10.25440/smu.12300974.v1
Jack Jiajun HONG
Jack Jiajun
HONG
Three essays in corporate finance
SMU Research Data Repository (RDR)
2020
Network centrality
Natural language
Management credibility
firm value
earnings surprise
earnings guidance
Finance
2020-05-14 09:51:20
Thesis
https://researchdata.smu.edu.sg/articles/thesis/Three_essays_in_corporate_finance/12300974
<table><tr>
<td><p>There are
two foci in my research efforts to produce this dissertation. First, I
explore and create novel datasets and methods that can expand our existing
arsenal of empirical tools.1 Following that, I deploy these tools to analyze
three aspects of information science in social networks and earnings-related
voluntary disclosures: Social network connectedness, natural language, and
management credibility.</p>
<br>
<p>This dissertation has three essays on corporate finance. The first
essay is motivated by the friendly board framework of Adams and Ferreira
(2007). In this study, we measure the value of board advisory activities
using Centrality Slice (CS) - the ratio of the network connectedness of
executive directors to non-executive directors. We find that this measure
positively relates to firm value, performance-turnover sensitivity,
management forecast accuracy, and market reaction to forecast surprises. The
results from our instrumented regression suggest that CS is an optimal
selection outcome that varies across firms. As such, firms will likely enjoy
better advisory benefits if their policies can support high CS in an optimal
manner.</p><br>
<p>The second essay is co-authored with Roger K. Loh. In this study,
we add two novel approaches to a large literature on analysts’ conflicts of
interests. Using analysts’ tones during peer conference calls, and returns
co-movement between their brokerages and hosts to proxy for the level of
information advantage, we find that analysts from high returns co-moving
brokerages exhibit language patterns that neither signal competition nor
collusion. Our results show that the market values tones, with increasing
reactions to the level of returns co-movement, consistent with the notion of
pricing for competence. We also find that the market is not naïve as it
discounts sentiment tones from brokerages sanctioned during the Global
Analyst Research Settlements.</p>
<br>
<p>The third essay is co-authored with Chiraphol N. Chiyachantana.
Using a proprietary set of institutional trading data, we investigate how
sophisticated investors utilize the information contained in management
earnings forecasts characteristics to formulate their trading strategy. We
find that these investors’ responses to a firm’s forecasts are not only
increasing in the magnitude of earnings surprise, but also magnified by the
firm’s prior forecast accuracy. We reveal transient institutions as the
principal traders on these forecast characteristics and show that trading
strategies using both forecast surprise and prior forecast accuracy are not
only profitable to implement, but also outperform those that rely solely on
forecast surprise.</p></td></tr></table>