We build on recent advances in options pricing research to propose a novel measure of the ex ante relative importance of information events. Our firm‐level measure captures the extent to which investors view an event as important, independent of its realized outcome. We first validate the measure and then demonstrate how it can be used to (1) study heterogeneity across firms in the relative importance of information events; (2) identify firms for which an event was important, even though the realized outcome did not result in a meaningful stock reaction; and (3) examine questions about how the importance of an event impacts firm decisions, where using realized return‐based measures of event importance would result in an endogeneity problem.

This paper examines “bundled” forecasts, or management earnings forecasts issued concurrently with earnings announcements, which have evolved to become the most common type of management forecast. We describe the econometric problems associated with measuring bundled forecast news and, in particular, provide evidence that the measurement error in the traditional calculation of forecast news is material and is systematically associated with variables frequently studied in forecast-related research. We illustrate an application of conditional expectations to overcome these problems. Finally, we offer guidance and caveats to researchers considering the use of this method in the future.

We examine changes in the disclosure behavior of firms involved in 827 disclosure-related class-action securities litigation cases filed between 1996 and 2005. We find no evidence that the firms in our sample respond to the litigation event by increasing or improving their disclosures to investors. Rather, we find consistent evidence that firms reduce the level of information provided post-litigation. Our results suggest that the litigation process encourages firms to decrease the provision of disclosures for which they may later be held accountable, despite the increased protections afforded by the Private Securities Litigation Reform Act of 1995.

We find mixed support for the hypothesis that a “New Economy” subperiod occurred in the late 1990s in which the relation between equity value and traditional financial variables differs from previous periods. We examine a regression model of equity value on financial variables over 25 years for a broad firm sample and for firm subsamples thought to be emblematic of the New Economy. We find the regression model's explanatory power declined in the New Economy subperiod for all firm subsamples. However, for all subsamples, the regression model's structure during the New Economy subperiod is not unusual compared to other subperiods.

In about 20%–30% of cases where an analyst revises two outputs (namely, earnings estimates, target prices, or stock recommendations) simultaneously, the two estimates are revised in opposite directions. Existing literature notes that these inconsistent outputs are widespread, and concludes that they are lower-quality, driven by strategic bias, and are viewed as less valid by investors. We find that these characterizations are generally inaccurate. Apparent inconsistency is largely driven by accounting and economic factors, with only limited evidence that investment banking-related conflicts play a role. Moreover, inconsistent outputs are neither less accurate than consistent outputs nor do they resolve less investor uncertainty upon their release. Overall, our results suggest that researchers should be cautious in interpreting the correlation between analyst outputs as a measure of bias or quality, and in using a single analyst output as a proxy for an analyst's overall views.

We identify forward-looking statements (FLS) in firms’ disclosures to distinguish between “forecast-like” (quantitative statements about earnings) and “other”, or non-forecast-like, FLS. We show that, like earnings forecasts, other FLS generate significant investor and analyst responses. Unlike earnings forecasts, other FLS are issued more frequently when uncertainty is higher. We then show that earnings-related FLS are more sensitive to uncertainty than quantitative statements, suggesting that managers are more likely to alter the content than the form of FLS when uncertainty is higher. Our study indicates that incorporating other FLS into empirical measures provides a more comprehensive proxy for firms’ voluntary disclosures.

We study the effect of disclosure on uncertainty by examining how management earnings forecasts affect stock market volatility. Using implied volatilities from exchange-traded options prices, we find that management earnings forecasts increase short-term volatility. This effect is attributable to forecasts that convey bad news, especially when firms release forecasts sporadically rather than on a routine basis. In the longer run, market uncertainty declines after earnings are announced, regardless of whether there is a preceding earnings forecast. This decline is mitigated when the firm issues a forecast that conveys negative news, implying that these forecasts are associated with increased uncertainty.

We examine the relation between disclosure tone and shareholder litigation to determine whether managers' use of optimistic language increases litigation risk. Using both general-purpose and context-specific text dictionaries to quantify tone, we find that plaintiffs target more optimistic statements in their lawsuits and that sued firms' earnings announcements are unusually optimistic relative to other firms experiencing similar economic circumstances. These findings are consistent with optimistic language increasing litigation risk. In addition, we find incrementally greater litigation risk when managers are both unusually optimistic and engage in abnormal selling. This finding suggests that firms can mitigate litigation risk by ensuring that optimistic statements are not contradicted by insider selling. Finally, we find that insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic. JEL Classifications: G38; K22; M41; M48. Data Availability: Data are available from sources indicated in the text.

We examine how the ordering of information within quarterly earnings announcements influences investor response to those announcements. Specifically, we examine whether earlier discussion of earnings information, and earlier discussion of qualitatively positive or negative information, is associated with stronger responses to that information. Controlling for the linguistic content of the earnings announcement, we find a positive relation between investor response to information and the prioritization of that information in the earnings announcement. We find no evidence of investor over-reaction and, to the contrary, find some evidence that investors under-react to prioritized information. Our evidence, in conjunction with experimental evidence in Elliott (2006), suggests that information placement influences investors' responses. However, unlike the experimental evidence in Elliott (2006), our archival results suggest that investor response to information placement is warranted, rather than the result of an unintentional cognitive effect. Data Availability: Data are available from the public sources cited in the text.