The Dog that Didn't Bark: Do Stock Prices Fully Reflect the Implication of News Withholding?, with Frank Zhou R&R at Journal of Accounting Research
Abstract: We investigate whether investors correctly interpret the implication of lack of management forecasts. We find that, for firm quarters without management forecasts, investors underestimate the magnitude of bad news implied by nonguidance, which generates 40 basis points predictable negative abnormal stock returns around the earnings announcement and up to 100 basis points for some subsamples. The results are consistent with limited strategic thinking: investors underestimate the relation between management's information withholding and management's private information. This leads to an initial overpricing of the implication of nonguidance and a subsequent correction around the earnings announcement. We contribute to the literature by showing that investors are constrained in understanding managers' strategic nondisclosure decisions. As a result, management can withhold bad news without suffering much negative capital market consequence, at least prior to the earnings announcement.
Abstract: In this study, I exploit an exogenous decrease in analyst coverage to investigate whether analyst coverage terminations have causal effects on the syndicated loan market. My principal results show that a decrease in the number of analysts following a firm increases the all-in-drawn spread of private loans by 14.2 basis points. I then show that the effects are larger for samples that have a larger percentage decrease in analyst estimates, a larger standard deviation of analyst estimates, more non-EPS analyst estimates, a higher leverage ratio or a credit rating lower than A. In addition, I also find that coverage terminations decrease the number of syndicated loans that treated firms can get, shorten the syndicated loan maturity period and decrease the likelihood of less-informed lenders being the lead arranger. These results indicate that public information still matters for syndicated lenders, even though they can acquire private information through other channels. Potential mechanisms might be that analyst reports provide extra information; analysts help lenders to monitor borrowers; and analyst coverage affects the private loan market through the public bond market since private loans and public bonds are partial substitutes. This paper contributes to the literature first by documenting a new factor, analyst coverage, that has an impact on the syndicated loan market; this helps us understand the price, structure and characteristics of lenders in that market. From another angle, this paper also demonstrates the importance of analyst coverage from a new perspective. Second, I examine causal effects by exploiting a natural experiment.
The Black-White Gap in Non-Cognitive Skills among Elementary School Children, with Todd Elder (Economics)
Abstract: Using data from two Early Childhood Longitudinal Study cohorts, we find large black-white gaps in teacher-reported measures of non-cognitive skills. We show that these measures likely understate true racial disparities in non-cognitive skills because of systematic differences across schools in what teacher reports represent. Correcting for the resulting bias nearly doubles the size of the estimated gaps, to roughly the same magnitude as analogous gaps in achievement test scores. We then use the British Cohort Study of 1970 to provide suggestive evidence that non-cognitive skills account for large black-white disparities in adult outcomes, including arrest rates and educational attainment.
The Effects of Divorce Laws on Labor Supply: A Reconsideration and New Results (Economics)
Economics Bulletin, 2018, Volume 38, Issue 4, pages 1877-1888
Abstract: In this paper, I revisit the effects of unilateral divorce laws on female labor supply. I use a variety of models to check the robustness of the results and find that the estimated effects on female labor supply are remarkably robust. The estimates I mainly use in this paper suggest that unilateral divorce laws increase female labor force participation rates by roughly 4-5 percentage points, and that these effects strengthen over time. There are also strong long-term effects on the weeks and hours of work and on participation in full-time work. In addition, this paper compares the dynamic participation responses of married mothers versus married nonmothers, high education versus low education women, young versus old women and white versus black women.
Work in Progress
Abstract: Using data from Glassdoor between 2008 and 2016, this paper studies the effect of public revelations of accounting frauds on employees' welfare and their perceptions of firms and managers. Our empirical strategy compares employee ratings before versus after the revelation of these frauds, finding a 0.32 standard deviation decline in overall company ratings following the release of a fraud. These declines in company ratings originate primarily from a decline in career and advancement opportunities, compensation and benefits, and leadership quality. Our effects are stronger among non-college workers, higher tenure workers, those not working in the head quarters, and those over the age of 30. Moreover, we also document that employees' salaries slightly increase during the frauds committing period and decrease in a few years after frauds releasing for part of employees.