ABSTRACT: Existing literature assumes that the order and timing of analysts' earnings forecasts are determined exogenously. However, analysts choose when to issue their forecasts. This study develops a model that endogenizes the timing decision of analysts and analyzes their equilibrium timing strategies. In the model, analysts face a trade-off between the timeliness and the precision of their forecasts. The model introduces a timing game with two analysts, derives and analyzes its unique pure strategies equilibrium, and provides new empirical predictions about the precision and timing of analysts' forecasts. The equilibrium has one of two patterns: either the times of the analysts' forecasts cluster, or there is a separation in the times of the forecasts. The less informed and less similar the analysts are, the more likely it is that they forecast at different points in time. All else equal, analysts with a higher precision of initial private information tend to forecast earlier, and analysts with a higher learning ability tend to forecast later.

We analyze a model in which information may be voluntarily disclosed by a firm and/or by a third party, e.g., financial analysts. Due to its strategic nature, corporate voluntary disclosure is qualitatively different from third-party disclosure. Greater analyst coverage crowds out (crowds in) corporate voluntary disclosure when analysts mostly discover information that is available (unavailable) to the firm. Nevertheless, greater analyst coverage always improves the overall quality of public information. We base this claim on two market quality measures: price efficiency, which is statistical in nature, and liquidity, which is derived in a trading stage that follows the disclosure stage.

[We argue that dividend stickiness, the tendency of managers to keep dividends unchanged, implies that managers use a partially pooling dividend policy. We offer a model that demonstrates how such a policy can evolve endogenously in equilibrium. An informed manager who cares about the firm's intrinsic value as well as short-term stock price allocates earnings between investments and dividends. We show that there is a continuum of equilibria in which the dividend is constant for a range of realized earnings. Compared with the standard separating equilibrium, this partial pooling behavior induces higher firm value and lower underinvestment. We offer new empirical implications relating the pooling nature of dividend stickiness to the information environment of the firm, dividend prediction models, managerial incentives, and investment.]

We examine a dynamic model of voluntary disclosure of multiple pieces of private information. In our model, a manager of a firm who may learn multiple signals over time interacts with a competitive capital market and maximizes payoffs that increase in both period prices. We show (perhaps surprisingly) that in equilibrium later disclosures are interpreted more favorably even though the time the manager obtains the signals is independent of the value of the firm. We also provide sufficient conditions for the equilibrium to be in threshold strategies. (JEL D21, D82, G32, L25)

ABSTRACT We study a model in which managers’ disclosure and investment decisions are both endogenous and managers can manipulate their voluntary reports through (suboptimal) investment, financing, or operating decisions. Managers are privately informed about the value of their firm and have incentives to voluntarily disclose information and manipulate their reports in order to obtain more favorable terms when issuing equity to finance a new profitable investment opportunity. The model shows that treating managers’ disclosure and investment decisions both as endogenous and allowing managers to manipulate their voluntary reports yields qualitatively different predictions from when the disclosure and investment decisions are considered separately and managers cannot engage in manipulation. The model predicts that managers’ disclosure strategy is sometimes characterized by two distinct nondisclosure intervals (contrary to traditional threshold equilibria of voluntary disclosure models) and that managers with intermediate news sometimes forego the new profitable investment opportunity. As such, the paper highlights the importance of considering the interdependencies between firms’ disclosure and investment decisions and provides new empirical predictions.

ABSTRACT We introduce real decisions (a project choice decision, an investment scale decision, and an information acquisition decision) to the Dye (1985) voluntary disclosure framework and examine how the prospect of voluntary disclosure affects managers' real decisions. Riskier projects lead to more volatile environment and hence entail higher efficiency loss at the subsequent investment scale decision stage if managers are uninformed. If managers are informed, they can withhold bad information, and the value of this option is higher for riskier projects. We show that the voluntary nature of managers' disclosure may lead to two types of inefficiencies: (1) managers may choose riskier projects, which generate lower expected cash flow due to the higher efficiency loss at the subsequent decision stage, and (2) managers may over-invest in information acquisition, because informed managers with bad information have the option to pool with uninformed managers and benefit from being overpriced.

ABSTRACT We study a dynamic timing game between multiple firms, who decide when to go public in the presence of possible information externalities. A firm's IPO pricing is a function of its privately observed idiosyncratic type and the level of investor sentiment, which follows a stochastic, mean-reverting process. Firms may wish to delay their IPOs in order to observe the market reception of the offerings of their peers. We characterize the unique symmetric threshold equilibrium, whereby pioneer firms with high idiosyncratic types endogenously emerge. The results provide novel implications regarding variation in IPO timing, sequential clustering, IPO droughts, the composition of new issues over time, and how IPO volume fluctuates over time. These include, among others, that in more populated industries, a lower proportion of firms emerge as industry pioneers, but follower IPO volume is intensified. Additionally, heightened uncertainty over investor sentiment exacerbates delay and leads to lower IPO volume.

ABSTRACT: This study models the interaction between a sell-side analyst and risk-averse investors. It derives an analyst’s optimal earnings forecast and investors’ optimal trading decisions in a setting where the analyst’s payoff depends on the trading volume the forecast generates as well as on the forecast error. In the fully separating equilibrium, we find that the analyst biases the forecast upward (downward) if his private signal reveals relatively good (bad) news. The model predicts that: (1) the analyst biases the forecast upward more often than downward and the forecast is on average optimistic; (2) the magnitude of the analyst’s bias is increasing in the per-share benefit from trading volume he receives; and (3) the analyst’s expected squared forecast error may increase in the precision of his private information. Finally, we characterize the circumstances under which the (rational) analyst acts as if he overweights or underweights his private information.

ABSTRACT We study optimal compensation contracts that (1) are designed to address a joint moral hazard and adverse selection problem and that (2) are based on performance measures, which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the manager. Our model predicts that (1) the optimal compensation contract is convex in reported earnings; (2) the optimal contract is less sensitive to reported earnings than it would be absent the manager's ability to manipulate earnings; and (3) higher costs of manipulating reported earnings (e.g., due to higher governance quality) are associated with higher firm value, lower expected level of earnings management, and higher output.