Exploiting a unique identification strategy based on inaccurate news analytics, we document an effect of news analytics on the market independent of the informational content of the news. We show that news analytics speed up the stock price and trading volume response to articles, but reduce liquidity. Inaccurate news analytics lead to small price distortions that are corrected quickly. The market impact of news analytics is greatest for press releases, as news analytics exhibit a particular skill in “seeing through” the positive spin of press releases. Furthermore, we provide evidence that high-frequency traders rely on the information from news analytics for directional trading on company-specific news. Received: May 17, 2018; Editorial decision: June 14, 2019 by Editor: Thierry Foucault. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Konchitchki and Patatoukas Journal of Accounting and Economics 57 (1-2), 76–88, (2014a) show that aggregate accounting earnings growth predicts future nominal gross domestic product (GDP) growth and that professional macro forecasters do not fully incorporate the information contained in aggregate accounting earnings. Based on results from prior literature, which find that accounting earnings reflect bad economic news in a timelier manner than good news, we condition Konchitchki and Patatoukas’s GDP growth forecast model on the sign of earnings changes. We show that negative changes in aggregate earnings predict future GDP growth while positive changes in earnings do not. Furthermore, we show that professional macro forecasters underreact to the information contained in negative changes in aggregate earnings about future GDP growth. Additional tests suggest our findings are a result of conservative accruals in earnings.

This study investigates how control features influence employees’ perceptions of controls and, subsequently, their reporting behaviors. Specifically, I examine whether implementing a more centralized versus decentralized monitoring control influences employees’ perceptions of whether the control will detect misreported performance. In an experiment that holds the true detection rate constant, I find participants perceive a relatively decentralized control more likely to detect misreporting than a centralized control. Because decisions about monitoring controls and compensation systems are interrelated (O’Donnell 2000) and made contemporaneously (Brenner and Ambos 2013), I also examine whether compensation interdependence influences the effect that control centralization has on misreporting. Prior research documents aggressive reporting behavior increases as compensation becomes more interdependent (Sutter 2009). This suggests that larger increases in perceived detection rates are required to reduce dishonest reporting as compensation interdependency increases. Therefore, for a given level of perceived detection resulting from control centralization, employees are more likely to misreport when compensation is more interdependent than independent. Consistent with this reasoning, I find that a more decentralized control reduces dishonest reporting when compensation interdependence is low. However, when compensation interdependence is high, the effect of control centralization on dishonest reporting is muted. These results suggest that a complex relationship exists between control centralization and compensation interdependence. As such, this study has important implications for academics, control system designers, and compensation system designers.

This paper explores whether corporate acquirers consider environmental reputations when planning and structuring takeovers. We find that firms with an environmentally toxic reputation, which have the greatest potential for negative spillovers to their merger partners, have a lower associated probability of being both acquirers and targets. Acquirers are more likely to pair with similar reputation firms and are less likely to acquire firms with lower reputations. Most notably, green firms in our sample never acquire toxic firms. Acquirers that buy firms with differing environmental reputations use a higher percentage of stock in their acquisition offers. We further show that the returns to acquirers are lower when they acquire firms outside of their area. Collectively, these findings suggest that managers account for potential negative spillover effects in acquisition decisions.

While potentially more productive, more complex tasks generate larger agency rents. Agents therefore prefer to acquire complex skills, to earn large rents. In our overlapping generations model, their ability to do so is kept in check by competition with predecessors. Old agents, however, are imperfect substitutes for young ones, because the latter are easier to incentivize, thanks to longer horizons. This reduces competition between generations, enabling young managers to go for larger complexity than their predecessors. Consequently, equilibrium complexity and rents gradually increase beyond what is optimal for the principal and for society.

We examine post-IPO exits of private equity sponsors of portfolio firms via follow-on secondary equity offerings and third party takeovers. Sponsors retain considerable ownership in listed portfolio firms for lengthy periods after IPOs, well beyond lockup expiration. After private equity post-IPO secondary offerings, corporate profitability is strongly superior to benchmark firms, indicating portfolio firms are successfully prepared for private equity's subsequent exit. Nevertheless, share prices fall at offering announcements, reflecting the failure of private equity sponsors to exit stakes in listed entities at the high premiums paid in third party takeovers, premiums that are invariably shared equally with public shareholders.

We study the impact of country-level short selling constraints on IPO underpricing. Examining 17,151 IPOs from 36 countries, we find that IPO underpricing tends to be greater in countries that ban short selling or security lending and in countries where short selling is not practiced. Non-positive first-day returns are more common in countries where short selling is allowed, security lending is allowed, and short selling is commonly practiced. Short selling constraints exacerbate the positive relation between investor sentiment and underpricing. Additional evidence suggests that higher quality information environments may partially alleviate the effects of short sale constraints on underpricing.

International financial integration helps to diversify risk but also may spread crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with collateral-constrained borrowing using a global solution method. Borrowing constraints bind occasionally, depending upon the state of the economy and levels of inherited debt. We examine different degrees of international financial integration, moving from financial autarky, to bond and equity market integration. Financial integration leads to a significant increase in global leverage, substantially escalates the probability of crises for any one country, and dramatically increases the degree of “contagion” across countries. Outside of crises, the impact of financial integration on macroeconomic aggregates is relatively small. But the impact of a crisis with integrated international financial markets is much less severe than that under financial market autarky. Thus, a trade-off emerges between the probability of crises and the severity of crises. Using a large cross-country database of financial crises in developing and developed economies over a forty-year period, we find evidence in support of the model.

We investigate whether increased investor demand for financial information arising from higher market uncertainty leads to greater media coverage of earnings announcements. We also investigate whether greater coverage during times of higher uncertainty further destabilizes financial markets because of greater attention-based trading or, alternatively, improves trading and pricing by lowering investor acquisition and interpretation costs. When uncertainty is higher, we find evidence of greater media coverage of earnings announcements and that the greater coverage leads to improvements in investor informedness, information asymmetry, and intraperiod price timeliness, and greater trade by both retail and institutional investors. In contrast to the media serving an expanded role in improving capital markets during more uncertain times, we fail to find that changes in firm-initiated disclosures lead to similar improvements and find that less frequent analyst forecast revisions exacerbate problems in capital markets during earnings announcements.