Matching Items (83)
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Description
In this paper, I investigate whether participation in employee stock option exchange programs contains private information about future stock returns. High participation in employee stock option exchange programs is associated with negative future abnormal returns over the ensuing 12-month period. This association is moderated by the transparency of the firm's

In this paper, I investigate whether participation in employee stock option exchange programs contains private information about future stock returns. High participation in employee stock option exchange programs is associated with negative future abnormal returns over the ensuing 12-month period. This association is moderated by the transparency of the firm's information environment: high institutional ownership and high financial statement informativeness weaken the negative relation between participation and abnormal returns. Controlling for transparency of the firms' information environment, the association between participation and future returns arises primarily from firms that allow the CEO to participate.
ContributorsMakridis, Vanessa Radick (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven E (Committee member) / Arizona State University (Publisher)
Created2013
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In this study, I examine the extent to which firms rely on relative performance evaluation (RPE) when setting executive compensation. In particular, I examine whether firms use information about peer performance to determine compensation at the end of the year, i.e. after both firm and peer performance are observed. I

In this study, I examine the extent to which firms rely on relative performance evaluation (RPE) when setting executive compensation. In particular, I examine whether firms use information about peer performance to determine compensation at the end of the year, i.e. after both firm and peer performance are observed. I find that RPE is most pronounced for firms that allow little or no scope for ex post subjective adjustments to annual bonuses. Conversely, firms that rely mainly on subjectivity in determining bonus exhibit little use of RPE. These findings suggest that information about peer performance is not used at the end of the year. Instead, peer performance seems to be incorporated in performance targets at the beginning of the year, at least among firms primarily using objective performance measurements. In addition, I provide new evidence on the determinants of the use of subjectivity.
ContributorsTsui, Stephanie (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Kaplan, Steven (Committee member) / Arizona State University (Publisher)
Created2013
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In this study, I test whether firms reduce the information asymmetry stemming from the political process by investing in political connections. I expect that connected firms enjoy differential access to relevant political information, and use this information to mitigate the negative consequences of political uncertainty. I investigate this construct in

In this study, I test whether firms reduce the information asymmetry stemming from the political process by investing in political connections. I expect that connected firms enjoy differential access to relevant political information, and use this information to mitigate the negative consequences of political uncertainty. I investigate this construct in the context of firm-specific investment, where prior literature has documented a negative relation between investment and uncertainty. Specifically, I regress firm investment levels on the interaction of time-varying political uncertainty and the degree of a firm's political connectedness, controlling for determinants of investment, political participation, general macroeconomic conditions, and firm and time-period fixed effects. Consistent with prior work, I first document that firm-specific investment levels are significantly lower during periods of increased uncertainty, defined as the year leading up to a national election. I then assess the extent that political connections offset the negative effect of political uncertainty. Consistent with my hypothesis, I document the mitigating effect of political connections on the negative relation between investment levels and political uncertainty. These findings are robust to controls for alternative explanations related to the pre-electoral manipulation hypothesis and industry-level political participation. These findings are also robust to alternative specifications designed to address the possibility that time-invariant firm characteristics are driving the observed results. I also examine whether investors consider time-varying political uncertainty and the mitigating effect of political connections when capitalizing current earnings news. I find support that the earnings-response coefficient is lower during periods of increased uncertainty. However, I do not find evidence that investors incorporate the value relevant information in political connections as a mitigating factor.
ContributorsWellman, Laura (Author) / Dhaliwal, Dan (Thesis advisor) / Hillegeist, Stephen (Thesis advisor) / Walther, Beverly (Committee member) / Mikhail, Mike (Committee member) / Hillman, Amy (Committee member) / Brown, Jenny (Committee member) / Arizona State University (Publisher)
Created2014
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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

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
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Description
This study provides new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs. The choice of performance measures is informative about the extent to which the board of directors focuses CEO efforts on firms' long-term versus short-term objectives. To empirically operationalize performance evaluation horizon, I

This study provides new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs. The choice of performance measures is informative about the extent to which the board of directors focuses CEO efforts on firms' long-term versus short-term objectives. To empirically operationalize performance evaluation horizon, I measure the length of the performance evaluation period in CEO stock awards, the use of stock-based measures, and the use of peer-based measures. I collect data on 419 dual-class firms and match them with a control group of single-class firms. I find that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, I find that peer-based measures are much less common for dual-class than single-class firms. These findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.
ContributorsLi, Ji (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Reckers, Philip (Committee member) / Arizona State University (Publisher)
Created2014
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Description
Responding to the allegedly biased research reports issued by large investment banks, the Global Research Analyst Settlement and related regulations went to great lengths to weaken the conflicts of interest faced by investment bank analysts. In this paper, I investigate the effects of these changes on small and large investor

