Corporate Finance: Corporate Disclosure
Paper Session
Saturday, Jan. 4, 2025 10:15 AM - 12:15 PM (PST)
- Michael Weisbach, Ohio State University
Do Investors Understand the Digital Economy? Mobile Apps, Firm Disclosure, and Stock Returns
Abstract
Digital enterprises have fundamentally transformed the global economy. Many new technologies fueling the digital economy were non-existent a decade ago, and our understanding of the implications of these technologies for firms’ future sales is limited. We study one such new technology, Mobile Apps, iOS or Android apps downloadable onto smartphones and tablets. We find that Mobile App downloads strongly predict next quarters’ earnings above and beyond current quarter earnings, firm size, BM ratio, R&D, CAPX, and SG&A. However, the investment community does not fully understand the valuation implications of mobile apps, resulting in predictable analyst forecast errors and predictable excess returns. A long-short strategy on abnormal downloads delivers an EW (VW) annualized return of 12% (11%). Notably, firm disclosure of mobile app information in SEC filings mitigates the predictability of analyst forecast errors and returns. Our study advances our understanding of an important new technology that add value to the digital economy and the role of disclosure in enhancing such understanding for the investment community.Endogenous Corporate Disclosure during the COVID-19 Lockdown
Abstract
Amid state-level COVID-19 lockdowns, we compare firms filing financial statements during the lockdown (treated) to those reporting just before the lockdown (control). Lockdowns significantly constrained social mobility and the sharing of soft information between managers and investors. In response, treated firms disclosed more accounting details, especially those requiring external funding or involving hard-to-value assets and substantial trade credits. Larger firms with extensive institutional ownership and broad auditor coverage exhibited fewer such tendencies. Increasing hard information improved earnings forecasts and curtailed external funding costs. Our findings suggest a shift from soft to hard information sharing during economic uncertainty, which helps alleviate the information asymmetry between corporate insiders and outsiders.How Managers Communicate about Capital Budgeting to Investors
Abstract
We create a lexicon of 45 capital budgeting terms and document manager language usage in 96,568 earnings conference calls during 2010-2020. Managers often use technical language like cash flow, free cash flow, operating income, return on investment, and return on capital during conference calls. We substantiate the survey evidence of Graham and Harvey (2001) by demonstrating that managers actually use concepts like payback period and ROI in conference calls. Capital budgeting counts are associated with larger capitalization, higher fixed assets, and lower R&D intensity firms. Capital budgeting term usage and the number of words spoken by managers peak in the first quarter of the calendar year. This finding illustrates the information density of annual versus quarterly communications, since the majority of the firms have December fiscal year ends. We also document how manager’s word selections vary on the basis of whether or not net income is positive. If the firm has positive net income, managers use phrases like cash flow, free cash flow, operating income, and operating profit significantly more often than if net income is negative. In contrast, when net income is negative, managers have significantly higher counts of the aggressive non-GAAP phrase EBITDA. As Graham and Harvey (2001) emphasized, it is difficult to measure the forms and extent of formal capital budgeting techniques that are used in a firm since they cannot be directly observed. Their survey results went a long way in providing at least one indirect approach to capturing data on this important but elusive topic. We provide another lens through which we can gain a more precise understanding of the actual uses and practices associated with capital budgeting.Discussant(s)
Daisy Wang
,
Ohio State University
Amin Shams
,
Ohio State University
Vivian Fang
,
Indiana University
John Barry
,
Duke University
JEL Classifications
- G3 - Corporate Finance and Governance