Do Managers Learn from Institutional Investors through Direct Interactions? (Solo-authored)

Journal of Accounting and Economics, 2023

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I examine whether corporate managers learn from institutional investors through direct interactions at investor conferences. I find that managers seek more direct interactions with institutional investors at conferences when they have a greater need for information about their firm’s product markets and supply chains. This relation is stronger when managers expect investors to be knowledgeable. I also show that the information acquired from conference interactions is reflected in subsequent manager decisions. First, direct interactions help managers to extract information embedded in stock prices and later use it to make investments. Second, within the same firm and month, managers’ personal stock trades immediately after attending a conference earn higher abnormal returns, consistent with direct interactions expanding their private information set. Overall, these findings suggest that managers can acquire decision-relevant information from direct interactions with institutional investors of their firm.

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Investor Uncertainty and Voluntary Disclosure. (With Luzi Hail and Clare Wang)

We examine whether managers respond to unexpected increases in investor uncertainty by accelerating the release of relevant information. If managers possess firm-specific information that could help resolve uncertainty among investors, we expect them to release it in a timely manner, independent of the nature of the news. Using a global panel containing observations from 33 countries over the 2004 to 2019 period, we find evidence consistent with this prediction. We identify unexpected increases in investor uncertainty by extreme stock price movements and show that firms are both more likely to issue voluntary disclosure and timelier in doing so after such shocks. The results are stronger when managers are likely endowed with more private information but mitigated or even opposite when the sources of investor uncertainty are macroeconomic rather than firm-specific factors. The voluntary disclosure following information shocks contains more verifiable, financial information and is more value relevant to investors as measured by absolute announcement returns and (abnormal) trading volume. Overall, our findings suggest that management responds to increased demand for information in times of investor uncertainty.

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Beyond Old Boys’ Clubs: Financial Analysts' Utilization of Professional Connections. (With Mengqiao Du)

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Women often lack the opportunity to enter exclusive social clubs, reaping fewer benefits from their social networks. We investigate, conditioning on having the opportunity to interact with the right people in a professional setting, whether women can better utilize connections for career performance and advancement than men. Using a unique dataset that documents when, where, and with whom a financial analyst interacts at investor conferences, we find that female analysts issue more accurate earnings forecasts than their male counterparts after establishing connections with the firms' executives. This result is robust to exploiting variations in connections within an analyst-firm pair. In addition, female analysts overcome homophily when interacting with executives, and their superior ability to utilize connections is recognized in both the capital and labor markets. Our findings suggest that women are better at capitalizing on professional connections and highlight the importance of promoting women's networking opportunities in the workplace.

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The Cost of Regulatory Inaction: Evidence from IFRS Non-Adoption. (With Miao Liu and Wanrong Xu)

 

A growing literature has examined the benefits and costs of implementing new disclosure regulations. However, little is known about the consequences when regulators fail to take action. Using IFRS adoption in 2005 as the setting, we examine the costs of regulatory inactions among non-adopting countries. We find that firms located in non-adopting countries with a higher overlap of common investors with firms in IFRS-adopting countries experience a significant decline in liquidity. Employing a within-firm-time design, we further demonstrate that analysts and institutional investors shift their attention from non-IFRS firms when other firms in their portfolios adopt IFRS. Moreover, the decline in liquidity and the associated reduction in information production by analysts and institutional investors are particularly pronounced in non-adopting countries with weak reporting enforcement actions and increasing accounting distance from IFRS standards. Overall, our findings highlight the potential costs of regulatory inaction. Valuable information production resources are diverted to the new regime, resulting in a worsened information environment for companies in the old regime.

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The Risk Sharing Value of Disclosure: A Real-time Market Response Approach to Hedge Climate Change Risk. (With Yang Cao and Miao Liu)

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​Risk sharing is a fundamental function of financial markets. Can corporate disclosures enhance investors’ ability to share risks, especially in areas where conventional financial products like insurance and derivative contracts are absent? In this study, we apply a novel methodology to information disclosed during earnings calls and construct hedging portfolios that help investors manage and share risks associated with climate change. Leveraging recent advancements in large language models, we utilize ChatGPT-4 to identify climate-related conversations during earnings calls and connect these time-stamped transcripts with high-frequency stock price data pinpointed to the conversation level. We assess a company’s dynamic exposure to climate change risks by analyzing real-time stock price responses to climate discussions between managers and analysts. Our approach relies on 1) the incidence of climate issues as salient topics that warrant conference call discussions and 2) the direction and magnitude of investors’ real-time responses to these conversations, effectively capturing both time-series and cross-sectional variations in stocks’ evolving climate exposures. Our proposed portfolios, constructed by taking long (short) positions in stocks with positive (negative) market responses to climate conversations, appreciate in value during future periods with negative aggregate climate news shocks, thereby enabling investors to effectively share and hedge climate-related risks. Additionally, we showcase the versatility of our approach in hedging other types of emerging risks: namely political risk and pandemic risk. 

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