Cross-industry information sharing among colleagues and analyst research
| Authors | Huang, Lin, Zang |
| Journal | Journal of Accounting and Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We identify a specific organizational resource in brokerage houses--information sharing among analyst colleagues who cover economically related industries along a supply chain. After controlling for brokerage selection effects, we show evidence consistent with the benefit of this resource to analyst research performance. Specifically, we find that analysts whose colleagues cover more economically connected industries have better research performance, especially when their colleagues produce higher-quality research. We further show that colleagues' coverage of downstream (upstream) industries is positively related to the accuracy of only analysts' revenue (expense) forecasts and that analysts and their highly connected colleagues tend to issue earnings forecast revisions contemporaneously. Last, we find that analysts with economically connected colleagues tend to have a higher level of industry specialization. Overall, our findings suggest that analysts rely on organizational resources to produce high-quality research. Hence, a portion of their performance and reputation is not transferable across employers. |
| Keywords | Financial analyst, information sharing, economically connected industries, supply chain, analyst performance, industry specialization |
| URL | https://www.sciencedirect.com/science/article/pii/S0165410122000192 |
| Tags | Archival Empirical | Manager / Firm Behavior |
The impact of joint versus separate prediction mode on forecasting accuracy
| Authors | Imas, Jung, Saccardo, Vosgerau |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Forecasters predicting how people change their behavior in response to a treatment or intervention often consider a set of alternatives. In contrast, those who are treated are typically exposed to only one of the treatment alternatives. For example, managers selecting a wage schedule consider a set of alternative wages while employees are hired at a given rate. We show that forecasts made in joint-prediction mode - which considers a set of alternatives -generate predictions that expect substantially larger behavioral responses than those made in separate-prediction mode - which considers the response to only one treatment realization in isolation. Results show the latter to be more accurate in matching people's actual responses to interventions and treatment changes. We present applications to managerial decision-making and forecasting of scientific results. |
| Keywords | Forecasting accuracy, joint vs. separate evaluation, behavioral economics |
| URL | https://www.nber.org/papers/w30611?utm_campaign=ntwh&utm_medium=email&utm_source=ntwg4 |
| Tags | Experimental / Survey-Based Empirical | Manager / Firm Behavior |
Can FinTech competition improve sell-side research quality?
| Authors | Jame, Markov, Wolfe |
| Journal | The Accounting Review |
| Year | 2022 |
| Type | Published Paper |
| Abstract | We examine how increased competition stemming from an innovation in financial technology influences sell-side analyst research quality. We find that firms added to Estimize, an open platform that crowdsources short-term earnings forecasts, experience a pervasive and substantial reduction in consensus bias and a limited increase in consensus accuracy relative to matched control firms. Long-term forecasts and investment recommendations remain similarly biased, alleviating the concern that the documented reduction in bias is a response to broad economic forces. At the individual analyst level, we find that bias reduction is more pronounced among close-to-management analysts, and that more biased analysts respond by reducing their coverage of Estimize firms. The collective evidence suggests that competition from Estimize improves sell-side research quality by discouraging strategic bias. |
| Keywords | Analysts, forecast bias, FinTech, crowdsourcing |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2915817 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Political ideology and international capital allocation
| Authors | Kempf, Luo, Schafer, Tsoutsoura |
| Year | 2022 |
| Type | Working Paper |
| Abstract | Does investors' political ideology shape international capital allocation? We provide evidence from two settings-syndicated corporate loans and equity mutual funds-to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation. |
| Keywords | Capital flows, syndicated loans, mutual funds, political ideology, elections |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3904077 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior |
Media partisanship and fundamental corporate decisions
| Authors | Knill, Liu, McConnell |
| Journal | Journal of Financial and Quantitative Analysis |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Using the introduction of Fox News as a natural experiment, we investigate whether partisanship in television news coverage influences fundamental corporate decisions.We find that during the George W. Bush presidency, firms led by Republican-leaning managers headquartered in regions into which Fox was introduced shift upward their total investment expenditures and financial leverage. Our findings imply that in making fundamental corporate decisions, Republican-leaning managers are swayed by the Republican slant of Fox that presents an optimistic macroeconomic outlook. The results highlight the importance of heterogeneity in media slant in understanding the role of the media incorporate decision making. |
| Keywords | Media slant, partisanship, corporate decision-making |
