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  5. The Effects of Mandated Disclosure
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The Effects of Mandated Disclosure

Paper Session

Tuesday, Jan. 5, 2021 3:45 PM - 5:45 PM (EST)

Hosted By: American Finance Association
  • Chair: Kathleen Hanley, Lehigh University

Do Corporate Disclosures Constrain Strategic Analyst Behavior?

Yen-Cheng Chang
,
National Taiwan University
Alexander Ljungqvist
,
Stockholm School of Economics
Kevin Tseng
,
Federal Reserve Bank of Richmond

Abstract

We show that analysts’ behavior changes in response to a randomly assigned shock that exogenously varies the timeliness and cost of accessing companies’ mandatory disclosures in the cross-section of investors: analysts reduce coverage and issue forecasts that are less optimistic, more accurate, and less bold. Our evidence supports the channel that analysts reduce a strategic component of their behavior: the changes are stronger among analysts with more strategic incentives, such as affiliated or retail-focused analysts. We conclude that mandatory disclosure can be a substitute for analysts’ information production, which is constrained by investors’ ability to verify forecasts using corporate filings.

Reporting Regulation and Corporate Innovation

Matthias Breuer
,
Columbia University
Christian Leuz
,
University of Chicago
Steven Vanhaverbeke
,
Erasmus University

Abstract

We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate. At the industry level, positive information spillovers (e.g., to competitors, suppliers, and customers) appear insufficient to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. Thus, financial reporting regulation has important aggregate and distributional effects on corporate innovation.

How and Why Do Managers Use Public Forecasts to Guide the Market?

Ben Charoenwong
,
National University of Singapore
Yosuke Kimura
,
Ministry of Finance-Japan
Alan Kwan
,
Hong Kong University

Abstract

We compare publicly disclosed forecasts and internal forecasts collected by confidential government surveys using a sample of publicly-listed Japanese firms. Both forecasts are mandatory and meaningfully predict corporate policy, and while both forecasts tend to be overoptimistic on average, public forecasts tend to be pessimistic relative to internal forecasts. Firms with greater shareholder pressure and those with executives with more bonus-related compensation are more publicly pessimistic. Public pessimism guides market beliefs down, predicting higher future stock returns, earnings surprises, and executive (but not rank-and-file) compensation. Finally, public pessimism flips to optimism when firms are financially constrained and more likely to issue secondary equity offerings, consistent with an inter-temporal trade-off between benefits from meeting managerial goalposts versus maintaining financial flexibility.
Discussant(s)
Jiekun Huang
,
University of Illinois
S. Katie Moon
,
University of Colorado Boulder
Douglas Skinner
,
University of Chicago
JEL Classifications
  • G3 - Corporate Finance and Governance