ABSTRACT Credit ratings on many financial instruments failed to accurately portray default risk before the global financial crisis. I find no decline in the performance of corporate credit ratings during or after the crisis, indicating that the failures of ratings on financial instruments were due to conditions unique to the rating agencies' financial instruments divisions. Rather, the preponderance of tests indicate that corporate credit rating performance improves after the crisis, consistent with the rating agencies positively responding to public criticism and regulatory pressures. At the same time, I find evidence of sophisticated market participants decreasing their reliance on corporate credit ratings after the crisis. Consistent with theoretical models of reputation cyclicality, a likely explanation is that the rating agencies suffer spillover reputation damage from their failed ratings on financial instruments. My study informs regulators, practitioners, and academics about the performance of corporate credit ratings during and after the crisis, and provides novel empirical evidence consistent with reputation concerns affecting credit rating usage decisions.

We investigate whether managers “hide” bad news by announcing earnings during periods of low attention, or by providing less forewarning of an upcoming earnings announcement. Our findings are consistent with managers reporting bad news after market hours, on busy days, and with less advance notice, and with earnings receiving less attention in these settings. Paradoxically, our findings indicate that managers also report bad news on Fridays, but we do not find lower attention on Fridays. Further, we find negative returns when the market is notified of an upcoming Friday earnings announcement, which is consistent with investors inferring forthcoming bad news.

ABSTRACT We examine the effects of stock market access, and in particular trading hours, on retail investment performance. Using discontinuities around time zone borders, we find that plausibly exogenous decreases in waking trading hours are associated with meaningful increases in retail investors’ capital gains, as reported on tax returns for the U.S. population. Our results indicate that limiting trading hours curbs active retail trading, leading to improvements in portfolio performance. Our findings identify one negative effect of decreasing barriers to entry for retail investors in trading markets. JEL Classifications: M41; M48; G40; G51.

We investigate whether unpleasant environmental conditions affect stock market participants’ responses to information events. We draw from psychology research to develop a new prediction that weather-induced negative moods reduce market participants’ activity levels. Exploiting geographic variation in equity analysts’ locations, we find compelling evidence that analysts experiencing unpleasant weather are slower or less likely to respond to an earnings announcement relative to analysts responding to the same announcement but experiencing pleasant weather. Price association tests find evidence consistent with reduced activity due to weather-induced moods delaying equilibrium price adjustments following earnings announcements. We also use our analyst-based research design to re-examine an existing prediction that unpleasant weather induces investor pessimism, and find evidence of both analyst pessimism and reduced activity in the presence of unpleasant weather. Together, our study provides new evidence that both extends and reaffirms findings of a relation between unpleasant weather and market activities, and contributes to the broader psychology and economics literature on the impact of weather-induced mood on labor productivity.

This paper reviews the literature examining how costs of monitoring for, acquiring, and analyzing firm disclosures – collectively, “disclosure processing costs” – affect investor information choices, trades, and market outcomes. The existence of disclosure processing costs means that disclosures are not “public” information as traditionally defined, but instead can be a form of costly private information. Conceptualizing disclosures as private information makes it clear that learning from disclosures is an active economic choice and that disclosure pricing cannot be perfectly efficient. We review the analytical and empirical literature on sources of processing costs and how these costs affect equity market outcomes, primarily within rational equilibria. We also discuss studies of the feedback effects of investors' processing costs on managers’ choices about disclosure and corporate actions. We conclude that disclosure processing costs have implications for a wide array of accounting research and phenomena, but we are only just beginning to understand their effects.

ABSTRACT: How do firms repair their reputations after a serious accounting restatement? To answer this question, we review firms' press releases and identify 1,765 reputation-building actions taken by: (1) 94 restating firms in the periods before and after their restatement; and (2) a set of matched control firms during contemporaneous periods. We posit that firms have incentives to target multiple stakeholders in a reputation repair strategy—including capital providers, customers, employees, and geographic communities—and that actions targeting each group generate positive market returns as reputation capital is repaired. Consistent with our predictions, the frequency of, and stock returns to, reputation-building actions are greater for restating firms in the period after their restatement than for the control groups. In addition, firm characteristics predict the types of stakeholders targeted by firms. Finally, actions targeted at both capital providers and other stakeholders are associated with improvements in the restating firm's financial reporting credibility. Data Availability: The data used in this study are available from the sources indicated.

Using comprehensive data on U.S. corporate bond trades since 2002, we find evidence that retail bond investors overrely on untimely credit ratings to their financial detriment. Specifically, they appear to select bonds by first screening on a credit rating and then sorting by yield, buying the highest-yielding bonds within each rating level. Because yields lead credit rating changes, selecting on yield-within-rating means that retail investors systematically trade in the opposite direction of changing fundamentals, buy in advance of credit downgrades and defaults, and materially underperform a diversified portfolio. Our study provides new evidence of ill-informed retail trading in a market that is thought to be relatively sophisticated, corroborates regulators’ concerns about investor overreliance on credit ratings, and contributes to the academic literature on the roles and consequences of credit ratings in debt markets.