| URL | https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/abs/media-partisanship-and-fundamental-corporate-decisions/0E3A5D1C6B5BC003B839D0E161AAE22D#access-block |
| Tags | Archival Empirical | Experimental / Survey-Based Empirical | Manager / Firm Behavior | Media and Textual Analysis |
Differential treatment and local information advantage: Revelations from translation differences
| Authors | Lang, Stice-Lawrence, Wong, Wong |
| Year | 2022 |
| Type | Working Paper |
| Abstract | We develop an empirical proxy for the differential treatment of local and foreign investors using translation differences in public disclosure as observable indicators that reflect non-public interactions. After confirming the validity of our proxy, we show that differential treatment results in significant information asymmetry between local and foreign investors as measured through stock illiquidity, and analysis of analyst forecast errors suggests that this information asymmetry is created by firms providing foreign market participants with lower quality information. Firms respond to strategic incentives for differential treatment relating to government subsidies and capital raising, and thus differential treatment is not just a byproduct of resource constraints. Our results highlight the role of differential treatment as one driver of local information advantage. |
| Keywords | Differential treatment, local information advantage, translation differences, financial disclosure, information asymmetry, textual analysis, globalization |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3956105&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |
Shall we talk? The role of interactive investor platforms in corporate communication
| Authors | Lee, Zhong |
| Journal | Journal of Accounting and Economics |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Between 2010 and 2017, Chinese investors used an investor interactive platform (IIP) to ask public companies around 2.5 million questions, the vast majority of which received a reply within two weeks. We analyze these IIP dialogues using a BERT-based algorithm and provide preliminary evidence on their causes and consequences. Our analyses show most questions reflect investors' difficulties in processing information already in the public domain. Controlling for other news, higher IIP activity is associated with increases in trading volume, return volatility, market liquidity, and price informativeness as well as decreases in bid-ask spread. Financial statement-related postings increase around the adoption of new accounting standards. Collectively, our results show that investors face significant information processing costs but that IIP activities help reduce these costs, leading to improvements in stock price formation. |
| Keywords | Corporate disclosure, investor relations, information processing costs, interactive communication, market liquidity, price informativeness |
| URL | https://www.sciencedirect.com/science/article/pii/S0165410122000477 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior |
The politics of management earnings expectations
| Authors | Liu, Na, Nagar, Yan |
| Year | 2022 |
| Type | Working Paper |
| Abstract | This study documents that CEOs' expectations about firm performance are more negatively biased in periods when the White House is governed by the political party that the CEOs did not contribute to, relative to periods when the White House is occupied by the CEOs' party. This negative bias holds as strongly toward the end of the year, suggesting that CEOs do not revise their priors in response to new information. The results are stronger for firms whose performance is more correlated with the general economic conditions, consistent with managers' biased beliefs about the economy driving the results. Upon facing an opposing presidency, the sensitivity of CEOs' capital investments to cash flow decreases, relative to their politically aligned years. By contrast, actual firm performance is largely unaffected. Overall, our results highlight the importance of political partisan bias in shaping |
| Keywords | Managerial biases, partisan conflict, earnings expectations, CEO earnings forecasts |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3950975&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Manager / Firm Behavior |
A framework for analyzing influencer marketing in social networks: Selection and scheduling of influencers
| Authors | Mallipeddi, Kumar, Sriskandarajah, Zhu |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Explosive growth in the number of users on various social media platforms has transformed the way firms strategize their marketing activities. To take advantage of the vast size of social networks, firms have now turned their attention to influencer marketing wherein they employ independent influencers to promote their products on social media platforms. Despite the recent growth in influencer marketing, the problem of network seeding (i.e., identification of influencers to optimally post a firm's message or advertisement) neither has been rigorously studied in the academic literature nor has been carefully addressed in practice. We develop a data-driven optimization framework to help a firm successfully conduct (i) short-horizon and (ii) long-horizon influencer marketing campaigns, for which two models are developed, respectively, to maximize the firm's benefit. The models are based on the interactions with marketers, observation of firms' message placements on social media, and model parameters estimated via empirical analysis performed on data from Twitter. Our empirical analysis discovers the effects of collective influence of multiple influencers and finds two important parameters to be included in the models, namely, multiple exposure effect and forgetting effect. For the short-horizon campaign, we develop an optimization model to select influencers and present structural properties for the model. Using these properties, we develop a mathematical programming based polynomial time procedure to provide near-optimal solutions. For the long-horizon problem, we develop an efficient solution procedure to simultaneously select influencers and schedule their message postings over a planning horizon. We demonstrate the superiority of our solution strategies for both short- and long-horizon problems against multiple benchmark methods used in practice. Finally, we present several managerially relevant insights for firms in the influencer marketing context. |
