Session 1: Sarah Zechman

Coauthors: Jonathan L. Rogers & Douglas J. Skinner

Paper: The role of the media in disseminating insider trading news

Hawes 101

Abstract: We use the disclosure of insiders’ trades to investigate whether the way in which news is disseminated by the media affects the securities market response. To do this, we utilize recent changes in the disclosure rules governing insider trades and an exogenous change in media coverage to cleanly identify media effects. Using high-resolution intraday data and a plausibly exogenous change in media coverage, we find clear effects of media disclosure in price and volume responses to news. These results help resolve open questions regarding the importance of investor inattention and help explain why apparently “second hand” news affects securities prices.

Break

Hawes First Floor Lounge

Session 2: Gwen Yu

Coauthors: Russell Lundholm & George Serafeim

Paper: FIN around the world: the contribution of financing activity to profitability

Hawes 101

Abstract: We study how the availability of domestic credit influences the contribution that financing activities make to a firm’s return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm’s ROE in countries with higher domestic credit. However, the path from available credit to firm profitability varies significantly between small firms and large firms. More domestic credit allows small firms to increase their leverage ratio but has no effect on the leverage ratio of large firms, presumably because the smaller firms are the marginal borrowers. However, large firms still benefit more from domestic credit because they have higher leverage ratios to begin with, and countries with more available domestic credit have lower borrowing costs. We also show that the use of trade credit complements the use of financial credit, but that the availability of domestic credit only strengthens this relation for the largest firms in the economy. Finally, we show that large increases in domestic credit are followed by significant increases in the financing contribution to ROE in the subsequent year.

Break

Hawes First Floor Lounge

Session 3: Abigail Allen

Co-authors: Karthik Ramanna & Sugata Roychowdhury

Paper: The auditing oligopoly and lobbying on accounting standards

Hawes 101

Abstract: We examine how the tightening of the U.S. auditing oligopoly over the last twenty-five years—from the Big 8 to the Big 6, the Big 5, and, finally, the Big 4—has affected the incentives of the Big N, as manifest in their lobbying preferences on accounting standards. We find, as the oligopoly has tightened, Big N auditors are more likely to express concerns about decreased “reliability” in FASB-proposed accounting standards (relative to an independent benchmark); this finding is robust to controls for various alternative explanations. The results are consistent with the Big N auditors facing greater political and litigation costs attributable to their increased visibility from tightening oligopoly and with decreased competitive pressure among the Big N to satisfy client preferences (who usually demand accounting flexibility at the expense of reliability). The results are inconsistent with the claim that the Big N increasingly consider themselves “too big to fail” as the audit oligopoly tightens.

Lunch

Hawes First Floor Lounge

Session 4: Robin Greenwood

Co-author: David Scharfstein

Paper: The Growth of Finance

Hawes 101

Abstract: The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages. This expansion was fueled by the development of non-bank credit intermediation (or “shadow banking”). We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking – the main areas of growth in the financial sector – has been socially beneficial.

Break

Hawes First Floor Lounge

Session 5: Suraj Srinivasan

Coauthors: Joseph Piotroski & Peter Joos

Paper: “Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates”

Hawes 101

Abstract: We use a dataset of sell-side analysts' scenario-based equity valuation estimates to examine whether analysts are able to assess the risk surrounding a firm’s fundamental value. We find that the spread in analysts’ state-contingent valuations captures the riskiness of operations and predicts the absolute magnitude of future long-run valuation errors and changes in firm fundamentals (i.e., maps into the distribution of one-year-ahead price outcomes and changes in operating performance). Additionally, analysts’ assessment of fundamental risk and predictive ability systematically shifted during and after the financial crisis, consistent with the macro-economic shock raising awareness among analysts of their firms’ systematic risk exposures.

Break

Hawes First Floor Lounge

Session 6: Baruch Lev

Coauthors: Elizabeth Demers & Jing Chen

Paper: Oh What a Beautiful Morning! The Time of Day Effect on the Tone and Market Impact of Conference Calls

Hawes 101

Abstract: Using textual analysis software, we examine whether and how the tone of the question and answer (“Q&A”) portion of earnings-related conference calls varies with the time of day. We find that the tone of the conversations between analysts and managers becomes significantly more negative as the day wears off. This continuous, hour-by-hour change is likely the result of mental and physical fatigue gradually and imperceptibly setting in. Calls that are held later in the day also exhibit significantly greater textual uncertainty, that is, the conversational tone is more wavering and less resolute. We document that conversational tone has economic consequences; more negatively toned conversations are associated with more negative abnormal stock returns during the call period and immediately thereafter. Notwithstanding the negativity associated with later day calls, firms exhibit significant “stickiness” in their choice of call time; having initiated the earnings conference call in the afternoon in the prior quarter is the most significant determinant of their doing so in the current quarter, dominating the sign of the earnings news and alternative measures of the firm’s need for equity capital. Further analyses show that there is a negative price drift for about 8 days following the call day for both morning and afternoon “bad news” calls, followed by an extended period of positive abnormal returns (i.e., price reversals) that are higher for afternoon calls. While the bad news overreaction reverses, the recorded negative impact of the calls’ tone on stock returns lasts. To the best of our knowledge, this is the first study to document the effects of human physiological and mental factors on corporate communications with investors.

Cocktails and Dinner

Charles Hotel, Cambridge

Transportation will be provided

Session 1: Rebecca Henderson

Paper: The strategic case for sustainability: why is accounting so critical?

Hawes 101

Abstract: Problems in sustainability are first and foremost problems in public goods, and as such have historically been viewed as problems that are best solved through political action. In this talk I will explore why private actors may nonetheless have a critically important role in addressing the challenges of sustainability, focusing particularly on the critical role of uncertainty in shaping strategic behavior and the potential role of accounting standards in triggering cooperative action across coalitions of firms and investors. I will also explore the implications of these ideas for the political strategy of the private sector.

Break

Hawes First Floor Lounge

Session 2: George Serafeim

Paper: The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research

Hawes 101

Abstract: A long-standing ideology in business education has been that a corporation is run for the sole interest of its shareholders. I present an alternative view where increasing concentration of economic power in the world’s largest corporations, the Global 1000, has opened the way for both managers and shareholders to accept that the corporation should serve the interests of the broader society. Having documented that this alternative view better fits actual corporate conduct, I discuss opportunities for future research. Specifically, I call for research on the materiality of environmental and social issues for the future financial performance of corporations, the design of incentive and control systems to guide strategy execution, corporate reporting, and the role of investors in this new paradigm.

Bag Lunch

Hawes First Floor Lounge