“Disclosure Practices of Firms Affected by Hurricanes” (Job Market Paper)
This paper investigates the disclosure practices of firms affected by hurricanes. I document that when a hurricane hits, there is an increase in investor uncertainty. During the hurricane period (approximately ten days), there is an increase in abnormal volume, stock volatility, spread and illiquidity for firms that later report that they experience hurricane damage. I find that firms with little to no impact from the hurricane disclose this information immediately after the hurricane .In contrast, firms impacted by the hurricane delay reporting the damage until the next earnings announcement. Furthermore, firms with “good news” that the hurricane had little damage to operations disclose this news in the headlines of the earnings release (high salience) while firms that disclose a negative impact are more likely to bury the news in the body of the earnings press release (low salience).I also find that hiding the news in the body of the text has attenuation effect only for the firms that disclose qualitative and not quantitative hurricane damage. The results suggest that more timely updates on hurricane damage to investors reduces stock price volatility.
“Media Coverage of Mega-Sports Events and Investor Stock Categorization: An Examination of the Olympics” with Patricia Dechow, Alastair Lawrence and Mei Luo (Revise and Resubmit to Management Science)
We investigate whether media coverage of mega-sports events can have spill-over effects in the stock market. Specifically, we focus on the Olympics and we analyze whether the media attention and hype surrounding the Olympics encourages investors to use the Olympics as a way to classify stocks for investment. We examine two Olympic hosting countries: China (2008) and the UK (2012) and identify stocks that media outlets list as either directly or indirectly involved in the Olympics (Olympic stocks). These stocks come from a broad range of industries and vary considerably in the level and timing of their involvement in the Olympics. We find that in both countries, Olympic stocks exhibit increases in comovement of returns after the announcement of the winning bid and declines in comovements after the games are played. However, Olympic stocks do not have superior financial performance and their fundamentals (earnings and cash flows) do not exhibit strong co-movement over the Olympic time period. This evidence suggests that the changes in return comovement are not driven by underlying fundamentals. Our evidence instead suggests that the combination of media attention and a mega-sports event can lead to transitory and sentiment-driven stock categorization.
We test whether the PCAOB’s inspection efforts have improved the timely recognition of intangible asset impairments. Consistent with our predictions, we find an increase in intangible asset impairments for companies whose auditors previously received PCAOB inspection reports with abnormally high deficiency rates in auditing intangible impairments. These companies also experience a stronger negative association between contemporaneous stock returns and impairments. Our findings are consistent with critical PCAOB inspection reports leading to an improvement in the auditing of intangible assets, and with improved auditing resulting in the timelier recognition of impairments.