| URL | https://pubsonline.informs.org/doi/epdf/10.1287/mnsc.2020.3899 |
| Tags | Archival Empirical | Manager / Firm Behavior | Theory |
Influencing social media influencers through affiliation
| Authors | Pei, Mayzlin |
| Journal | Marketing Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Social media influencers are category enthusiasts who often post product recommendations. Firms sometimes pay influencers to skew their product reviews in favor of the firm. We ask the following research questions. First, what is the optimal level of affiliation (if any) from the firm's perspective? Affiliation introduces positive bias to the influencer's review but also decreases the persuasiveness of the review. Second, because affiliated reviews are often biased in favor of the firm, what is the impact of affiliation on consumer welfare? We find that the affiliation decision depends on the cost of information acquisition, the consumer's prior and awareness, and the disclosure regime. When the consumer's prior belief is low, the firm needs to affiliate less closely or not at all in order to preserve the influencer's persuasiveness, the change in the consumer's belief following the influencer's review. In contrast, when the consumer's prior belief is high, the firm fully affiliates with the influencer to both maximize awareness and prevent a negative review. We also show that the firm's involvement can be Pareto improving if the information acquisition cost is relatively high, and a partial disclosure rule may increase consumer welfare. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mksc.2021.1322 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Social Networks, trading, and liquidity
| Authors | Peng, Wang, Zhou |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The recent meme stock saga has drawn attention to the growing role of social networks in capital markets. In this paper, the authors summarize the latest research that uses large scale, representative, real-world social network data to study social networks' influences on trading, liquidity, and valuations of stocks. Institutional investors invest more heavily in stocks if there are strong social ties between the geographic locations of the institution's headquarters and the firm's headquarters. Further, a firm's social ties to large institutional investors reduce its cost of capital, increase its valuation, and strengthen its liquidity. Social networks help to timely disseminate important news releases into prices, but also trigger belief divergence and generate persistent excess trading. Moreover, social interactions can amplify investors' behavioral biases and contribute to retail investors' attraction to lottery-type stocks. The authors provide additional examples to further illustrate why the roles of social networks are of particular importance to market participants. |
| Keywords | Social networks, market liquidity |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4099114 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Social Networks, trading, and liquidity
| Authors | Peng, Wang, Zhou |
| Year | 2022 |
| Type | Working Paper | Literature Review Paper |
| Abstract | The recent meme stock saga has drawn attention to the growing role of social networks in capital markets. In this paper, the authors summarize the latest research that uses large scale, representative, real-world social network data to study social networks' influences on trading, liquidity, and valuations of stocks. Institutional investors invest more heavily in stocks if there are strong social ties between the geographic locations of the institution's headquarters and the firm's headquarters. Further, a firm's social ties to large institutional investors reduce its cost of capital, increase its valuation, and strengthen its liquidity. Social networks help to timely disseminate important news releases into prices, but also trigger belief divergence and generate persistent excess trading. Moreover, social interactions can amplify investors' behavioral biases and contribute to retail investors' attraction to lottery-type stocks. The authors provide additional examples to further illustrate why the roles of social networks are of particular importance to market participants. |
| Keywords | social networks, market liquidity |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4099114 |
| Tags | Asset Pricing, Trading Volume and Market Efficiency | Financing- and Investment Decisions (Individual) | Investment Decisions (Institutional) | Manager / Firm Behavior | Propagation of Noise / Undesirable Outcomes | Social Network Structure | Theory |
Customer review provision policies with heterogeneous cluster preferences
