Abstract The vast majority of managers’ earnings forecasts are issued concurrently (i.e., bundled) with their firm’s current earnings announcement. We document a predictable bias in these forecasts—the forecasts fail to fully reflect the persistence of the current earnings surprise. Specifically, we find that managers issue (1) optimistically biased forecasts alongside negative earnings surprises and (2) pessimistically biased forecasts alongside large positive earnings surprises. Bayesian updating implies this bias could be unintentional, but we find that the bias is stronger when managers have greater incentives and fewer constraints to issue biased forecasts, suggesting that, to some extent, the bias might be intentional. Relatedly, although managers typically have better information about their firm’s earnings than analysts, we show that analyst reliance on these biased management forecasts represents a mechanism (and an alternative interpretation) for a similar analyst underreaction to current earnings attributed in the literature to analysts’ cognitive bias. We also find that, on average, investors do not appear to initially understand the bias in these forecasts but do unravel it over longer windows. However, investors more quickly unravel the bias when the manager has a history of issuing biased forecasts and when the firm has more sophisticated investors. Overall, we document that managers’ forecasts appear to repeatedly underweight the persistence of current earnings surprises, are biased in ways that improve investors’ perceptions of managers’ ability, and that this behavior concentrates in subsamples where outsiders have a harder time recognizing any bias.

Abstract We study the interaction between noisy demand and skewed asset payoffs. In our model, price as a function of quantities is convex in a neighborhood around zero if and only if skewness is positive. The combination of convexity and noise produces the idiosyncratic skewness effect, a documented negative relationship between an asset’s idiosyncratic skewness and its expected return. We further offer an explanation for the idiosyncratic volatility puzzle. Finally, our theory predicts that higher idiosyncratic skewness strengthens the idiosyncratic volatility effect (and vice versa). We find support for this prediction in the cross-section of stock returns.

We examine the labor market effects of Secure Communities (SC), a police-based immigration enforcement policy implemented in 2008–13. Using variation in implementation across local areas and over time, we find that SC decreased the employment of likely undocumented immigrants. These effects are driven not only by deportations but also by adjustments among immigrants who remain in the United States. Importantly, SC also decreased the employment and hourly wages of US-born individuals. We provide support for two mechanisms that could explain this decline in labor demand: an increase in labor costs that decreases job creation and a reduction in local consumption.

Abstract We empirically evaluate 20 prominent contributions across a broad range of areas in the empirical corporate finance literature. We assemble the necessary data and apply a single, simple econometric method, the connected-groups approach of Abowd et al. to appraise the extent to which prevailing empirical specifications explain variation of the dependent variable, differ in composition of fit arising from various classes of independent variables, and exhibit resistance to omitted variable bias and other endogeneity problems. We assess empirical performance across a wide spectrum of areas in corporate finance and indicate varying research opportunities for empiricists and theorists.

We use slow and fast time-series momentum to characterize four stock market cycles—Bull, Correction, Bear, and Rebound. The steep market declines of Bears concentrate in high-risk states, yet predict negative expected returns, which is difficult to rationalize by most models of time-varying risk premia. Using a model to analyze slow and fast momentum strategies, we estimate both relatively high mean persistence and realization noise in U.S. stock market returns. Intermediate-speed momentum portfolios, formed by blending slow and fast momentum strategies, translate predictive information in market cycles into positive unconditional alpha, for which we propose a novel decomposition.

ABSTRACT We explore whether municipalities with public sector unions exploit aspects of governmental (or “fund”) accounting to obscure the availability of discretionary resources in fund balance accounts, relative to municipalities without public sector unions. We first investigate whether governments with unions report higher proportions of discretionary resources outside of the general fund, a primary measure of financial health, and instead within less prominent fund types. Second, we explore whether governments with unions report lower ratios within accessible general fund balance account categories – that is, report lower proportions of unreserved fund balance. Primary findings are consistent with both hypotheses. Although somewhat mixed, cross‐sectional analyses reveal that effects are magnified when unions have more bargaining power, as proxied by the ability to strike or the absence of state right‐to‐work laws. Further analysis corroborates cross‐sectional findings by examining difference‐in‐differences specifications surrounding the quasi‐exogenous shock of Wisconsin's 2011 weakening of state public sector union laws and Ohio's time‐varying union contract negotiations. Overall, the evidence suggests that governments with unions shelter resources to avoid the appearance of large discretionary amounts available.

Abstract We present a dynamic, continuous-time model in which risk averse inside equityholders set a bank’s lending, payout, and financing policies, and the exposure of bank assets to crashes. We examine whether bailouts encourage excessive lending and risk taking compared to liquidation or bail-ins with debt-to-equity conversion or debt write-downs. The effects of the prevailing insolvency resolution mechanism (IRM) on the probability of insolvency, loss in default, and the bank’s value suggest no single IRM is a panacea. We show how a bailout fund financed through a tax on bank dividends resolves bailouts without public money and without distorting insiders’ incentives.

Abstract There are significant differences among sell-side analysts in how frequently they revise recommendations. We show that much of this variation is an analyst-individual trait. Analysts who change recommendations more slowly make recommendations that are more influential and generate better portfolio returns. Slower-revising analysts tend to change recommendations following corporate news that are harder to interpret by nonstock experts, and our evidence suggests that their investment value derives from their ability to better interpret hard-to-assess information. On average, analysts change recommendations less frequently as their career progresses; however, recommendation speed-style is the dominant predictor of their recommendation value.