computational cost and accuracy is discussed. With appropriate parameters, multiscale simulations of glassy polystyrene under various loading conditions are implemented to showcase the method's capabilities to capture the mechanical behavior of polymers with different strain rates and with non‐affine deformations of the MD domain.

Stock-based compensation (SBC) reduces the value of shareholder equity, ceteris paribus, and is a significant and growing expense for many firms. Despite its valuation implications and its growing importance, anecdotal evidence suggests that market participants ignore SBC in valuation. We first find that firms with higher SBC exhibit both higher valuation ratios and lower returns, suggesting overvaluation. This pattern is stronger for firms with larger analyst coverage, implying that the sell-side optimism is an important driver of the overvaluation. We then examine how financial analysts treat SBC in their valuation models. We find that analysts exclude more expenses in their street earnings forecasts and provide more optimistically biased target prices for firms with higher SBC. A hand-collected sample of analyst reports indicates that analysts who ignore SBC in valuation derive optimistically biased price targets, whereas analysts who treat SBC as an expense are unbiased on average. Together, our evidence indicates that market participants’ failure to account for stock-based compensation as an expense leads to the overvaluation of equity.

Using hand-collected information, we find that analysts who own stock in a company they follow make more informative recommendations and exert more effort in covering the company. However, we also find that analysts with stock ownership issue more optimistic target price forecasts. These findings suggest that analysts’ stock ownership enhances the credibility of their recommendations by conveying their superior information, but also induces analysts to bias upwards their target price forecasts. Surprisingly, we find that 56% of analysts owning stock terminate their ownership while having a buy recommendation outstanding, suggesting a potentially widespread violation of the regulations on analysts’ research.

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We find that exchange-traded fund (ETF) lending fees are significantly higher than stock lending fees. Two institutional features unique to ETFs play significant roles in explaining the high fees. First, regulations restrict investment companies, such as mutual funds and ETFs, from owning ETFs. As these institutions are key lenders, their absence reduces the lendable supply in the ETF loan market. Second, while the create-to-lend (CTL) mechanism alleviates supply constraints when borrowing demand increases, its efficacy is limited by the associated costs and frictions. Our results speak to the limits to arbitrage in the ETF markets.

We examine market returns following short-selling attacks, where short sellers publicly disclose the negative information that led them to short their targets. Counterintuitively, we find that for a significant proportion of these attacks (about 30%), the initial market reactions are positive. Consistent with short squeezes being a major driver of these positive returns, we demonstrate that about half of initially positive returns fully reverse over the following quarter, relative to about a third of initially negative returns, and this asymmetric reversal pattern cannot be explained by short sellers profitably covering their positions, by misleading disclosures, or by market attention. Further, short covering levels are high for target firms with initially positive returns that reverse, further suggesting that price pressure from short sellers forced to close their positions explains some of these positive returns. We find that short squeezes are difficult to predict ahead of time but may be triggered by conditions on the day of the attack, including insider purchases, highlighting the difficulty short sellers face in avoiding this risk. Lastly, short squeezes impose substantial costs on short sellers, leading to an average loss of $70 million per suspected squeezed campaign relative to estimated profits of $35 million per successful campaign.

Researchers often do not distinguish non-GAAP exclusions that increase earnings from those that decrease earnings, overlooking the fact that EPS-decreasing exclusions (about one fifth of all analysts’ exclusions) could have different properties and valuation implications. Using both hand-collected analyst reports and large samples from I/B/E/S and Compustat, we document how analysts’ EPS-decreasing exclusions differ from their EPS-increasing exclusions in both the type and timing of the earnings items being excluded, underscoring the need to study the two kinds of exclusions separately. We find that EPS-decreasing exclusions are positively associated with analysts’ optimism incentives in the same way as EPS-increasing exclusions are. This optimism manifests in analysts’ target prices, which are more optimistic (both ex ante and ex post) when analysts make either type of exclusion. Further evidence suggests that when analysts make EPS-decreasing exclusions, they tend to over-estimate firms’ growth prospects, and investors discount the resulting valuation optimism.

Prior analyst literature focuses on the impact of financial analysts on the firms they cover, and prior information-transfer literature concentrates on the externalities of information provided by management. This paper fills gaps in both streams of literature by examining the focal firm’s market reactions to the closest peer firm’s (identified by product similarity) analyst revisions. We find that the focal firm’s stock price reacts to the closest peer’s analyst revisions made by analysts who are not covering the focal firm. The focal firm’s cumulative abnormal return for a five-day window centered on the revision date is 0.54% higher if the peer firm’s analyst revision magnitude is in the top decile than if it is in the bottom decile. Cross-sectional tests show that the sensitivity of the focal firm’s market reactions to the peer firm’s revisions increases with the revision informativeness and the similarity between the focal firm and the peer firm. In addition, we find that focal firms do not react to ...

This contribution presents a phenomenological viscoelastic-viscoplastic constitutive model informed by coarse-grained (CG) molecular dynamics (MD) simulations of pure glassy polystyrene (PS). In contrast to experiments, where viscoplasticity is caused by various effects simultaneously, these effects can be decomposed in MD simulations by adjusting the MD system. In the MD simulations considered here, neither bond breakage nor cross-links are introduced; instead, we focus on the intermolecular interaction of polymer chains. We employ a thermo-dynamically consistent generalized Maxwell framework parallelly comprising an elastic, a viscoelastic, and several elasto-viscoplastic modules with different yield stress to capture the viscoelastic and the viscoplastic mechanical behavior simultaneously. The yield stresses decrease with the maximum deformation the MD system has experienced. The constitutive model presented here is based on 10 material parameters, which can be identified by a few data sets and fits well the CG MD simulations of PS under uniaxial and biaxial deformation with time-proportional and cyclic loading conditions in a wide range of strain rates (0.1%/ns–20%/ns).

