Publications

1. Quasi-Indexer Ownership and Insider Trading: Evidence from Russell Index Reconstitutions (with Stephen Hillegeist)

Contemporary Accounting Research, 2021

Abstract: The prior literature on the association between institutional ownership and insider trading has produced a mixed set of results. These results are difficult to interpret because the association between them is likely endogenous and prior studies have not employed effective identification strategies to address this issue. In this study, we examine the effects of quasi-indexer institutional ownership on insider trading using the plausibly exogenous discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, we find higher quasi-indexer ownership leads to less insider trading (both buys and sells) and less profitable sell trades. The effects for sells are concentrated among insider trades that, ex ante, are more likely to be based on private information. Our evidence on the profitability of buys is mixed. In addition, we find firms with higher quasi-indexer ownership are more likely to have and/or more strictly enforce blackout policies.

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Media Coverage: Columbia Law School’s Blog on Corporations and the Capital Markets

Working Papers

1. Institutional Dual-Holders and Corporate Disclosures: A Natural Experiment (with Lin Cheng, Qiang Cheng, and Mark Yan)

Revise and resubmit (3rd round) at Contemporary Accounting Research

Abstract: This study examines the influence of institutional dual-holders, whose portfolios hold both loans and equity securities of the same firms, on those firms’ disclosures. Using mergers between institutional shareholders and lenders to the same firms as exogenous shocks to identify firms with institutional dual-holders, we document that such firms are less likely to provide management forecasts and disclose fewer voluntary 8-K items. In cross-sectional analyses, we find that the reduction in public disclosures is more pronounced when institutional dual-holders have higher equity ownership and when firms have lower litigation risk. In addition, we find that firms with institutional dual-holders provide more private disclosures to their lenders via loan contract covenants. Additional analyses indicate that the influence of institutional dual-holders on corporate disclosures is driven by both their monitoring and trading incentives.

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2. The Listenability of Disclosures and Firms’ Information Environment (with Andy Call, Ben Wang, and Qiang Wu)

Revise and resubmit at The Accounting Review

Abstract: This paper examines how the listenability of corporate vocal disclosures affects firms’ information environment. Listenability refers to the ease with which humans can comprehend spoken language. We introduce a new measure of listenability by analyzing audio recordings of 56,989 quarterly earnings calls using an advanced, supervised machine learning model trained on 680,000 hours of labeled audio data. We find that enhanced listenability of the presentation portion of earnings conference calls is associated with higher quality manager-analyst interactions during the Q&A session of the call and better information production by analysts after the call. Further analyses reveal that higher listenability is associated with stronger price responsiveness, higher stock price informativeness, faster price formation, and lower bid-ask spread following the call. These results are consistent with clear and effective corporate oral communications facilitating a better information environment.

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3. The Effect of Tax Abatement Disclosure on Municipal Financing (with Lei Li, Jaron Wilde, and Colin Zeng)

Abstract: Local governments' use of business tax incentives (abatements) is an economically significant, if controversial, practice. But understanding of how abatements affect governmental financing costs is limited. While mandatory disclosures of local government abatements could mitigate information asymmetry and enhance monitoring of their use, they could also reveal unfavorable information about how (or how much) governments use them, leading to investor backlash. We exploit the recent adoption of GASB standard 77, which requires local governments following GAAP to disclose information about tax abatements, to investigate whether and how mandatory abatement disclosures affect municipal financing costs. Our difference-in-differences analyses suggest that the adoption of GASB 77 is associated with significant decreases in the cost of bonds issued by treated counties. This effect is more pronounced in counties with higher (lower) information asymmetry (public and regulatory monitoring). Further analysis reveals that treated counties experience increases in GDP growth and decreases in unemployment, consistent with public disclosures helping discipline tax abatement decisions. Overall the results provide compelling evidence regarding the economic benefits of governmental tax incentive transparency.

