Working Papers

“Retail Investor Interactive Platform Activity and Information Asymmetry Among Investors: Should Regulators be Concerned?”  with Zhenhua Chen, Wentao Ren and Phil Zhu

Abstract:  To facilitate retail investors’ communication with firms, regulators in China mandate that firms publicly respond to investor postings made on investor interactive platforms (IIPs). We find that although both investor posts and firm replies reduce information asymmetry among investors, the marginal effect of replies is consistently smaller than that of posts, and this disparity has widened over time. To investigate whether poor-quality and untimely firm replies drive this difference, we use machine learning to classify posts as questions or comments and replies as high or low quality. Our results indicate that replies to question posts are more effective than replies to comment posts in reducing information asymmetry, yet they remain less impactful than the original posts. Additionally, high-quality replies to questions lower information asymmetry more than low-quality replies, and timeliness amplifies this
effect, particularly in the early years following the launch of IIPs. However, even timely, high-quality replies to investor questions have a marginal effect of less than one-third that of original investor posts in recent periods, suggesting that IIPs primarily reduce awareness and acquisition costs rather than integration costs. Overall, while regulators may seek to improve reply quality and timeliness, our findings suggest that enhancing investor engagement via posting is likely to have a greater impact on reducing information asymmetry.

“On the Usefulness of Guidance Reports“  with Jedson Pinto and Xiaoxi Wu

Abstract: Scholars commonly measure corporate guidance in large samples using either the I/B/E/S Guidance (IG) database or by deriving guidance from forward-looking statements (FLS) in corporate disclosures. Prior research notes that IG often fails to capture some firm guidance, whereas the FLS methodology often struggles to correctly identify specific guidance instances at the sentence level. We introduce LSEG Guidance Reports (GR) as a way to better operationalize firm guidance. We analyze more than 23,000 GR that contain 1.7 million guidance instances across 192 topics. We find that this measure of guidance far surpasses IG’s coverage, of 261 thousand guidance instances across 13 topics, for the same firm-years. We then contrast GR with guidance using the FLS methodology. We identify guidance topics that impact analyst earnings forecast accuracy but that prior research using the FLS methodology was unable to identify. Finally, we study analyst perceptions of firm guidance by documenting associations between analyst perceptions of investor relations quality and forms of guidance. We find that analysts value quantitative financial guidance, which assists in valuation modeling, and qualitative nonfinancial guidance, which elucidates their investment theses. These insights into analyst perceptions are not obtainable using IG or the FLS methodology.  [Note: For useful information and assistance with obtaining and extracting GR data, visit: https://www.guidance-reports.com/.  For researchers interested in a contemporary summary of the management guidance literature, see Feng and Lee 2025]

“Investor Processing Costs and Annual Financial Reporting Timeliness in the Municipal Bond Market” with Greg Burke and Vincent Zhang

Abstract:  On July 1, 2020, the Municipal Securities Rulemaking Board (MSRB) enacted a rule change altering the display of information pertaining to the timeliness of annual financial disclosures submitted to the Electronic Municipal Market Access (EMMA) system. The rule change did not alter the information provided to investors regarding annual financial reporting timeliness, but did potentially lower the awareness costs and acquisition costs of timeliness information. We examine the impact of this rule change by estimating the association between secondary market bond yields and financial reporting timeliness in the four month window surrounding the rule change. We find the association between financial reporting timeliness and secondary market bond yields, which we label the timeliness response coefficient (TRC), increased from 1.9 basis points to 2.7 basis points per month. In the cross section, a TRC increase is observed among uninsured bonds but not among insured bonds, consistent with financial reporting timeliness effects existing solely when financial statements are most useful for assessing credit risk. Among uninsured bonds, a TRC increase is only observed for retail investor trades but not for institutional investor trades. Given retail investors are more likely to use EMMA as an information source, this finding is consistent with the rule change lowering processing costs for retail investors with respect to financial reporting timeliness. These findings are useful for assessing the efficacy of regulatory interventions and for improving our understanding of processing costs in capital markets.