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• Article | Journal of Financial Economics | March 2020

  Governance Through Shame and Aspiration: Index Creation and Corporate Behavior

  Akash Chattopadhyay, Matthew D. Shaffer and Charles C.Y. Wang

  After decades of deprioritizing shareholders' economic interests and low corporate profitability, Japan introduced the JPX-Nikkei400 in 2014. The index highlighted the country's "best-run" companies by annually selecting the 400 most profitable of its large and liquid firms. We find that managers competed for inclusion in the index by significantly increasing ROE, and they did so at least in part due to their reputational or status concerns. The ROE increase was predominantly driven by improvements in margins, which were in turn partially driven by cutting R&D intensity. Our findings suggest that indexes can affect managerial behavior through reputational or status incentives.

  Keywords: JPX-Nikkei 400 index; Status incentives; return on equity; capital efficiency; Social Norms; Index inclusion; Reputation incentives; Motivation and Incentives; Corporate Governance; Behavior; Investment Return; Status and Position; Japan;

  Citation:

  Chattopadhyay, Akash, Matthew D. Shaffer, and Charles C.Y. Wang. "Governance Through Shame and Aspiration: Index Creation and Corporate Behavior." Journal of Financial Economics 135, no. 3 (March 2020): 704–724.  View Details

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• Case | HBS Case Collection | December 2017 (Revised December 2019)

  Tesla's Bid for SolarCity

  Charles C.Y. Wang and Raaj Zutshi

  In October 2016, Tesla asked its shareholders to ratify their $2.4 billion bid for SolarCity. Tesla had announced a series of large projects in the preceding months including the unveiling of the Model 3, the new Solar Roof, and pushing forward the opening of the Gigafactory. All of these projects required high upfront costs. Investors were left questioning the motives behind the acquisition of SolarCity, and the reality of approving the merger.

  Keywords: Mergers and Acquisitions; Business and Shareholder Relations; Project Finance;

  Citation:

  Wang, Charles C.Y., and Raaj Zutshi. "Tesla's Bid for SolarCity." Harvard Business School Case 118-044, December 2017. (Revised December 2019.)  View Details

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• Working Paper | HBS Working Paper Series | 2020

  Core Earnings: New Data and Evidence

  Ethan Rouen, Eric C. So and Charles C.Y. Wang

  Using a novel dataset that comprehensively classifies the quantitative financial disclosures in firms' 10-Ks, including those hidden in the footnotes and the MD&A, we show that disclosures of non-operating and less persistent income-statement items are both frequent and economically significant, increasingly so over time. Adjusting GAAP earnings to exclude these items creates a measure of core earnings that is highly persistent and that forecasts future performance. Street earnings for firms that meet or just beat analyst expectations are more likely to selectively exclude these items. Analysts and market participants also are slow to impound the implications of these items. Trading strategies that exploit cross-sectional differences in firms' transitory earnings produce abnormal returns of 7% to 10% per year.

  Keywords: core earnings; transitory earnings; non-operating earnings; quantitative disclosures; Equity Valuation; big data; Business Earnings;

  Citation:

  Rouen, Ethan, Eric C. So, and Charles C.Y. Wang. "Core Earnings: New Data and Evidence." Harvard Business School Working Paper, No. 20-047, October 2019. (Revised January 2020.)  View Details

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