Research
Publications:
"Visuals and Attention to Earnings News on Twitter" with with Alex Nekrasov and Siew Hong Teoh.
Review of Accounting Studies 27( 2022), pp.1233-1275.
We propose the visual attention hypothesis that visuals in firm earnings announcements increase attention to the earnings news. We find that visuals in firms’ Twitter earnings announcements are associated with more retweets, consistent with greater user engagement with announcements that have visuals. This result holds for earnings tweets sent by the same firm and on the same day in firm-level and tweet-level analyses. Consistent with managerial opportunism, firms are more likely to use visuals in their earnings tweets when performance is good but less persistent. Consistent with visuals increasin g investor attention, the initial return response to earnings news is stronger and the post-announcement response is lower when visuals are used. Our evidence of a post-announcement return reversal indicates that visuals can be a double-edged sword. Furthermore, the higher earnings response coefficient from visuals is more pronounced on days with high investor distraction (when many other firms are also announcing earnings).
"Did Accrual Earnings Management Decline and Real Earnings Management Increase Post-SOX? A Re-Examination Over an Extended Post-SOX Period and A Closer Look at REM-AEM Substitution" with Mort Pincus and Jasper Hwang. Journal of Financial Reporting 7 (2022), pp.179-205.
A widely cited paper, Cohen, Dey, and Lys (2008, hereinafter CDL), examines accrual (AEM) and real earnings management (REM) pre- and post-Sarbanes Oxley and provides evidence that, in the period immediately following SOX, accruals management declined and was substituted by REM. We re-visit CDL and ask whether CDL’s main results extend to recent periods and hold using updated research design choices. We find AEM declines in the period immediately after SOX, but the results are sensitive to some design choices. We also find AEM generally declines over our entire extended post-SOX period, suggesting that the components of SOX were largely successful in constraining AEM. REM is higher post-SOX but with an insignificant trend over the entire extended post-SOX period. Additionally, the results indicate REM and AEM behave as substitutes in the period preceding SOX, but the substitution effect significantly weakens post-SOX.
“Enhancing and Updating Cohen, Dey, and Lys’s (2008) Methodological Framework to Re-Examine the Relation between Accrual-Based and Real Earnings Management After SOX" with Mort Pincus. Journal of Financial Reporting 8 (2023), pp.3-10.
We respond to and rebut a number of comments in Daniel Cohen and Thomas Lys’s commentary (Cohen and Lys 2022) on our paper (Pincus et al. 2022), which re-examines and extends the research in Cohen, Dey, and Lys (2008), “(hereinafter CDL)”. Specifically, we rebut most of the claims Cohen and Lys (2022) make regarding the lack of a conceptual framework and research design limitations and clarify Cohen and Lys's (2022) misinterpretation on the inconsistency between our findings and prior published work. Cohen and Lys (2022) argue for the need to adjust the methodology that Cohen et al. (2008) employed but fail to acknowledge the enhancements we made to Cohen et al. (2008) methodological framework, which enabled us to separate the substitution effects associated with the pre-SOX and post-SOX periods.
"Limited Attention and Financial Decision Making" with Alex Nekrasov and Siew Hong Teoh. Handbook of Financial Decision Making
Investor attention is a limited resource. This chapter discusses the literature on investor limited attention and its effects on capital markets. Theoretical and empirical studies find that when some investors are inattentive, the immediate market reaction to news is incomplete and the price exhibits a post-announcement drift. The underreaction is stronger when investor attention is distracted by competing stimuli, when the information is less salient or harder to process, and when investors are less sophisticated. While retail investors suffer more from limited attention, the effects of limited attention are also significant for sophisticated market participants, such as financial analysts, institutional investors, market makers, and financial data providers. Firms incorporate investor limited attention by choosing disclosure timing and format to highlight good news and reduce attention to unfavorable information. Collectively, the reviewed studies indicate that investor limited attention has important and far-reaching effects on capital markets.
Working Papers:
"GIF Sentiment and Stock Returns" with Ming Gu and Siew Hong Teoh.
We introduce a daily firm-level investor sentiment measure, GIFSentiment, built from graphics interchange format images (GIFs) found in postings about firms on Stocktwits.com, an online investment community. The cognitive science literature indicates that moving images, a distinguishing feature of GIFs, draw more attention and elicit higher arousal. GIFSentiment is positively correlated with same-day stock returns and predicts stock return reversals within the following two weeks. This return pattern is stronger for GIFs with salient content, viral GIFs, GIFs by influencers, and GIFs in posts about stocks with more retail ownership and stricter limits to arbitrage. GIFSentiment also predicts increases in retail order imbalances and short sale volumes. Results are robust to controls for firm-day-level news media sentiment and textual sentiment of the postings. Finally, GIFSentiment in half-hour intervals positively predicts the next two hours of GIFSentiment, stock returns, and retail order imbalance, consistent with sentiment contagion.
“Does Interaction on Social Media Increase or Moderate Extremeness?” with Devin Shanthikumar and Annie Wang
Using comment streams on Seeking Alpha articles, we examine whether interacting on social media increases or moderates the extremeness of investors’ opinions. Unlike some findings from political science that show social media increases extremeness of opinions, we find that interaction on Seeking Alpha moderates extremeness. Comments become less extreme over the sequence of comments for a given article, as well as within individual comment sub-threads, and over a single user’s comments for a given article. Extremeness reduction is stronger when the article itself is more moderate, when more users are self-identified (i.e., not anonymous), and when a broader set of perspectives is represented, as measured by industry interests. Results also suggest that the extremeness reduction triggered by Seeking Alpha interaction has capital market implications. Differences of opinion captured by stock-based measures, abnormal volume and turnover, decrease significantly after the release of Seeking Alpha articles with comments. Our results provide the first evidence of the effect of social media interaction on the updating of individuals’ opinions.
“What is the Role of Visuals in Earnings Conference Call Slides?”
Using machine learning algorithms to analyze the format of the information in earnings conference call presentation slides, I examine how managers use diagrams, a salient visual presentation format and I analyze the effect of this format on investors and analysts. I find that managers use more diagrams when current quarterly earnings fall short of analyst expectations. In addition, firms that face a negative earnings surprise use more diagrams to discuss other positive key performance news including revenues, cash flows, and cost management. Also, firms increase their use of diagrams for non–GAAP earnings when current GAAP earnings fail to meet analyst forecasts. These results suggest that managers use diagrams strategically in their conference call presentations. I also find that the use of diagrams is associated with a higher initial response to earnings news at the announcement date. The use of diagrams is also associated with a lower post– earnings announcement drift over the post announcement window. Collectively, these results suggest that when earnings fall short of analyst expectations, managers use more diagrams to highlight the positive aspects of the firm’s financial performance. As a result, managers’ strategic choices regarding the presentation of earnings news hinders the efficient incorporation of earnings news into stock prices.