Research

Selected Publications

Controlling the Narrative: Managerial Topic Shifting in Earnings Conference Calls

with Lili Dai, Ping Gong and Andrew Jackson

Review of Accounting Studies, Forthcoming.

This study implements topical analyses to identify the extent to which managers shift their responses from analysts’ questions in earnings conference calls and refers to this phenomenon as managerial topic-shifting behavior, a new information content construct arising from analyst-manager interactions. Using a sample of conference calls from 2002 to 2017, we find that managers in firms with better performance, more powerful CEOs, and fewer quality analysts tend to shift more from the topics of analysts’ inquiries. We further find that a greater extent of shifting relates to larger earnings response coefficients, suggesting that shifting topics provide relevant information to investors and facilitate the incorporation of earnings news into stock prices. Cross-sectional analyses indicate that this positive information effect is concentrated in firms with more credible and capable managers and with weaker information environments. Our study provides novel evidence of a proactive disclosure strategy leveraging managerial topic-shifting behavior.

Private Loan Issuance and Risk Factor Disclosure

with Lili Dai and Wayne Landsman

The Accounting Review, 2024, Volume 99, Issue 4.

This study provides evidence that private loan issuance offers opportunities for borrowers to learn new information about their own risks and subsequently disclose such information in their risk factor disclosures (RFDs) to satisfy lenders’ demand for transparency about borrowers’ risks. This loan issuance effect on risk disclosures is more pronounced when greater learning opportunities are present and when lenders have a stronger demand for borrowers’ risk information transparency. Further analyses suggest that the enhanced risk disclosures following loan issuance not only benefit lenders by reducing the costs of accessing the secondary credit markets, but also create spillover benefits for equity investors by increasing risk information about the borrower and reducing uncertainty about the borrower’s risk. Taken together, these findings suggest that borrowers’ private interactions with lenders provide new opportunities for managers to generate and reflect fresh information in corporate risk disclosures, ultimately benefiting a wide range of capital market participants.

Bridging the Gap between Stock Price and Bottom-Line Accounting Numbers

with Pengguo Wang and Demetris Christodoulou

Review of Accounting Studies, 2024, Volume 29: Issue 1.

We develop a method for extracting “other information” from the articulation between bottom-line accounting numbers and stock prices. We posit that “other information” captures future earnings growth originating from conservative accounting recognition principles as demonstrated by Penman and Zhang (2020) and Penman and Zhu (2022), as well as nonzero net present value investment opportunities. Our findings confirm that “other information” is strongly associated with various proxies for expected future earnings growth and firm risk attributes. Furthermore, we show how a structural expected return model incorporating our “other information” estimate can predict out-of-sample future stock returns and generate sizeable long-short return spreads.

Global Outsourcing and Voluntary Disclosure

with Lili Dai, Rui Dai and Lilian Ng

Journal of Business Finance & Accounting, 2024, Volume 51: Issue 3-4.

Reliance on global outsourcing has become an economic imperative for many major corporations worldwide, but at the same time, it has brought substantial risks and complexities to these firms. This study employs novel international supply chain data to examine whether global outsourcing of goods or services shapes US corporate disclosure policies. Our main results suggest a negative impact of global outsourcing exposure on voluntary disclosure, and several identification tests further support this baseline evidence. We find that the adverse effect on disclosure is more pronounced when institutional differences are more significant between the United States and foreign suppliers' countries and when US firms face higher litigation risks. However, the effect weakens when investors and stakeholders demand more information. Collectively, our study provides new insights into the economic implications of outsourcing globally from an information disclosure perspective.

Asymmetric Impact of Earnings News on Investor Uncertainty

with David Johnstone and Demetris Christodoulou

Journal of Business Finance & Accounting (2020), Volume 47, Issue 1-2 p. 3-26

We describe a model that predicts an asymmetric impact of disclosure on investor uncertainty. We show that good news tends to resolve more uncertainty than bad news, and that uncertainty can be revised upwards if the investors' prior belief is sufficiently strong and the signal is sufficiently bad. This result is in contrast to classical disclosure models, where new information always resolves uncertainty and the change in uncertainty depends only on the relative precision of the news. Using option-implied volatility as a proxy for uncertainty, we find strong support for our predictions. We also show that our results are robust to competing explanations, notably to the leverage effect and volatility feedback, as well as to the jump risk induced in anticipation of the earnings announcements.