Exit theory predicts a governance role for outside blockholders’ exit threats, but this role could be ineffective if managers’ potential private benefits exceed their loss in stock-price declines caused by the blockholders’ exits. We test this prediction using the Split-Share Structure Reform (SSSR) in China, which provided a large exogenous and permanent shock to the cost for outside blockholders to exit. We find that firms whose outside blockholders experience an increase in exit threats improve performance more than those whose outside blockholders experience no increase. The governance effect of exit threats also is ineffective in the group of firms with the highest concern for private benefits of control. Finally, a battery of theory-motivated tests shows that the documented effects are unlikely explained by outside blockholder intervention or some well-known intended effects of SSSR.

This study examines how short-selling threats affect auditors. During 2005–2007, the SEC ordered a pilot program in which one-third of the Russell 3000 index firms were arbitrarily chosen to be exempted from short-sale price tests. As a result, these stocks faced significantly higher short-selling threats. We implement a difference-in-differences test with firm fixed effects to show that auditors react to the increased threats and charge higher audit fees to the pilot firms. Further, we find that the impact only exists when auditors are concerned with the bankruptcy risk or when managers are less likely disciplined by short sellers.

This paper examines the real effects of a recent phenomenon commonly referred to as “activist short-selling,” where short-sellers publicly talk down stocks to benefit their short positions. First, we show that after firms are targeted by activist short-sellers, their investing, financing, and paying-out activities on average drop by 7.2%, 24.5%, and 7.6%, respectively. Using a battery of empirical tests, we find that our results are unlikely driven by the activists’ ability to select declining firms. Second, we provide evidence of three different channels through which activist short-selling leads to real changes in the firm: increased cost of capital, more monitoring, and feedback from stock prices. Third, we find that firms that are more vulnerable to “short and distort” suffer from more drastic declines in real activities. Fourth, our evidence indicates that on average, firms targeted by activist short-sellers experience improvement in real efficiency. This study contributes to the literature on activist investors and on short-selling, and sheds light on the policy debate over regulations on activist short-selling.

This is the first large-sample study on the determinants and consequences of activist short-selling – a unique form of short-selling in which short-sellers publicly “talk down” stocks to benefit their short positions. Combining information from SeekingAlpha.com and ActivistShorts.com, I collect more than 6,000 activist short-selling cases against listed companies from 2006 to 2015. I find that (1) activist short-selling leads to much larger market reactions than comparable passive short-selling, (2) activist short-sellers are more likely to target firms with severe overvaluation and uncertainty features, (3) targets’ overvaluation (uncertainty) features are increasingly (decreasingly) important in predicting returns from the short-term to the long-term, (4) their overvaluation features predict short-selling allegations that focus on valuation issues such as “bubble,” while their uncertainty features predict allegations that sound severe such as “fraud,” and (5) uncertainty features also predict targets’ likelihood to respond to allegations.

Prior analyst literature focuses on the impact of financial analysts on the firms they cover, and prior information-transfer literature concentrates on the externalities of information provided by management. This paper fills gaps in both streams of literature by examining the focal firm’s market reactions to the closest peer firm’s (identified by product similarity) analyst revisions. We find that the focal firm’s stock price reacts to the closest peer’s analyst revisions made by analysts who are not covering the focal firm. The focal firm’s CAR for a five-day window centered on the revision date is 0.54% higher if the peer firm’s analyst revision magnitude is in the top decile than if it is in the bottom decile. Cross-sectional tests show that the sensitivity of the focal firm’s market reactions to the peer firm’s revisions increases with the revision informativeness and the similarity between the focal firm and the peer firm. In addition, we find that focal firms do not react to peer firms’ revisions in industries with strong competition where the competitive effects cancel out the spillover effects. Finally, we find that the focal firm’s market reactions can predict its own future analyst revisions, suggesting that the reactions are at least partially rational.

Using the Split-Share Structure Reform (SSSR) in China as a quasi-experiment, we examine whether and how non-managerial blockholder exit threats discipline managers when private benefits of control (PBC) are prevalent. SSSR removed the selling restrictions on previously-dominant non-tradable shares, thereby providing a large, exogenous, and permanent shock to the cost for non-managerial blockholders to exit. However, because such exit potentially reduces non-managerial blockholders’ threats to control rights and managerial blockholders could benefit from the exit, it is ex ante uncertain whether exit threats would be effective in this setting. Using a difference-in-differences design, we find that the shock to exit threats, on average, improves firms’ operating performance. Specifically, we find that firms whose non-managerial blockholders experience a larger exit-threat increase have a greater improvement in performance than those whose non-managerial blockholders experience no or a smaller increase. Within the treatment sample, better performance is observed for firms whose managers’ wealth is more closely tied to stock prices. Our results are robust to numerous controls, different specifications, and alternative measures of operating performance. The findings suggest that exit threats discipline managers even when PBC are prevalent. Further cross-sectional analyses show that the governance effect of exit threats is weaker when PBC are a stronger concern. In particular, the governance effect for firms headquartered in coastal provinces and with less concentrated ownership (indicators for lower PBC) is significantly stronger than that for firms headquartered in inland provinces and with more concentrated ownership. Finally, we identify improvement in investment efficiency and reduction in agency costs as two potential channels through which the shock affects operating performance, and we show that the changes in performance occur around the time when the expectation of a future increase in blockholders’ exit threats is formed.

We extend theories of first mover advantage (FMA) and competitor preemption by examining the impact of an initial public offering (IPO) event on an industry’s competitive dynamics. Specifically, we...