Three Essays on Financial Economics Open Access
Zhou, Dexin (2015)
Abstract
This dissertation examines the role of qualitative information in financial markets. Using textual analysis methodologies, I quantify the qualitative information in news media and corporate disclosures. The first essay (The Blame Game) examines the information in corporate executives' self-serving attribution behaviors. Using textual analysis, I construct a measure that identifies corporate executives' behaviors of blaming external factors such as economy or the industry. I find that the patterns of the blame behaviors are consistent with self-serving attribution bias. I also find that a high blame measure leads to low subsequent stock returns and low turnover-performance sensitivity. Blame behaviors also predicts negative earnings surprise and analyst downgrades. Further tests show that these results are robust after controlling for exposure to systematic risk factors. These results support the idea that investors underreact to firm-specific negative information when corporate executives blame external factors. The second essay (Analysts' Assimilation of Soft Information in the Financial Press), coauthored with Xue Wang and Mark Bradshaw, investigates the role of analyst in interpreting soft news from news media. We find that the quantity of news coverage of a firm is positively associated with subsequent analyst recommendation revision activity. Moreover, the recommendation revisions are more informative for firms with more intense news coverage. We also find that this relationship is mainly driven by soft news (news with low fraction of numeric information). These results shed new light on the source analysts' mosaic of information and the role of analysts. The third essay examines managers' (Good News in Numbers) use of numbers versus words in the conference call disclosure. I find that executives tend to use numbers when companies experience satisfactory performance and use words when they have to disclose poor performance. In addition, the ratio of numbers and words contains value-relevant information about the company. Market reacts positively when corporate executives use high fraction of numbers. However, the initial market reaction is incomplete. The stock prices continue to outperform in one quarter following the conference call when corporate executives use more numeric information in the conference calls.
Table of Contents
The Blame Game 1
Introduction 2
Data and Methodology 8
Results 12
Determinants of Executives' Blame Behaviors 12
Predicting Post Conference Call Returns 16
Industry-Adjusted Portfolio 19
Predicting Future Earnings 20
Evidence from Analyst Recommendations 20
Contemporaneous Stock Returns 21
Executive Turnover 22
Conclusion 24
Analysts' Assimilation of Soft Information in the Financial Press 26
Introduction 27
Background and Predictions 34
Background 34
Empirical Predictions 39
Data and Variable Measurement 43
Data 43
Variable Measurement 45
Empirical Results 48
Descriptive Statistics 48
News Coverage and Analyst Research Updates 49
News Coverage and Market Reactions to Analyst Recommendation Revisions 51
Analyst Interpretation of Hard versus Soft Information 55
Extensions and Diagnostics 60
Conclusion 63
Good News in Numbers 65
Introduction 66
Hypotheses Development 71
Data 74
Main Results 77
Determinants of PCTNUM 77
Investor Responses to PCTNUM 80
PCTNUM and Information Precision 83
Conclusion 84
Appendix 86
Tables 86
Figures 114
References 116
About this Dissertation
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