Working Papers

Working Papers

Jing Pan, Edward Sul, and Sean Wang. “Firm-Specific Information Processing and the Delayed Discovery of Macroeconomic News: Evidence from Earnings Announcement Returns.” 

• Under 2nd Round Review at Review of Accounting Studies

• Too much focus on processing salient firm-specific news can lead to neglect of macro news when extreme earnings are announced.

• Extreme earnings surprises lead to the neglect of macro news embedded in the aggregate return, resulting in predictable returns over the subsequent 3-day period after the earnings anouncement date when conditioned on the magnitude of the aggregate return on the earnings announcement date.

• Effects are larger when firm-specific information acquisition efforts are highest (SEC EDGAR downloads), investors have limited resources (retail trade intensity, smaller firms), and when the firm's economics are more strongly tied to the macroeconomy (beta). 

• While prior research shows that information acquisition aids price discovery, our study finds that limited investor attention and a focus on firm-specific news can delay the processing of macroeconomic information.

• Keywords: Information Processing, Investor Attention, Behavioral Biases, Earnings Announcements, Macroeconomic News, Price Discovery

Edward Sul, Sean Wang, and Vivi Zhu. "Fear Cautions, Anger Commands: Information in Managerial Vocal Emotion." 

• Under Review at Contemporary Accounting Research

• Managerial vocal emotion is informative - fear signals caution and latent downside risk, while anger signals confidence and conviction. 

• Using a machine learning algorithm trained to detect emotions from vocal cues, we construct firm-quarter measures of managerial vocal fear and anger displayed on earnings conference calls. 

• Fear elicits negative investor reactions and predicts future underperformance, especially when paired with positive earnings news (cognitive dissonance).

• Fear is associated with cautious managerial behavior and adverse material events, particularly following bad earnings news (confirmation of downside risk).

• Anger predicts positive investor reactions, future growth, confident managerial behavior, and positive material developments, especially when earnings news is strong (managerial conviction to build on positive firm momentum).

• Prior research examines implications of negative managerial vocal affect - we show how two discrete negative emotions, anger and fear, convey distinct signals about managerial expectations and firm trajectory shaped by the broader earnings news context.

• Keywords: Vocal Emotion, Machine Learning, Behavioral Biases, Disclosure, Conference Calls, Soft Information

Ashiq Ali, Jongha Kim, Jedson Pinto, and Edward Sul. "When Shorts Go Public: Mandatory Short Position Disclosure and Management Guidance." 

• Firms respond to mandatory public disclosure of large short positions by improving voluntary disclosure.

• The EU236 Rule requires public disclosure of large short positions, including the identity of the short seller. 

• While disclosed large short positions increase the credibility of short selling threats, it can also decrease overall short interest, with many short sellers staying beneath the required threshold for disclosing their identity and short positions. 

• After the EU236 Rule, EU firms issue more earnings guidance, especially among smaller and less visible firms.

• EU firms' guidance in the post-EU236 Rule period is richer: more quantitative detail, broader coverage of line items, longer and more informative guidance, and more proactive disclosure of bad news. 

• Firms that increase guidance following the EU236 Rule have fewer large disclosed short positions, consistent with enhanced voluntary disclosure acting as a defensive tool to deter short pressure. 

• Keywords: EU236 Rule, Regulation, International Accounting, Voluntary Disclosure, Corporate Governance, Information Production, Short Selling

Hyun Jung Rim and Edward Sul. "Instituional Blockholder Exit Threats and Corporate Social (Ir)responsibility." 

• Large institutional blockholders discourage both socially irresponsible and responsible behavior that may not benefit shareholders.

• Large institutional blockholders discipline managers by threatening to sell (i.e., exit threat), especially when the firm's stock is liquid. 

• Stronger exit threats are associated with less socially irresponsible behavior (CSI). 

• Exit threats also reduce certain socially responsible behavior (CSR), which may reflect managerial private agendas rather than shareholder value creation.

• Effects are more pronounced when managerial wealth is more sensitive to stock price, agency risks are higher, and when institutional blockholders have signaled passive ownership (signaling exit as the credible governance channel). 

• Keywords: Corporate Governance, Exit Threats, CSR/CSI, ESG

Works in Progress

Gilles Hilary, Edward Sul, Xiaoli Tian, and Miaomiao Yu. "Political Homogeneity at Work: Effects on Employees, Organizational Behavior, and Firm Performance." 

Older Working Papers

Edward Sul. "Effects of FinTech and Crowdsourced Forecasting on Firms: Evidence from Estimize." 

• Coverage from a crowdsourced financial estimates platform leads affects firms in various ways, including increased firm value. 

• Following coverage initiations on Estimize, firms experience decreased information asymmetry. 

• Covered firms also experience increased visibility (breath of institutional ownership) and pressure (downward guidance and real earnings management).

• Firm value significantly increases upon Estimize coverage, driven by reduced information asymmetry and increased visibility.

• Effects of Estimize coverage on firm outcomes are more pronounced when a firm has zero analyst coverage. 

• Keywords: FinTech, Estimize, Crowdsourced Forecasts, Information Production, Information Intermediaries

Hyun Jung Rim and Edward Sul. "Director Independence and Corporate Investment Efficiency: Evidence from Board Reforms Worldwide." 

• Director independence regulations improve the efficiency of how firms invest, especially in cutting back on overinvestment.

• Following enactment of major country-level board independence governance reforms, firms significantly reduce overinvestment. 

• Effects are most pronounced in countries with higher rule-based reforms and higher liability standards.

• Effects are also stronger in firms with lower inside ownership, higher analyst coverage, and non-majority board independence at the time of the reform. 

• Firms have lower absolute deviations from the level of expected investments following board reforms. 

• Keywords: Corporate Governance, Regulation, International Accounting, Board Independence, Investment Efficiency, Overinvestment