This paper documents a differential role of R&D versus selling, general, and administrative expenses (SG&A) for real earnings management. The distinction of these two components is important because prior studies mostly examine their combined use, but firms could manipulate them differently given the differing valuation implications. Reduced SG&A is viewed positively by investors as evidence of cost reduction, while reduced R&D is viewed negatively by investors as such expenditures are critical signals of expected growth. I examine their use in the context of seasoned equity offerings (SEOs) as well as firms receiving accounting and auditing enforcement releases (AAERs). Although both groups face strong incentives to manage earnings upward by reducing expenses, I predict and find that firms will reduce SG&A but increase R&D. During the manipulation period, SEO and AAER firms exhibit lower discretionary SG&A and higher discretionary R&D, relative to control firms, and investors positively value low discretionary SG&A and high discretionary R&D. Overall, this study confirms the importance of distinguishing between R&D and SG&A in real earnings management contexts and suggests a complementary (substitutive) relation between cutting SG&A (R&D) and accruals management.

This study presents a field experiment in which media articles for a random sample of firms with earnings announcements are promoted to a one percent subset of Yahoo Finance users. Promoted firms have higher abnormal returns and some evidence of lower bid-ask spreads on the day of the earnings announcement. These results are more pronounced for less visible firms, negative earnings news, and on days with fewer promoted firms. These findings suggest that investor attention affects the pricing of earnings and that retail investors buy stocks that catch their attention, in a setting where attention is randomly assigned.

This study investigates the mispricing of market‐wide investor sentiment by exploring the relation between sentiment and investor expectations of future earnings. Prior research argues that sentiment‐driven mispricing should be most pronounced for hard‐to‐value firms, such as those reporting losses (Baker and Wurgler 2006). Using investor expectations of future earnings, we provide empirical results consistent with this behavioral finance theory. We predict and find that investors perceive losses to be more (less) persistent during periods of low (high) sentiment; that (in contrast) investors perceive profit persistence to be lower (higher) during periods of low (high) sentiment; and that the effects appear stronger for loss firms relative to profit firms. We also document predictable cross‐sectional variation within losses (with the mispricing mitigated for losses associated with activities expected to generate future benefits), R&D, growth, large negative special items, and severe financial distress. Overall, our results document a new and important channel—investor expectations of future earnings—to explain sentiment‐driven mispricing.

This study tests whether the information processing costs of analysts vary positively with the environmental performance information available on the firms they follow. Consistent with this conjecture, we find that these costs increase when analysts process a wider array of environmental performance ratings. Specifically we find that as the number of environmental performance ratings increases, analysts cover fewer firms in their portfolio, provide fewer earnings-per-share (EPS) forecast revisions, and make less timely forecast revisions. Two additional tests confirm that our results relate to environmental performance information and not to confounding factors. First, the “shock” of the Global Warming Solutions Act of 2006 implemented for California firms in 2012 increases analyst information processing costs incremental to the main effect of environmental performance ratings. Second, analyst information processing costs increase further in the year a firm covered by an analyst provides a CSR report for the first time. Our results have implications for firm managers considering voluntary environmental disclosure and investors deciding on what stocks to include in their socially responsible portfolios because when processing costs are high, analysts will provide less information or less timely information, resulting in more gradual price discovery in capital markets.

This study finds that investors price firms' greenhouse gas ( GHG ) emissions as a negative component of equity value, and this valuation discount does not differ between firms that voluntarily disclose to the Carbon Disclosure Project ( CDP ) and nondisclosing firms. We derive the GHG emissions for nondisclosers from an estimation model that incorporates firm characteristics and industry. The finding that investors view CDP amounts and estimates of emissions as equally value‐relevant suggests that equity values reflect GHG information from channels other than the CDP . An event study of investors' response to emission‐related information in firms' 8‐K filings further supports this finding. Economically, our results suggest that, for the median S&P 500 firm, GHG emissions impose a market‐implied equity discount of $79 per ton, representing about one‐half of 1 percent of market capitalization.

We use daily page views of analyst estimates, ratings, and target prices on Yahoo Finance to understand when users seek sell-side analyst research. Demand for this information is most pronounced on days with earnings announcements, management guidance, and All-Star analyst reports. Surprisingly, demand does not increase at Form 10-K and Form 10-Q filings. While the overall demand for analyst estimates is 19.9 percent less than for analyst ratings and target prices, on earnings announcement and management guidance days, this preference is reversed. Moreover, the demand for analyst information substantially trumps that of SEC filings and financial statement information.