Research
“To Interact or Not? On the Benefits of Interacting with Unfavorable Analysts during Earnings Calls”
Journal of Accounting Research, Forthcoming
Managers prioritize favorable analysts during earnings calls, reinforcing analysts’ incentives for optimism. However, managers also frequently interact with unfavorable analysts, and this study examines the determinants and benefits of these interactions. I find that managers interact more with unfavorable analysts when compelled to do so. I then examine two likely benefits of these interactions. First, unfavorable analysts attenuate their negative views after interacting with managers. Second, price reactions to management forecasts are stronger for managers who regularly interact with unfavorable analysts, consistent with enhanced reporting credibility. Finally, using peer firm restatements as exogenous shocks to investors’ perceptions of accounting quality, I find that nonrestating firms with managers who regularly interact with unfavorable analysts experience attenuated negative returns relative to other nonrestating peers. Overall, the empirical evidence indicates firms experience significant benefits when managers interact with unfavorable analysts and these benefits persist amongst compelled and voluntary interactions.
Dissertation Committee: Professors Mark Bradshaw (chair), Lian Fen Lee, and Miao Liu
Presented at Boise State University, Texas Christian University, Indiana University, Boston College, the 2023 AAA Annual Meeting, 2022 BYU Accounting Research Symposium, and the AAA/Deloitte Foundation/J Michael Cook 2022 Doctoral Consortium
Available at: SSRN
“The Credibility of Non-Disclosure: Evidence from Real-time Market Response to Non-Answers in Conference Calls” with Yang Cao and Miao Liu
Revise and Resubmit at the The Accounting Review
Managers sometimes provide non-disclosure to investors despite their best intentions, either due to a lack of information or substantial proprietary costs. However, it is difficult for investors to distinguish these managers from those hiding negative news. This paper investigates whether managers can establish a transparent disclosure reputation to credibly communicate the absence of information, using non-answers during earnings calls as a setting. By matching granular, timestamped earnings call conversations with high-frequency trading data, we create a novel dataset that examines immediate real-time market reactions to non-answers given by managers. Additionally, we leverage large language models (LLMs) to develop a database of measures that identify strategies managers can use to build a transparent disclosure reputation. Our findings suggest that these strategies enhance managerial credibility when communicating a lack of information, underscoring the critical role of a transparent disclosure reputation in maintaining investor trust.
Presented at 2024 AAA Annual Meeting* and 2024 FARS Midyear Meeting
- Represents presentations by a coauthor
Available at: SSRN
“The Whisper Before the Shout: Market Consequences of Implied versus Actual Recommendations Revisions” with Mark Bradshaw, Chad Hamm, and Mark Piorkowski
Under Review at The Accounting Review
Over 90% of analysts’ research reports include reiterated buy/sell recommendations, but academic research focuses on the infrequent recommendation revisions. We predict that analysts signal a change in sentiment without actually revising their outstanding recommendation. We identify these “implied recommendation revisions” and confirm they predict subsequent actual recommendation revisions. Implied upgrades (downgrades) are positively (negatively) associated with returns at the report date, and price reactions to actual recommendation revisions are attenuated when preempted by an implied recommendation revision. Trading around implied recommendation revisions is concentrated among sophisticated investors who have greater access to analysts and their reports, whereas retail investors tend to trade around actual recommendation revisions. Overall, our evidence provides insight into how sophisticated investors use information in analysts’ reiteration reports and anticipate changes in analysts’ recommendations before those revisions take place.
Presented at The Ohio State University, the University of South Florida, Rice University, Emory University, Deakin University, Chinese University of Hong Kong, 2022 3rd Analyst Research Conference, 2022 FARS Midyear Meeting, and the 2021 BYU Accounting Research Symposium.
- Represents presentations by a coauthor
Available at: SSRN
“The Effect of Analyst Research on Managers’ Merger and Acquisition Decisions: Revising Shareholder Opinions” with Farzana Afrin and Jalal Sani
Preparing for submission to the The Accounting Review
Completing an acquisition with negative announcement returns can have adverse consequences for managers (e.g., forced turnover). Yet, managers complete 91% of such deals. Prior research interprets these deals as evidence of agency motives. We propose a complementary explanation and examine the role of analyst research. We posit that, because of the costs of acquiring and processing information, shareholders may not possess all relevant information at the deal announcement date and subsequently revise their opinions. These revised opinions affect managers’ perceptions of the costs of deviating from shareholders’ initial opinions and their decision to complete the deal. While the effect of analyst research on the likelihood of deal completion is ex-ante unclear, our results suggest that analyst research, prompts acquirers’ shareholders to revise their opinions upward, increasing the likelihood of deal completion. This effect is stronger when (i) shareholders are less informed, (ii) the deal quality is relatively high, (iii) analysts are more informed, (iv) agency motivation for completing a deal is lower, and (v) analysts are not affiliated with the acquirer. Overall, our findings highlight the role of analyst research in motivating investors to revise their opinions, thereby influencing corporate investment decisions.
Presented at the 2024 BYU Accounting research Symposium, 5th Analyst Research conference (2024), and Boston College 2022.
Paper available upon request