Research
“To Interact or Not? On the Benefits of Interacting with Unfavorable Analysts during Earnings Calls?” (JMP)
Revise and Resubmit at the Journal of Accounting Research
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 investor’s 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, 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
Paper available upon request
“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 give 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, time-stamped 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 build a database of strategies that managers adopt to establish a transparent disclosure reputation, including providing detailed elaboration when issuing negative earnings guidance and proactively interacting with bearish analysts. We find that these disclosure strategies bolster managers’ credibility when communicating the absence of information. Our study highlights the importance of disclosure strategies that managers can adopt to ensure credible communication within the dynamic context of real-time scenarios.
Presented at 2024 AAA Annual Meeting* and 2024 FARS Midyear Meeting
- Represents presentations by a coauthor
Paper available upon request
“Consequences of Implied Analyst Recommendation Revisions in Reiteration Research Reports” with Mark Bradshaw, Chad Hamm, and Mark Piorkowski
Preparing for submission to The Accounting Review
Over 90% of analysts’ stock recommendations reiterate prior recommendations, but most research on recommendations examines the small subset of actual revisions. Analysts are reluctant to revise recommendations and other forecasts, either to placate managers or avoid a pattern of ‘see-saw’ research outputs. We predict that an analyst may signal a change in sentiment without actually revising the outstanding recommendation. Indeed, we show that reiterations we identify as “implied recommendation revisions” predict actual future recommendation revisions. The market impounds such information into prices—implied upgrades (downgrades) are positively (negatively) associated with returns centered on the report date, and price reactions to actual recommendation revisions are attenuated when preceded by an implied recommendation revision. We also show that sophisticated investors are more likely to trade after implied recommendation revisions, whereas retail traders tend to trade around actual recommendation revisions. Overall, our evidence provides extended insight into analysts’ research, the dynamics of recommendations, and the market consequences of both recommendation reiterations and revisions.
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
Paper available upon request.
“Real Effects of Shareholder Processing Costs on M&As and Financial Analysts’ Informational Role” with Farzana Afrin and Jalal Sani
Preparing for submission
Completing an M&A deal with negative announcement returns can have negative consequences for the manager (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 due to information processing costs, shareholders may not possess all relevant information at the deal announcement and may revise their opinion upwards post-announcement. This reduces costs of deal completion imposed on the manager and increases the likelihood of deal completion. Under this explanation, analysts play an informational role by lowering processing costs. We find that analyst research prompts the acquirer’s shareholders to revise their opinion upwards and increases deal completion likelihood, specifically 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 low, and (v) analysts are not affiliated with the acquirer. Overall, our findings highlight the significant impact of analysts’ informational role on managerial real investment decisions.
Presented at the 2024 BYU Accounting research Symposium, 5th Analyst Research conference (2024), and Boston College 2022.
Paper available upon request