Overconfident CEOs are more willing to initiate investment projects that require experimentation, yet tend to defer responding to the bad news when the project is not performing as planned. Accounting conservatism accelerates the recognition of the bad news and its dissemination to gatekeepers, making it more likely that the CEO will acknowledge the problem earlier and start searching for solutions. Therefore, firms where both characteristics—CEO overconfidence and accounting conservatism—are present should perform better. Our empirical tests confirm this prediction: firms that practice conservative accounting and are run by overconfident CEOs exhibit better cash flow performance. Our results continue to hold in a variety of settings, including market reactions to acquisitions, cash flow downside risk, and analyst following. Further, the joint positive effect of CEO overconfidence and accounting conservatism on firm performance is stronger in high-uncertainty environments and in firms facing less stringent financing constraints, consistent with theoretical predictions.

We analyze whether industry competition influences analyst coverage decisions and whether analysts benefit from covering product market competitors. We find that analysts are more likely to cover a firm when this firm competes with more firms already covered by the analyst. We also find that the intensity of competition among these competitors is additionally important to the coverage decision. Moreover, we find that analysts who cover product market competitors are more likely to obtain analyst star status. These results are consistent with the importance to analysts of industry competition and product market knowledge accumulated through covering product market competitors.

We examine whether social media criticisms posted by small investors can predict subsequent firm acquisition decisions. Specifically, we use textual analysis to examine the internet stock message board postings of 303 value-reducing acquisition attempts. Our empirical evidence shows that small investors' negative postings are able to predict a potential acquirer's subsequent decision to withdraw its attempt. We further find that this predictive ability increases with the information quality of postings, and that the predictive information extracted from social media is incremental to that captured by proposal announcement returns, conventional media coverage, analyst reports, and institutional investors' responses related to the proposed acquisition. Finally, we show that message board criticisms are also able to predict governance outcomes beyond acquisition decisions. Overall, our results are consistent with the notion that social media play a role in corporate governance by gathering crowd wisdom and uncovering additional value-relevant information.