| Authors | Xiao, Chen, Tang |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | Companies often post user-generated reviews online so that potential buyers in different clusters (age, geographic region, occupation, etc.) can learn from existing customers about the quality of an experience good and cluster preferences before purchasing. In this paper, we evaluate two common user-generated review provision policies for selling experience goods to customers in different clusters with heterogeneous preferences. The first policy is called the association-based policy (AP) under which a customer in a cluster can only observe the aggregate review (i.e., average rating) generated by users within the same cluster. The second policy is called the global-based policy (GP) under which each customer is presented with the aggregate review generated by all users across clusters. We find that, in general, the firm benefits from a policy that provides a larger number of "relevant reviews" to customers. When customers are more certain about the product quality and when clusters are more diverse, AP is more profitable than GP because it provides cluster-specific reviews to customers. Otherwise, GP is more profitable as it provides a larger number of less relevant reviews. Moreover, we propose a third provision policy that imparts the union of the information by AP and GP and show that it is more profitable for the firm. Although the third policy always renders a higher consumer welfare than GP, it may generate a lower consumer welfare than AP. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.4138 |
| Tags | Archival Empirical | Manager / Firm Behavior |
How much is financial advice worth? The transparency-revenue tension in social trading
| Authors | Yang, Zheng, Mookerjee |
| Journal | Management Science |
| Year | 2022 |
| Type | Published Paper |
| Abstract | In social trading, less experienced investors (followers) are allowed to copy the trades of experts (traders) in real time after paying a fee. Such a copy-trading mechanism often runs into a transparency-revenue tension. On the one hand, social trading platforms need to release traders' trades as transparently as possible to allow followers to evaluate traders accurately. On the other hand, complete transparency may undercut the platform's revenue because followers can free ride. That is, followers can manually copy the trades of a trader to avoid paying the following fees. This study addresses this critical tension by optimizing the level of transparency through delaying the release of trading information pertaining to the trades executed by traders. We capture the economic impact of the delay using the notions of profit-gap and delayed-profit. We propose a mechanism that elucidates the economic effects of the profit-gap and delayed-profit on followers and, consequently, the amount of money following a trader: protection effect and evaluation effect. Empirical investigations find support for these two effects. We then develop a stochastic control formulation that optimizes platform revenue, where the control is the optimal delay customized at the trader level and calculated as a function of the current amount of money following a trader and the number of views on the trader's profile page. The optimized revenue can be incorporated into an algorithm to provide a systematic way to infuse the platform's goals into the ranking of the traders. A counterfactual study is conducted to demonstrate the performance of the optimal delay policy (versus a constant-delay policy) using data from a leading social trading platform operating in the foreign exchange market. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.4147 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Back to the roots: Ancestral origin and mutual fund manager portfolio choice
| Authors | Ammann, Cochardt, Straumann, Weigert |
| Year | 2021 |
| Type | Working Paper |
| Abstract | We exploit variation in the ancestries of U.S. equity mutual fund managers and show that ancestry affects portfolio decisions. Controlling for fund firm location, we find that funds overweight stocks from their managers' ancestral home countries in their non-U.S. portfolio by 132 bps or 20.34% compared with their peers. Similarly, funds overweight industries that are comparatively large in their manager's ancestral home countries. The documented ancestral biases are pervasive across fund styles and across different manager ancestries. The effect is more pronounced for funds that are less resource-constrained and for managers whose connection to their ancestral home country is more recent. Stocks linked to managers' ancestry do not outperform stocks in the same countries and industries but held by managers of other ancestry, confirming that ancestry-linked investments are not informed. |
| Keywords | Culture, home bias, mutual funds, portfolio choice, fund managers |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3879492 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior |
Punished for doing good: Heuristic-based judgement and the contingent returns to company philanthropy under high uncertainty
| Authors | Ballesteros, Wry, Useem |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Companies donating in the aftermath of large-scale disasters often suffer public backlash and managers systematically fail to understand what corresponds to a donation that stakeholders perceive as contextually appropriate. We attribute this to the level of uncertainty that obscures the relative social value of a donation because accurate information about impacts is not available for months. We argue that stakeholders rely on a company's pre-disaster reputation as a heuristic to make judgments of its philanthropy. Thus, regardless of the amount of aid given, well-regarded firms obtain rents from responding first to a disaster, and this spills over to companies in the same industry that match their donations; the opposite applies to firms with an unfavorable reputation, and to those that imitate their gifts. Analyses of donations by the largest 2,000 companies worldwide to every major epidemic, natural disaster, and terrorist attack from 2007 to 2019 support this argument and show that this heuristic effect does not transfer to firms donating different amounts. The estimates survive a battery of time-varying and joint fixed effects and tests of confounders. They confirm that reputation is a stronger rent determinant than donation amount. We discuss ways to improve managerial philanthropic decisions in similar settings. |
