2025 Theses Doctoral

Essays in Financial Economics

Yang, Daheng

This dissertation comprises three empirical studies in corporate finance that examine how information and incentives shape insider conduct, firm decisions, market outcomes, and regulatory policy. Using large-scale datasets and modern empirical methods, the chapters analyze (i) insider trading and insiders’ behavior on social media, (ii) interactions between activist hedge funds and short sellers, and (iii) interest groups’ influence on financial regulation.

Chapter 1, Insider Tweets Around Insider Trades, investigates whether corporate insiders’ Twitter activity is systematically linked to their trading behavior. Matching 1,473 verified insider Twitter accounts to their transactions from 2010 to 2022, we find that increased Twitter activity predicts a higher likelihood of selling and a lower likelihood of buying in the future, particularly in settings more conducive to opportunism. Trades accompanied by shifts in Twitter activity before and after the transaction yield significant abnormal returns, while trades with stable tweeting behavior in that period do not. Tweets surrounding these profitable trades are more positive in tone and more focused on the insider’s firm, yet they do not generate immediate market reactions. These patterns suggest that insiders may use social media to subtly shape perceptions around their trades without disclosing material information.

Chapter 2, Power Tussle: Hedge Fund Activists and Short Sellers, studies instances in which activist hedge funds and short sellers target the same stock, using European data on activism and mandatory disclosures of large short positions. Large short sellers are associated with a 22.6% increase in the likelihood of a firm becoming an activist target. This effect is linked to higher campaign success rates and greater profitability. Moreover, activists employ fewer hostile tactics, launch shorter campaigns, and achieve better post-activism corporate outcomes when large short positions were disclosed in the previous quarter. These findings suggest that firms become more receptive to activists’ demands after facing pressure from short sellers.

Chapter 3, Influencing Financial Regulations, examines how interest groups shape financial regulation through the Securities and Exchange Commission’s (SEC) public comment process. Using 295 rules issued between 1962 and 2018 and 39,385 associated comment letters, we identify which submissions the SEC cites in footnotes or incorporates into final rules. We find that although individuals submit most letters, they are rarely cited or accepted, whereas industry organizations submit fewer but are disproportionately influential. We then document two stylized facts: (i) longer and more complex letters are significantly more likely to be incorporated, and (ii) a higher share of individual submissions reduces the citation rate of industry letters. To interpret these patterns, we develop a parsimonious model in which commentators strategically choose the informativeness of their letters subject to participation costs, and the regulator aggregates their input when setting regulatory tightness. Overall, our results indicate that the SEC’s comment process reflects both the informational content of submissions and the strategic environment in which they arise.