“Understanding the Disclosure Practices of Firms Affected by a Natural Disaster: The Case of Hurricanes” (Submitted to a Top Tier Journal)
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 experienced 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 attenuating effect (weaker stock market reaction) on those firms that disclose qualitative and not quantitative hurricane damage. These results are interesting for both US and international audiences because managers in all countries that experience natural disasters have to decide how to make disclosures about these news. The results also suggest that management’s strategic disclosure practices can be successful in reducing stock price volatility.
“Media Attention and Stock Categorization: An Examination of Stocks Hyped to Benefit from the Olympics” with Patricia Dechow, Alastair Lawrence and Mei Luo (Last Round Revise and Resubmit to Management Science)
We investigate whether there are temporary valuation impacts on stocks that media outlets list as involved in a major sporting event (the summer Olympics). We examine five summer Olympics and identify stocks that media outlets hype as benefiting from the Olympics (Olympic stocks). We find that Olympic stocks exhibit increases in comovement of returns after the announcement of the winning bid and declines in comovements after the games are played, consistent with the Olympics being used by investors as a category for investment. Furthermore, Olympic stock returns outperform their matched counterparts over this time period. If the comovement and valuation benefits are due to changes in underlying economics then we expect to observe corresponding increases in comovements of fundamentals and improvements in profitability. However, we find no observable changes in fundamental comovements or profitability. Consistent with investor sentiment driving the categorization, we find that Olympic firms with a greater retail investor presence have stronger comovements effects; and trading volume and volatility are abnormally high for Olympic firms on days where media outlets have stories linking the firm to the Olympic games. To clarify event-based categorization occurs in other settings where media outlets classify stocks for investment, we show comovement increases for stocks classified as “Stay-at-Home” by analysts and the media and “Meme” by retail investors on the Reddit social media platform.
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.