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4. Human Readability of Disclosures in a Machine-Readable World (with Andy Call, Ben Wang, and Qiang Wu)

Abstract: While regulators emphasize the need for machine-readable corporate disclosures, we examine how improvements in machine readability of textual and numerical information affect the human readability of these disclosures. Relative to the 2009 XBRL mandate that required a separate XBRL exhibit of financial statement numbers, the 2019 Inline XBRL (iXBRL) regulation improves the machine readability of both textual and numerical content throughout corporate filings. Utilizing the iXBRL mandate as a quasi-exogenous shock to machine readability, we observe a negative effect of machine readability on human readability. In addition, we document that following the iXBRL regulation, disclosures become less informative to retail investors, who generally have less ability to process corporate disclosures with machines and who are more reliant on human readability, and that they reduce ownership in stocks impacted by the iXBRL regulation. Further evidence suggests the reduction in human readability is driven by both opportunistic and non-opportunistic reasons. Our results are robust to a regression discontinuity design, an alternative difference-in-differences design, and alternative measures of human readability. Overall, our findings indicate that improved machine readability has implications for the human processing of disclosures.

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5. Organized Labor and Strategic Disclosure through Online Job Postings (with Daniel Aobdia, Lin Cheng, and Meiling Zhao)

Abstract: This study examines whether and how firms use online job postings as a strategic disclosure tool to mitigate the bargaining power of labor unions. Utilizing difference-in-differences analyses, we find that firms strategically reduce the level of online job postings during labor negotiations. Cross-sectional tests suggest that firms’ reduction in the level of job postings during labor negotiations is more pronounced when firms are headquartered in states without right-to-work law, when firms have stronger labor intensity, when firms exhibit higher growth, and when the monitoring from capital market participants such as financial analysts and institutional investors is weaker. Further, such strategic disclosure behavior concentrates on the three quarters prior to the effective dates of collective bargaining agreements. Corroborating evidence suggests that firms also provide fewer specific job postings during labor negotiations. Overall, our study provides evidence that firms strategically communicate with incumbent employees through online job postings.

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6. Mutual Fund Liquidity Management, Stock Liquidity, and Corporate Disclosure

Abstract: This study presents novel evidence that mutual fund liquidity management affects stock liquidity. Exploiting a proposal by the U.S. Securities and Exchange Commission (SEC) as an exogenous shock to mutual fund liquidity management, I find that mutual fund liquidity management improves stock liquidity of firms in mutual fund portfolios. This improvement is more pronounced when mutual funds have stronger incentives to improve portfolio liquidity and more resources to influence firms and when portfolio firms have lower stock liquidity prior to the SEC proposal. Consistent with mutual funds influencing portfolio firms to be more transparent, I further show that improving disclosure among portfolio firms is one mechanism through which stock liquidity is improved. Overall, the results indicate that liquidity management at the fund level has important implications for stock liquidity and information disclosure of portfolio firms.

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Media Coverage: Duke Law School’s Blog

Interviewed by Faculti Media

7. Mutual Fund Strategic Disclosure (with Vikas Agarwal and Shawn Huang)

Abstract: This study documents novel evidence that mutual funds act deliberately to meet the statutory holding thresholds of beneficial ownership disclosure, Schedule 13D/G filings. Further analysis reveals that 13D/G filings help mutual funds raise the demand for the underlying stocks, resulting in higher stock prices and liquidity. We also find that mutual funds engaging in strategic disclosure are much larger and more active in trading than funds not engaging in strategic disclosure. Additional tests suggest that portfolio firms involved in strategic disclosure are smaller and less liquid and have less analyst coverage than other portfolio firms around the holding thresholds, highlighting the incentive of mutual funds to use strategic disclosure to improve the demand for these stocks. Finally, we show that investors who follow mutual funds and invest in companies involved in strategic disclosure may suffer losses in the long run.

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8. Career Experience and Executive Performance: Evidence from Former Equity Research Analysts (with Shawn Huang, Artur Hugon, and Summer Liu)

Abstract: This study examines the portability of skillsets to the top executive position. In particular, we examine CEOs and CFOs who have experience as equity research analysts, finding these executives generate earnings guidance that is more accurate than that of other executives, and make M&A transactions with significantly higher announcement returns. For available executives, we examine their work histories as research analysts, finding stronger results for those who were more accurate forecasters, better stock pickers, more experienced, and those with smaller gaps between their analyst and executive jobs. Beyond these outcomes, we find these executives provide clearer answers to analysts during conference calls, especially when answering forward-looking and quantitative questions. Overall, our evidence suggests that specific skills gained in executives’ formative years significantly impact corporate performance outcomes.

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Nominated for the Best Paper Award at the 2020 AAA FARS Midyear Meeting

Media Coverage: Duke Law School’s Blog