Information Disclosure and Stock Returns
Saturday, Jan. 7, 2017 1:00 PM – 3:00 PM
- Chair: Dong Lou, London School of Economics and Political Science
In No (Un-)Certain Terms: Managerial Style in Communicating Earnings News
AbstractManagers display distinctive word choice styles when they conduct earnings conference calls. Some CEOs and CFOs are straight talkers. Others, by contrast, are vague talkers. Vague talkers routinely use words such as "approximately", "probably", or "maybe". Analysts and the stock market attend to the style of managerial talk. They find earnings news less informative when managers are vague and respond less and more slowly as a result. Overall, quantitative information and straightforward contextual information are complements. Large firms with vague managers receive lower valuations relative to their book value.
Complexity and Information Content of Financial Disclosures: Evidence From Evolution of Uncertainty Following 10-K Filings
AbstractWe document two novel findings on the evolution of uncertainty following 10-K filings. First, we find a hump-shaped volatility dynamics for an average firm: following 10-K filings, its volatility increases by 0.36% in the first two to four weeks followed by a 2.55% decrease in the subsequent six weeks. Second and more importantly, this hump-shaped dynamics is more pronounced for firms with larger 10-K file sizes – a recent measure for complexity of financial disclosures. The economic impact of our findings is nontrivial: an options strategy based on this volatility pattern delivers up to 17.3% cross-sectional difference in annualized returns between firms with large and small 10-K file sizes. Our findings therefore highlight two opposing effects of information disclosures on the evolution of uncertainty along the time dimension: While a more complex disclosure is associated with a higher level of uncertainty in the short horizon, its information content can result in an eventual resolution of uncertainty once the information is digested by investors.
What Do Measures of Real-Time Corporate Sales Tell Us About Earnings Surprises and Post-Announcement Returns?
AbstractWe develop real-time proxies of retail corporate sales from multiple sources, including ~50 million mobile devices. These measures contain information from both the earnings quarter (“within quarter”) and the period between that quarter’s end and the earnings announcement date (“post quarter”). Our within-quarter measure is powerful in explaining quarterly sales growth, revenue surprises and earnings surprises, generating average excess announcement returns of 3.4%. However, surprisingly, our post-quarter measure is related negatively to announcement returns, and positively to post-announcement returns. When post-quarter private information is positive, managers, at announcement, provide pessimistic guidance and use negative language. This effect is more pronounced when, post-announcement, management insiders trade. We conclude managers do not fully disclose their private information and instead bias their disclosures down when in possession of positive private information. The data suggest they may be motivated in part by subsequent personal stock-trading opportunities.
- G3 - Corporate Finance and Governance