Selected Working Papers
Unearthing Firm Value: The Effect of Mandatory Sustainability Disclosures on Firm Information Environments (Job Market Paper)
Last updated: February 2022
Mandatory disclosure of sustainability information is a new and growing type of disclosure requirement. Using the conflict mineral disclosure mandate from Dodd-Frank as my setting, I examine the information asymmetry and voluntary disclosure effects of mandatory sustainability disclosures. This mandate required firms to disclose their supply chain and materials sourcing procedures, as well as the due diligence efforts undertaken to determine whether conflict minerals were present in their products. Consistent with my predictions, I find that firms’ conflict mineral disclosures, on average, resulted in decreased information asymmetry among investors. This decrease was mitigated for firms with greater institutional ownership, but only for those firms without prior supply chain-related sustainability concerns. I also find that managers respond to the observed decrease (increase) in information risk among investors by reducing (increasing) their voluntary disclosure after the first mandatory filing. I interpret these findings to suggest that the decrease in asymmetry arose from the overlap between the new disclosure and the private information sets of more sophisticated investors and that managers became aware of, and responded to, these effects. Together, these results demonstrate that mandatory sustainability disclosures change the information environment faced by investors and that managers adapt to this change by adjusting their voluntary disclosure behavior.
Forecasting Shares Outstanding (with Zachary Kaplan, Nathan Marshall, and Hangmeng (Ivy) Wang)
Last updated: January 2022
Despite the importance of EPS forecasts as benchmarks, little is known about their denominator: shares outstanding forecasts. Because investing clients have limited demand for accurate share forecasts, we predict that analysts develop share forecasts strategically to facilitate EPS incentives. We divide earnings forecasts by EPS forecasts to infer analysts’ share forecasts and evaluate their properties. Analysts’ forecasts of shares outstanding are significantly less accurate than simple time-series models; however, these same forecasts actually improve EPS forecast accuracy. Additional analysis explains why: analysts use share forecasts to herd EPS toward the consensus. That is, share forecast errors often have the same sign as street earnings forecast errors, moving EPS closer to the consensus and to actual EPS, and significantly reducing EPS dispersion. Analysts also appear to use share forecasts to cater to management. Specifically, bias in share forecasts facilitates firms’ ability to meet or beat (“MB”) EPS benchmarks and is consistent with manager preferences (i.e., deflating EPS forecasts at short horizons and inflating at longer horizons). Much of the MB effect arises because analysts fail to incorporate predictable variation in shares outstanding, such as past repurchases. Interviews with sell-side analysts confirm that clients have limited demand for share forecasts, consistent with the inattention and strategic use of forecasts documented in our study.
Selection Bias in Management Forecasting: Evidence from 8-K Filing Choices (solo-authored)
Last updated: December 2021
This study examines the characteristics of management forecasts based on manager choice of dissemination medium. Recent research utilizes a variety of sources for managerial forecast information, implicitly relying on the assumption that the various data sources share similar properties. My results suggest systematic differences between forecasts from IBES Guidance (previously First Call) accompanied by a Form 8-K filing and those without. These biases present threats to studies utilizing EDGAR for textual analysis and voluntary disclosure measurement, as well as using IBES Guidance for research on forecasting behavior. I suggest sample selection criteria that help mitigate this bias and propose topical areas that may benefit from considering these differences further.
Macroeconomic Attribution and Management Forecasting (with Lindsey Gallo)
Last updated: November 2021
This study examines the presence and usefulness of macroeconomic narratives provided by managers in their annual earnings guidance. First, we document the presence of these “macro mentions” in 21% of the guidance in our sample with 38% of those mentions included in direct quotes by managers. We observe that these mentions are more frequent for firms with greater macro exposure, firms issuing bad news forecasts, firms issuing less precise forecasts, and firms facing less litigation risk. Next, we examine whether analysts glean information from these narratives and observe that analysts revise their earnings forecasts more in response to earnings guidance containing a macro mention, but only for firms with greater sensitivity to macroeconomic changes. Despite these increased revisions, we find no difference in analyst forecast accuracy after these revisions regardless of firms’ macroeconomic exposure. These findings suggest that analysts can effectively assess the influence of the macroeconomy on firm outcomes but gain no significant advantage over firms without these mentions or exposure.