This study develops a firm life cycle proxy using cash flow patterns. The patterns provide a parsimonious indicator of life cycle stage that is free from distributional assumptions (i.e., uniformity). The proxy identifies differential behavior in the persistence and convergence patterns of profitability. For example, return on net operating assets (RNOA) does not mean-revert (spread of 7 percent after five years between mature and decline firms) when examined by life cycle stage, which has implications for growth rates and forecast horizons. Further, determinants of future profitability such as asset turnover and profit margin are differentially successful in generating increases in profitability conditional on life cycle stage. Finally, investors do not fully incorporate the information contained in cash flow patterns and, as a result, undervalue mature firms. The cash flow proxy is a robust tool that has applications in analysis, forecasting, valuation, and as a control variable for future research. Data Availability: All data are available from public sources identified in the paper

This study examines the effect of the readability of firms’ written communication on the behavior of sell-side financial analysts. Using a measure of the readability of corporate 10-K filings, we document that analyst following, the amount of effort incurred to generate their reports, and the informativeness of their reports are greater for firms with less readable 10-Ks. Additionally, we find that less readable 10-Ks are associated with greater dispersion, lower accuracy, and greater overall uncertainty in analyst earnings forecasts. Overall, our results are consistent with the prediction of an increasing demand for analyst services for firms with less readable communication and a greater collective effort by analysts for firms with less readable disclosures. Our results contribute to the understanding of the role of analysts as information intermediaries for investors and the effect of the complexity of written financial communication on the usefulness of this information.

We find that bidders are more likely to hold conference calls at merger announcements when the mergers are financed with stock and when the transactions are large. After controlling for endogeneity, we also find that conference calls are associated with more favorable market reactions to merger announcements. A content analysis of merger-related information releases for a limited subsample indicates that the more favorable reaction is related to the fact that, compared to press releases, conference calls provide a greater volume of information and place greater emphasis on forward-looking details. We find no evidence that the superior announcement returns associated with conference calls subsequently reverse or that conference calls are positively associated with pre-merger announcement abnormal accruals. Overall, the results suggest that managers use conference calls around merger announcements to credibly convey favorable private information to the market.

We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms’ cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations; among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

We examine how subjective performance evaluations are influenced by the level and controllability of an accompanying measure of a separate performance dimension. In our experiment, supervisors evaluate the office administration performance of a hypothetical subordinate. We find that supervisors' subjective evaluations are directionally influenced by an accompanying objective measure of sales performance, even after excluding participants who perceive informativeness across measures. Consistent with concerns for fairness and motivation, we also find an asymmetric uncontrollability effect—supervisors' evaluations are higher when an uncontrollable factor decreases the subordinate's sales (i.e., they compensate for bad luck), but are not lower when the uncontrollable factor increases the subordinate's sales (i.e., they do not punish for good luck). This evidence suggests that supervisors use discretion provided to evaluate performance on one task to adjust for perceived deficiencies in the evaluation of performance on other tasks. Our study integrates theories of cognitive bias and motivation, highlighting the need to consider the potentially interactive effects of different performance measures in multi-task settings.