Matching Items (4)
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- All Subjects: Accounting
- Genre: Academic theses
- Creators: Hugon, Jean
Description
While credit rating agencies use both forward-looking and historical information in evaluating a firm's credit risk, the role of forward-looking information in their rating decisions is not well understood. In this study, I examine the association between management earnings guidance news and future credit rating changes. While upward earnings guidance is not informative for credit rating changes, downward earnings guidance is significantly and positively associated with both the likelihood and speed of rating downgrades. In cross-sectional analyses, I find that downward guidance is especially informative in two important circumstances: (i) when a firm's current credit rating is overly optimistic compared to a model predicted rating, and (ii) when the relevance or reliability of alternative information sources is lower. In addition, I find that downward guidance is associated with lower future cash flows, as well as a higher volatility of future cash flows. Overall, the results are consistent with credit rating agencies incorporating voluntary bad news disclosures into their decisions about whether and when to downgrade a firm.
ContributorsLin, An-Ping (Author) / Hillegeist, Stephen (Thesis advisor) / Hugon, Jean (Thesis advisor) / Call, Andrew (Committee member) / Dhaliwal, Dan (Committee member) / Arizona State University (Publisher)
Created2015
Description
When managers provide earnings guidance, analysts normally respond within a short time frame with their own earnings forecasts. Within this setting, I investigate whether financial analysts use publicly available information to adjust for predictable error in management guidance and, if so, the explanation for such inefficiency. I provide evidence that analysts do not fully adjust for predictable guidance error when revising forecasts. The analyst inefficiency is attributed to analysts' attempts to advance relationship with the managers, analysts' compensation not tie to forecast accuracy, and their forecasting ability. Finally, the stock market acts as if it does not fully realize that analysts respond inefficiently to the guidance, introducing mispricing. This mispricing is not fully corrected upon earnings announcement.
ContributorsLin, Kuan-Chen (Author) / Mikhail, Michael (Thesis advisor) / Hillegeist, Stephen (Committee member) / Hugon, Jean (Committee member) / Arizona State University (Publisher)
Created2012
Description
Insider trading potentially reveals proprietary information, allowing rivals to compete more effectively against the insiders' firm. This paper examines whether proprietary costs are associated with insiders' trading decisions and the profitability of their trades. Using a variety of approaches to identify proprietary information risk, I find proprietary costs significantly deter insiders' trading activities. The deterrence effect is more pronounced when insider trading is likely to be more informative to rivals. Specifically, trades by top executives, non-routine trades, and trades at low complexity firms are curbed to a greater extent by proprietary costs. Examining the mechanisms of this deterrence effect, I find firms with higher proprietary costs are more likely to impose insider trading restrictions, and insiders' trading decisions are more sensitive to proprietary costs when they have higher share ownership of the company. These results suggest insiders reduce trading activities not only due to firm policies, but also due to incentive alignment. Finally, when insiders trade despite higher proprietary costs, they earn significantly higher abnormal profits from their purchase transactions. Overall, this study suggests product market considerations are an important factor associated with insiders' trading decisions and profitability of their trades. These findings are likely to be of interest to regulators and corporate boards in setting insider trading policies, and help investors make investment decisions using insider trading signals.
ContributorsChoi, Lyungmae (Author) / Hillegeist, Stephen (Thesis advisor) / Faurel, Lucile (Thesis advisor) / Hugon, Jean (Committee member) / Huang, Xiaochuan (Committee member) / Arizona State University (Publisher)
Created2017
Description
Relative performance evaluation (RPE) in Chief Executive Officer (CEO) compensation contracts entails the use of peer performance to filter out exogenous shocks and reduce exposure to risk. Theory predicts that high-quality peers can effectively filter out noise from performance measurement, yet prior empirical studies do not examine how differences in peer quality affect the use of RPE in practice. In this study, I propose a model to select peers with the highest capacity to filter out noise and introduce a novel measure of peer quality. Consistent with the theory, I find that firms with high quality peers rely on RPE to a greater extent than firms with few good peers available. I also examine the extent to which peers disclosed in proxy statements overlap with the best peers predicted by my model. I find that the overlap is positively associated with institutional ownership, use of top 5 compensation consultants, and compensation committee competence.
ContributorsCho, Jeh-Hyun (Author) / Matejka, Michal (Thesis advisor) / Kaplan, Steve (Committee member) / Casas-Arce, Pablo (Committee member) / Arizona State University (Publisher)
Created2020