Responding to the allegedly biased research reports issued by large investment banks, the Global Research Analyst Settlement and related regulations went to great lengths to weaken the conflicts of interest faced by investment bank analysts. In this paper, I investigate the effects of these changes on small and large investor confidence and on trading profitability. Specifically, I examine abnormal trading volumes generated by small and large investors in response to security analyst recommendations and the resulting abnormal market returns generated. I find an overall increase in investor confidence in the post-regulation period relative to the pre-regulation period consistent with a reduction in existing conflicts of interest. The change in confidence observed is particularly striking for small traders. I also find that small trader profitability has increased in the post-regulation period relative to the pre-regulation period whereas that for large traders has decreased. These results are consistent with the Securities and Exchange Commission's primary mission to protect small investors and maintain the integrity of the securities markets.
ContributorsDong, Xiaobo (Author) / Mikhail, Michael (Thesis advisor) / Hwang, Yuhchang (Committee member) / Hugon, Artur J (Committee member) / Arizona State University (Publisher)
Created2011
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I examine the degree to which stockholders' aggregate gain/loss frame of reference in the equity of a given firm affects their response to the firm's quarterly earnings announcements. Contrary to predictions from rational expectations models of trade (Shackelford and Verrecchia 2002), I find that abnormal trading volume around earnings announcements

I examine the degree to which stockholders' aggregate gain/loss frame of reference in the equity of a given firm affects their response to the firm's quarterly earnings announcements. Contrary to predictions from rational expectations models of trade (Shackelford and Verrecchia 2002), I find that abnormal trading volume around earnings announcements is larger (smaller) when stockholders are in an aggregate unrealized capital gain (loss) position. This relation is stronger among seller-initiated trades and weaker in December, consistent with the cognitive bias referred to as the disposition effect (Shefrin and Statman 1985). Sensitivity analysis reveals that the relation is stronger among less sophisticated investors and for firms with weaker information environments, consistent with the behavioral explanation. I also present evidence on the consequences of this disposition effect. First, stockholders' aggregate unrealized capital gain position moderates the degree to which information-related determinants of trade (e.g. unexpected earnings, firm size, and forecast dispersion) affect abnormal announcement-window trading volume. Second, stockholders' aggregate unrealized capital gains position is associated with announcement-window abnormal returns, consistent with the disposition effect reducing the market's ability to efficiently incorporate earnings news into price.
ContributorsWeisbrod, Eric (Author) / Hillegeist, Stephen (Thesis advisor) / Kaplan, Steven (Committee member) / Mikhail, Michael (Committee member) / Arizona State University (Publisher)
Created2012
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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

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
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Description
Existing literature consistently documents a relationship between book-tax differences and future financial performance. Specifically, large book-tax differences are associated with lower earnings persistence. I contend that one reason the tax information contained in financial statements is informative about future earnings is that the relationship between book income and taxable income

Existing literature consistently documents a relationship between book-tax differences and future financial performance. Specifically, large book-tax differences are associated with lower earnings persistence. I contend that one reason the tax information contained in financial statements is informative about future earnings is that the relationship between book income and taxable income captures information about a firm's life cycle stage. Using a life cycle measure from the literature, I use fundamental analysis to group firm-year observations into life cycle stages and document a link between book-tax differences and firm life cycle. I build on prior studies that find a relation between earnings persistence and book-tax differences, and earnings persistence and firm life cycle. I find that after controlling for firm life cycle stage, the association between large positive book-tax differences and lower earnings persistence does not hold. My results offer an economic theory based explanation for the relation between book-tax differences and earnings persistence as an alternative explanation to findings in prior research.
ContributorsDrake, Katharine D (Author) / Mikhail, Michael (Thesis advisor) / Brown, Jennifer (Committee member) / Martin, Melissa (Committee member) / Arizona State University (Publisher)
Created2012
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This paper examines whether CEOs with general managerial skills are better at achieving the goals of external communication. Using the General Ability Index developed by Custodio, Ferreira, and Matos (2013) to measure CEOs' general managerial skills, I find that firms with generalist CEOs are more likely to obtain the desired

This paper examines whether CEOs with general managerial skills are better at achieving the goals of external communication. Using the General Ability Index developed by Custodio, Ferreira, and Matos (2013) to measure CEOs' general managerial skills, I find that firms with generalist CEOs are more likely to obtain the desired outcomes of communication, including the smaller difference between analyst forecasts and management guidance, less dispersion in analyst forecasts, higher analyst following, and higher institutional ownership, after controlling for CEO talent and the impact of Regulation FD. Moreover, I provide direct evidence that general managerial skills are more important to external communication under poor information environments. I also investigate the characteristics of analysts who follow firms with generalists, and my findings suggest the private interaction with analysts is an important communication channel for generalists. Finally, I find that generalists are able to attract dedicated investors and gain long-term capital for their firms. Overall, I provide evidence on the growing importance of general managerial skills in external communication. This paper offers new insights into why CEOs with general skills are paid at a premium over those with specific skills, as documented in previous studies.
ContributorsYeh, Eugenia (Author) / Hillegeist, Steve (Thesis advisor) / Brown, Jennifer (Committee member) / Custodio, Claudia (Committee member) / Arizona State University (Publisher)
Created2015