I investigate whether algorithmic trading (AT) affects the provision of management guidance. Existing research finds that AT decreases fundamental information acquisition before earnings announcements and consequently reduces the informativeness of prices. To compensate for reduced information acquisition, I predict and find that managers at firms with more AT activity increase the quantity and quality of guidance issued at earnings announcements. Evidence is consistent with managers responding to reduced information acquisition, as opposed to changes in liquidity, and results suggest guidance in response to AT is effective at reducing information asymmetry. These findings identify a new channel through which AT affects stock price informativeness by documenting a link to managers' disclosure decisions.

Stephan, Andrew. The Effect of Algorithmic Trading on Management Guidance. Accounting Review. Nov2024, Vol. 99 Issue 6, p421-449.

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We draw on (Merton, The Journal of Finance 42:483-510, 1987) to develop predictions for the benefits of voluntary disclosures by firms pursuing an initial public offering (IPO) prior to when they begin providing regulated financial information via their IPO prospectus. We find that voluntarily issuing press releases and attending investor and industry conferences are common disclosure activities prior to filing the IPO prospectus. Consistent with these disclosures enhancing investor awareness, we find positive associations with subsequent information acquisition by prospective investors and the financial press during the IPO filing period. These relations remain significant in tests exploiting the passage of the 2005 Securities Offering Reform as a source of variation in issuers' ability to provide disclosures designed to attract attention from prospective investors. Consistent with pre-prospectus disclosures enhancing the visibility of the firm, we find that, while direct associations between pre-prospectus voluntary disclosures and IPO pricing are limited, there are significant indirect effects operating through filing-period information acquisition by prospective investors and media coverage. We find no evidence that issuers' disclosure activities serve as hype, as the IPO price impact does not reverse post-offering. Overall our evidence is consistent with pre-prospectus voluntary disclosures benefiting issuers by enhancing awareness, which leads to improvements in firm valuations.

Dambra, Michael; Schonberger, Bryce; Wasley, Charles. Creating visibility: voluntary disclosure by private firms pursuing an initial public offering. Review of Accounting Studies. Sep2024, Vol. 29 Issue 3, p2468-2517.

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This study examines whether information revealed by firms' earnings announcements (EAs) forecasts short-run market-wide volatility in equity index prices. Using an exponential generalized autoregressive conditional heteroskedasticity model that includes controls for the information in an array of macroeconomic announcements, we find that EA information aggregated across firms forecasts market volatility at daily and weekly intervals. EA information's forecasting power is greatest when more firms announce earnings on a given day, when EAs convey negative news, and for EA information about core earnings. Out-of-sample tests confirm that forecasts incorporating EA information better predict short-run market volatility than forecasts omitting EA information. We conclude that firm-level EAs are a significant source of systematic, market-wide information relevant for predicting near-term market volatility.

Kim, Jaewoo; Schonberger, Bryce; Wasley, Charles; Yang, Yucheng. Forecasting Market Volatility: The Role of Earnings Announcements. Accounting Review. Jul2024, Vol. 99 Issue 4, p251-279.

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Prior research suggests that quarterly reports released concurrently with earnings depress trading due to information overload. In this study, we predict that concurrent reports help investors trade when they face uncertainty about how to interpret earnings news. We rely on the implementation of ASC 606 as a quasi-exogenous increase in uncertainty about how to trade in response to earnings news. Specifically, we find that when uncertainty is high in the first quarter of ASC 606 implementation, 10-Qs released concurrently with earnings are associated with increased trading around the earnings announcement. We find the relation is more pronounced when investors face greater uncertainty about earnings and when firms increase disclosure in their revenue recognition footnote. We also find some evidence that our results hold in a broader sample of accounting standard changes and generalize to other proxies for investor uncertainty. Our results suggest that concurrent quarterly reports are informative to investors when uncertainty about earnings is especially high.

Glaze, Jesse L.; Skinner, A. Nicole; Stephan, Andrew. When are concurrent quarterly reports useful for investors? Evidence from ASC 606. Review of Accounting Studies. Jun2024, Vol. 29 Issue 2, p1360-1406.

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Using an hourly data set on retail investor individual security positions from Robinhood Markets, we find no evidence that environmental, social, and governance (ESG) disclosures inform retail investors' buy and sell decisions. The response on ESG press release days by retail investors is indistinguishable from nonevent days. In contrast, these same investors make economically meaningful changes to their portfolios in response to non-ESG press releases, especially those that pertain to earnings announcements. We use stock return tests to show that there is economic content in ESG press releases, and we conduct subsample analyses showing that retail investors do not respond to the most salient and economically transparent ESG disclosures. Collectively, these tests suggest that a lack of economic content, a lack of visibility, and difficulty with investment integration are unlikely to explain our findings.    

