Working Papers

“Do Answers to Retail Investor Questions Reduce Information Asymmetry among Investors?  with Zhenhua Chen, Wentao Ren and Phil Zhu

Abstract:  Retail investors are rising in prominence but have historically been granted little direct access to question corporate management relative to professionals like sell-side analysts and institutional investors.  Because retail investors are relatively less sophisticated and can require hand-holding, we examine whether information asymmetry among investors decreases when firms answer questions from the retail investor base.  We exploit China’s investor interactive platforms (IIPs), which were designed to facilitate retail investor access to management. IIPs allow questions to be anonymously and publicly posted, but answers can only pertain to previously disclosed information and there is no explicit penalty for low-quality answers.  We find that IIP answers reduce bid-ask spreads, with stronger answer effects when managers respond quickly, provide direct answers, and interact with IIP users who focus on the firm.  These information asymmetry reduction benefits are substantially attenuated, and in some cases non-existent, for state-owned enterprises (SOEs), who have less incentive to publicly engage with retail investors.  Finally, our findings reveal that on average the marginal effects of answers are smaller than for posted questions, suggesting that while firms benefit from answering questions to lower investor integration costs, IIP activity that lowers awareness and acquisition costs is also important.

As-Reported Corporate Issued Guidance  with Jedson Pinto and Xiaoxi Wu

Abstract: The I/B/E/S Guidance (IG) database is commonly used by scholars studying corporate issued guidance, but recent research suggests it fails to fully capture guidance actually provided by firms. We extract the contents of over 23,000 Refinitiv Guidance Reports (GR), which contain a detailed history of corporate issued guidance as-originally-reported by firms. We document over 1.7 million GR guidance instances, which is over six times larger than the 0.261 million IG instances observed for the same firms. Topically, GR instances cover 192 unique items, compared with only 13 in IG. These differences stem largely from IG’s exclusion of non-numeric guidance and segment guidance, in addition to IG’s requirement that a consensus analyst forecast must exist for a guided item to be collected. Unlike IG, GR provides details surrounding as-originally-reported guidance including the verbatim text from which the guidance was extracted, whether processing was required to transform guidance to a numeric value, and the guidance source (press release or transcript of event). In terms of applications, we use the unique features of GR to study how processing costs impact the market response to earnings guidance surprises. We also show that analysts and investors reward firms for providing non-numeric GR guidance that does not directly pertain to financial statement line items at levels similar to the reward firms receive for numeric financial statement line item guidance. Finally, we find that as macroeconomic uncertainty increases, firms shift from numeric guidance to non-numeric guidance rather than reduce guidance altogether. We conclude that GR data can deepen our understanding of corporate issued guidance.

Initial evidence on the impact of the 2023 World Tennis Number algorithm change for predicting match outcomes” with Nate Krall, Nick Maroulis and Rebecca Mayew

Abstract:  We examine matches from the United States Tennis Association (USTA) Junior National Championships to ascertain the match classification accuracy impact of the 2023 WTN algorithm change.  Using 1,426 matches from the 2023 Junior National Championships, one of the first tournaments after the algorithm change, we find WTN match classification accuracy remains equivalent to Universal Tennis Rating (UTR) ratings, as was observed in prior research examining the 2022 tournament.  Using restated WTN values for 1,530 matches in the 2022 tournament, we find classification accuracy is higher for restated WTN values compared with original WTN values, but this algorithm improvement effect is not statistically significant.  That the algorithm change did not statistically improve WTN classification accuracy is consistent with statements by the USTA that within a player’s network, little accuracy improvement may be observed.  We also update the mapping between UTR and WTN using WTN values after the algorithm change and observe gender differences that should be considered by tournament directors and coaches for players that have a UTR rating and not a WTN rating.