| Keywords | Company philanthropy, reputation, disasters, heuristics, corporate social responsibility |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3919161&dgcid=ejournal_htmlemail_capital:markets:market:efficiency:ejournal_abstractlink |
| Tags | Archival Empirical | Manager / Firm Behavior | Media and Textual Analysis | Theory |
Do teams alleviate or exacerbate behavioral biases? Evidence from extrapolation bias in mutual funds
| Authors | Barahona, Cassella, Jansen |
| Year | 2021 |
| Type | Working Paper |
| Abstract | Whether teams attenuate or exacerbate the behavioral biases which are pervasive at the individual level is an open question. To address this question, we use the mutual fund industry as a laboratory. Our focus is on how return extrapolation is transmitted from individual fund managers to the team-managed funds they join. We show that teams heavily attenuate the influence of extrapolation bias on funds' trading behavior. Additional analysis reveals that this attenuation is not due to differences in investment experience, compensation contracts, workload, and investment styles between solo-managed and team-managed funds. Rather, our evidence suggests that the elicitation of team members' inner cognitive reflection can be responsible for teams' reduction in behavioral biases. Our results highlight the attenuation of the extrapolation bias as a potential benefit of team-based asset management. |
| Keywords | Behavioral biases, extrapolation, heuristics, mutual funds, teams |
| URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3783421 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Investment Decisions (Institutional) | Manager / Firm Behavior | Theory |
Does firm investment respond to peers' investment?
| Authors | Bustamante, Fresard |
| Journal | Management Science |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We study whether, how, and why the investment of a firm depends on the investment of other firms in the same product market. Using an instrumental variable based on the presence of local knowledge externalities, we find a sizeable complementarity of investment among product market peers, holding across a large majority of sectors. Peer effects are stronger in concentrated markets, featuring more heterogeneous firms, and for smaller firms with less precise information. Our findings are consistent with a model in which managers are imperfectly informed about fundamentals and use peers' investments as a source of information. Product market peer effects in investment could amplify shocks in production networks. |
| Keywords | Investment, peer effect, competition, agglomeration economies |
| URL | https://doi.org/10.1287/mnsc.2020.3695 |
| Tags | Archival Empirical | Investment Decisions (Institutional) | Manager / Firm Behavior | Social Transmission Biases | Theory |
Does firm investment respond to peers' investment?
| Authors | Bustamante, Fresard |
| Journal | Management Science |
| Year | 2021 |
| Type | Published Paper |
| Abstract | We study whether, how, and why the investment of a firm depends on the investment of other firms in the same product market. Using an instrumental variable based on the presence of local knowledge externalities, we find a sizeable complementarity of investment among product market peers, holding across a large majority of sectors. Peer effects are stronger in concentrated markets, featuring more heterogeneous firms, and for smaller firms with less precise information. Our findings are consistent with a model in which managers are imperfectly informed about fundamentals and use peers' investments as a source of information. Product market peer effects in investment could amplify shocks in production networks. |
| URL | https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2020.3695 |
| Tags | Archival Empirical | Manager / Firm Behavior |
Negative peer disclosure
| Authors | Cao, Fang, Lei |
| Journal | Journal of Financial Economics |
| Year | 2021 |
| Type | Published Paper |
| Abstract | This paper provides first evidence of negative peer disclosure (NPD), an emerging corporate strategy to publicize adverse news of industry peers on social media. Consistent with NPDs being implicit positive self-disclosures, disclosing firms experience a two-day abnormal return of 1.6%-1.7% over the market and industry. Further exploring the benefits and costs of such disclosures, we find that NPD propensity increases with the degree of product market rivalry and technology proximity and disclosing firms outperform nondisclosing peers in the product markets in the year following NPDs. These results rationalize peer disclosure and extend the scope of the literature beyond self-disclosure. |
| Keywords | Peer disclosure, spillover, product market rivalry, technology proximity, social media |
| URL | https://www.sciencedirect.com/science/article/pii/S0304405X21000404 |
| Tags | Archival Empirical | Asset Pricing, Trading Volume and Market Efficiency | Manager / Firm Behavior | Media and Textual Analysis |