Moss, Austin; Naughton, James P.; Wang, Clare. The Irrelevance of Environmental, Social, and Governance Disclosure to Retail Investors. Management Science. Apr2024, Vol. 70 Issue 4, p2626-2644.    

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We examine how disclosure and manager reputation influence capital raised when there is no commercial substance underlying the investment. Special Purpose Acquisition Companies (SPACs or "blank check" companies) do not have operations or substantive assets at the IPO but promise to use the funds raised to acquire a private firm, generally within two years. Given the lack of commercial substance and historically poor ex post performance, it is unclear what SPACs disclose at the IPO and why investors invest. Although disclosure is important in traditional IPOs, the underlying information available differs for SPACs. Nonetheless, our evidence suggests disclosures are useful to SPAC investors, although differently than for traditional IPO investors. We also examine manager reputation and find prior SPAC or CEO experience and celebrity status are associated with funds raised. Even when an investment lacks commercial substance, disclosure and reputation are important for investing decisions.

Pawliczek, Andrea; Skinner, A. Nicole; Zechman, Sarah L. C. Signing Blank Checks: The Roles of Disclosure and Reputation in the Face of Limited Information. Accounting Review. Mar2024, Vol. 99 Issue 2, p395-419.

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Despite the increase in and diversity of disclosure channels available, our understanding of how managers incorporate channel features into their disclosure decisions remains incomplete. I provide evidence that managers choose relatively rich channels that offer multiple cues, opportunities for interaction, and linguistic diversity (i.e., the earnings call, as compared to the press release) to communicate complex information. The positive relation between disclosure channel richness and subject matter complexity persists in both a document-level analysis and a small sample test examining disclosure channel choice from all possible disclosure channels. I provide some evidence that deviating from the complexity/richness matching strategy is associated with a muted market response to firms' quarterly disclosures. The results are consistent with managers choosing disclosure channels to reduce investors' information processing costs.

Skinner, A. Nicole. Subject Matter Complexity and Disclosure Channel Richness. Accounting Review. Jan2024, Vol. 99 Issue 1, p393-425.

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Managers almost always define non-GAAP earnings to exclude the effects of acquisition and restructuring expenses, the amortization of intangibles, and impairments. I find that managers with a history of reporting non-GAAP earnings act as if they place lower weight on these excluded expenses when making real activities and accounting choices. They pursue more and larger acquisitions, have higher total capital investment, are more likely to restructure, and are more likely to recognize discretionary impairments. In a difference-in-differences setting, I find that non-GAAP reporting firms are less likely to alter their restructuring activities following a significant change in accounting rules for restructuring expense recognition. Finally, in supplementary analyses, I find that non-GAAP-reporting firms tend to repeat these real activities and accounting choices year-after-year, resulting in more persistent special-item expenses.

Laurion, H. (2020). Implications of non-GAAP earnings for real activities and accounting choices. Journal of Accounting & Economics, 70(1), 101333.

We document a growing disparity in earnings disclosure mechanisms. Firms are increasingly disclosing earnings announcements (EA) concurrently with the 10-K filing instead of first issuing a ‘stand-alone’ EA. Firm adoption of concurrent EA/10-Ks is associated with lower investor sophistication, greater impediments to producing timely and reliable earnings information, and greater industry-level concurrent reporting. Concurrent EA/10-Ks differ from stand-alone EAs in that investors anticipate more information in the EA, disclosures are preempted by industry peer EAs, the market reaction is muted even when controlling for EA timing, and post-earnings-announcement drift is greater.

Accounting: Arif, S., Marshall, N. T., Schroeder, J. H., & Yohn, T. L. (2019). A growing disparity in earnings disclosure mechanisms: The rise of concurrently released earnings announcements and 10-Ks. Journal of Accounting & Economics.
 

We examine the determinants and consequences of voting outcomes in uncontested director elections. Exploiting a unique hand-collected data set of the rationale behind proxy advisors’ recommendations—the primary driver of voting outcomes—we document the director and board characteristics on which voting shareholders focus (as well as those that they neglect), their evolution over time, and their relative importance. Absent a negative recommendation, high votes withheld are infrequent, highlighting the agenda-setting role of proxy advisors. While high votes withheld rarely result in director turnover, our analyses show that firms often respond to an adverse vote by explicitly addressing the underlying concern. Overall, it appears that shareholders use their votes in uncontested director elections to get directors to address specific problems, rather than to vote them onto or off of the board, but they do so only on matters highlighted by the proxy advisors.

Ertimur, Y., Ferri, F., & Oesch, D. (2018). Understanding uncontested director elections. Management Science, 64(7), 3400-3420. doi:10.1287/mnsc.2017.2760