Reply: Do Powerful Politicians Really Cause Corporate Downsizing?

Lauren  Cohen; Joshua D. Coval; Christopher J. Malloy

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Response | Journal of Political Economy | December 2017

Reply: Do Powerful Politicians Really Cause Corporate Downsizing?

by Lauren Cohen, Joshua D. Coval and Christopher J. Malloy

Abstract

While we commend the initiative of Snyder and Welch (2017), we lay out in this short reply why we remain highly confident in our results and our interpretation thereof. We welcome authors to continue to explore the data for themselves and look forward to the new questions they can tackle with it.

Keywords: Spending; Private Sector; Taxation; Interest Rates; Business and Government Relations; Investment; Employment; Power and Influence;

Format: Print

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Citation:

Cohen, Lauren, Joshua D. Coval, and Christopher J. Malloy. "Reply: Do Powerful Politicians Really Cause Corporate Downsizing?" Journal of Political Economy 125, no. 6 (December 2017): 2232–2237.

About the Authors

Lauren H. Cohen

L.E. Simmons Professor of Business Administration

Finance

Entrepreneurial Management

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Joshua D. Coval

Jay O. Light Professor of Business Administration

Finance

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View Publications »

Christopher J. Malloy

Sylvan C. Coleman Professor of Financial Management

Finance

Entrepreneurial Management

View Profile »
View Publications »

More from these Authors

Working Paper | 2016

Lazy Prices

Lauren Cohen, Christopher J. Malloy, Quoc Nguyen, Lauren Cohen, Christopher J. Malloy and Quoc Nguyen

We explore the implications of a subtle "default" choice that firms make in their regular reporting practices, namely that firms typically repeat what they most recently reported. Using the complete history of regular quarterly and annual filings by U.S. corporations from 1995 to 2014, we show that when firms make an active change in their reporting practices, this conveys an important signal about the firm. Changes to the language and construction of financial reports have strong implications for firms' future returns: a portfolio that shorts "changers" and buys "non-changers" earns up to 188 basis points per month (over 22% per year) in abnormal returns in the future. These reporting changes are concentrated in the management discussion (MD&A) section. Changes in language referring to the executive (CEO and CFO) team, or regarding litigation, are especially informative for future returns.

Keywords: information; default behavior; inertia; firms; annual reports; disclosure; Information; Business or Company Management; Behavior; Corporate Disclosure; Financial Reporting; United States;

Citation:
Cohen, Lauren, Christopher J. Malloy, and Quoc Nguyen. "Lazy Prices." NBER Working Paper Series, No. 25084, September 2018. (Winner of the First Prize, Chicago Quantitative Alliance Academic Paper Competition, 2016. Winner of the Jack Treynor Prize for superior work in the field of investment management and financial markets, sponsored by the Q-Group (The Institute for Quantitative Research in Finance), 2016. Winner of the Hillcrest Behavioral Finance Prize, 2016.) View Details

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Working Paper | 2016

Lazy Prices

Lauren Cohen, Christopher J. Malloy, Quoc Nguyen, Lauren Cohen, Christopher J. Malloy and Quoc Nguyen

We explore the implications of a subtle "default" choice that firms make in their regular reporting practices, namely that firms typically repeat what they most recently reported. Using the complete history of regular quarterly and annual filings by U.S. corporations from 1995 to 2014, we show that when firms make an active change in their reporting practices, this conveys an important signal about the firm. Changes to the language and construction of financial reports have strong implications for firms' future returns: a portfolio that shorts "changers" and buys "non-changers" earns up to 188 basis points per month (over 22% per year) in abnormal returns in the future. These reporting changes are concentrated in the management discussion (MD&A) section. Changes in language referring to the executive (CEO and CFO) team, or regarding litigation, are especially informative for future returns.

Keywords: information; default behavior; inertia; firms; annual reports; disclosure; Information; Business or Company Management; Behavior; Corporate Disclosure; Financial Reporting; United States;

Citation:
Cohen, Lauren, Christopher J. Malloy, and Quoc Nguyen. "Lazy Prices." NBER Working Paper Series, No. 25084, September 2018. (Winner of the First Prize, Chicago Quantitative Alliance Academic Paper Competition, 2016. Winner of the Jack Treynor Prize for superior work in the field of investment management and financial markets, sponsored by the Q-Group (The Institute for Quantitative Research in Finance), 2016. Winner of the Hillcrest Behavioral Finance Prize, 2016.) View Details

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Working Paper | 2018

IQ from IP: Simplifying Search in Portfolio Choice

Huaizhi Chen, Lauren Cohen, Umit Gurun, Dong Lou, Christopher J. Malloy, Huaizhi Chen, Lauren Cohen, Umit Gurun, Dong Lou and Christopher J. Malloy

Using a novel database that tracks web traffic on the SEC’s EDGAR servers between 2004 and 2015, we show that mutual fund managers gather information on a very particular subset of firms and insiders, and their surveillance is very persistent over time. This tracking behavior has powerful implications for their portfolio choice and its information content. An institution that downloaded an insider-trading filing by a given firm last quarter increases its likelihood of downloading an insider-trading filing on the same firm by more than 41.3% this quarter. Moreover, the average tracked stock that an institution buys generates annualized alphas of between 9% to 18% relative to the purchase of an average non-tracked stock. We find that institutional managers tend to track members of the top management teams of firms (CEOs, CFOs, Presidents, and Board Chairs) and tend to share educational and location-based commonalities with the specific insiders they choose to follow. Collectively, our results suggest that the information in tracked trades is important for fundamental firm value and is only revealed following the information-rich dual trading by insiders and linked institutions.

Keywords: Institutional Investing; Information; Investment Portfolio; Decisions; Management;

Citation:

Chen, Huaizhi, Lauren Cohen, Umit Gurun, Dong Lou, and Christopher J. Malloy. "IQ from IP: Simplifying Search in Portfolio Choice." NBER Working Paper Series, No. 24801, July 2018. View Details

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Reply: Do Powerful Politicians Really Cause Corporate Downsizing?

Abstract

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About the Authors

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