Other Publications

Chen, J.W. , Khoo, E.S. & Peng, Z. (2023) Climate Change Disclosure and the Information Environment in the Initial Public Offering Market. Accounting & Finance, 63(Suppl. 1), 907–952.
Peng, Z. (2023) Do Risk Exposures Explain Accounting Anomalies? A New Testing Method. Accounting & Finance, 63, 2965–2983.
Khoo, E., Lu, L. & Peng, Z. The effect of CEO adverse professional experience on management forecast pessimism. Accounting & Finance, 65, pp. 219 - 250.
Hossain S., & Peng, Z. Impact of Corporate Risk Factor Disclosures on Auditor Judgements and Client Reporting: A Textual Analysis From 10-K Filings. Accounting & Finance, Forthcoming.

Selected Working Papers

How Do Environmental Enforcement Actions Shape Private Lenders’ Interactions with Borrowers?

R&R at The Accounting Review

with Lili Dai and Wayne Landsman

This study examines how Environmental Protection Agency (EPA) enforcement actions against lenders’ borrowers shape lenders’ interactions with their EPA-targeted borrowers, other existing borrowers, and future borrowers. First, although non-exposed lenders aggressively tighten lending with EPA-targeted borrowers, exposed lenders appear to stabilize lending relationships with targeted borrowers by applying less credit rationing and smaller interest rate increases. Exposed lenders increase monitoring by requiring more environmental covenants in contracts with targeted borrowers, leading to more pronounced and persistent pollution reduction. Second, exposed lenders’ non-targeted borrowers significantly reduce pollution relative to borrowers of non-exposed lenders, and such spillover effects are stronger for lenders with greater monitoring incentives and influence. Exposed lenders tend to raise interest rates and terminate lending relationships with less responsive borrowers. Third, exposed lenders impose stricter loan terms on future borrowers, especially those in the same industry as targeted borrowers, resulting in lower pollution by future borrowers.

Critical Audit Matters and Design of Financial Covenants in Corporate Loan Contracts

R&R at Journal of Accounting & Economics

with Daniela De La Parra, Wayne Landsman, and Donny Zhao

This study examines whether critical audit matters (CAMs) disclosed in expanded audit reports signal heightened uncertainty about borrowers’ creditworthiness and shape lenders’ demand for financial covenants in private debt contracts. Using U.S. loans issued between 2019 and 2023, we find that performance- (capital-) related CAMs are positively associated with performance- (capital-) based covenants, consistent with lenders tailoring covenant structure to the sources of uncertainty highlighted by auditors. We show that CAMs are associated with increased downside uncertainty in distance to default, which helps explain their link to covenant design. We also find that financial statement items identified in CAMs are more reflective of creditworthiness, suggesting that CAM disclosures help lenders assess the debt contracting value of accounting information, thereby improving contracting efficiency through optimized financial covenant design.

Other Working Papers

Peng, Z., Penman, S., & You, H. Risk Resolution and Revelation: A Unified Asset Pricing Model Based on Accounting Fundamentals and Risk Disclosures
Li, L & Peng, Z. Patent Disclosure Quality and the Secondary Market for Corporate Innovation.
Lisic, L., Sun. X., Peng, Z., & Tan., L. TCFD Adoption and ESG Rating Quality.
Dai, L., Dai, R., Lisic, L., & Peng, Z. CEOs' Diversity Footprints and Corporate Gender Diversity.
Ma, L. & Peng, Z. Innovation Ambidexterity, Asymmetric Performance Risks, and Equity Valuation.
Peng, Z. Topical Dispersion of Risk Factor Disclosures and Variance Risk Premia.
Li, L & Peng, Z. Topical Dispersion of Risk Factor Disclosures and Divergence of Opinions.

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