Working Papers

Do Social Interactions Communicate or Garble Information? Evidence from Equity Analysts” with Qi Chen and Huihao Yan

Abstract: We examine the effects of social interaction among equity analysts on the transmission of geographic-specific information and the quality of analysts’ forecasts. We focus on interactions among local peers, defined as analysts who work in the same brokerage office (officemates) who cover different firms in the same area. We find that analysts with local peers produce more accurate earnings forecasts and generate stronger stock market responses. Their forecasts are less optimistically biased and less affected by area-specific errors in the consensus forecasts. We also find that geographic momentum in stock returns is weaker when firms are followed by analysts with local peers, and that analysts are more likely to initiate coverage of firms with more local peers. Our findings suggest that social interactions among analysts transmit useful geographic-specific information.

Firms’ Response to Macroeconomic Estimation Errors” with Oliver Binz and Suresh Nallareddy

Abstract:  Initial Gross Domestic Product (GDP) announcements are important economic signals that convey information on the state of the economy but contain substantial estimation error. We investigate how GDP estimation errors affect firms’ real decisions and profitability. Consistent with theoretical predictions from the literature on macroeconomic signal errors, we find that GDP estimation errors are positively associated with one-quarter-ahead changes in firms’ capital investments, production, inventory, and profitability. Stronger profitability responses to GDP signal errors are observed for firms that are more sensitive to macroeconomic fluctuations. We also observe a reversal in future quarters’ corporate profits, consistent with initial over (under) production being met with declines (increases) in future profitability.

State Sponsors of Terrorism Disclosure and Financial Reporting Oversight” with Robert Hills and Matt Kubic

Abstract:  We examine whether SEC effort to review state sponsors of terrorism (SST) disclosure negatively influences financial reporting oversight. Using comment letter inquiries about SST to measure effort, we find the likelihood that the SEC fails to identify a financial reporting error increases when comment letters reference SST. Consistent with SST disclosure review crowding out financial reporting oversight, comment letters referencing SST are less likely to mention accounting, non-GAAP, and MD&A issues. These effects are unique to SST as we find references to non-SST issues complement financial reporting oversight. Data obtained through a Freedom of Information Act request reveals a temporal shift in the occupational mix of SEC reviewers towards (away from) lawyers (accountants) that coincides with an increased focus on SST. Path analysis reveals that accountants (lawyers) are more (less) likely to detect errors and comment on financial reporting topics, with an indirect path through SST exacerbating these effects.  (Watch a video presentation of an earlier draft of the paper at the University of Miami Webinar Series and see a summary at Columbia Law School’s Blue Sky Blog)

Cultural Diversity Decisions by Managers in Public Communications: Evidence from Manager-Analyst Interactions during Earnings Conference Calls” with Xiaoxi Wu (contact me for most recent draft. This paper will be presented in February 2020 at the 2020 Swiss Accounting Research Alpine Camp).