The Real Costs of Financial Efficiency When Some Information Is Soft

Edmans, Alex; Heinle, Mirko Stanislav; Huang, Chong

doi:10.1093/rof/rfw030

Cited by 100 publications

(44 citation statements)

References 73 publications

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“…They find that providing interim earnings signals induces management myopia because of the price pressure, which is particularly costly when firms have high growth opportunities. In a similar spirit, Edmans et al (2016) develop a model suggesting that frequent hard-information disclosure (i.e., interim earnings reporting or quarterly earnings guidance) improves information efficiency but reduces real efficiency by distorting the manager's decision about the weight put on short-term stock prices and long-term firm values.…”

Section: Costs and Benefits Of Management Guidancementioning

confidence: 99%

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Kim

Zhu

2017

Rev Account Stud

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The practice of providing quarterly earnings guidance has been criticized for encouraging investors to fixate on short-term earnings and encouraging managerial myopia. Using data from the post-Regulation Fair Disclosure period, we examine whether the cessation of quarterly earnings guidance reduces short-termism among investors. We show that, after guidance cessation, investors in firms that stop quarterly guidance are composed of a larger (smaller) proportion of long-term (short-term) institutions, put more (less) weight on long-term (short-term) earnings in firm valuation, become more (less) sensitive to analysts' long-term (short-term) earning forecast revisions, and are less likely to dismiss chief executive officers for missing quarterly earnings targets by small amounts, relative to investors in firms that continue to issue quarterly earnings guidance. Our study provides new evidence of the benefit of stopping quarterly earnings guidance, that is, the reduction of short-termism among investors.

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Section: Costs and Benefits Of Management Guidancementioning

confidence: 99%

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Kim

Zhu

2017

Rev Account Stud

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“…By focusing on firms' adoption decisions and their impact on the endogenous strength of the blockchain, our model also relates to the theoretical literature that takes a more positive approach toward the development of accounting-related institutions (Dye and Sridhar, 2008;Magee, 2011, 2015a,b;Chen and Yang, 2018). Lastly, our model speaks to the research concerning firms' ex-ante commitment to a disclosure regime (e.g., Ferreira et al, 2012;Hermalin and Weisbach, 2012;Heinle and Verrecchia, 2015;Edmans et al, 2016). For instance, Heinle and Verrecchia (2015) consider homogeneous firms that can commit to a disclosure regime but ex-post have some discretion about the information being revealed.…”

Section: Introductionmentioning

confidence: 93%

Can You Trust the Blockchain? The (Limited) Power of Peer-to-Peer Networks for Information Provision

2019

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We investigate the potentials and limits of privacy-preserving blockchain technology for the generation of information. In our model, heterogeneous firms can rely on traditional institutions or adopt a blockchain to inform the capital market. The blockchain leverages its peer-to-peer structure and disseminates aggregate information while ensuring the privacy of individual data entries. Within this system, firm-specific information provision depends on two critical factors: (i) the blockchain's fit for analyzing a given firm's data, and (ii) its reach into the economy as provided by the proportion of firms adopting the blockchain in equilibrium. The technology can improve information provision in two ways. The adoption decision itself may serve as a credible signal of a firm's valuation, and the blockchain may generate more information than traditional institutions when its reach is sufficiently high. However, we characterize an equilibrium in which high-value and low-value firms are present both inside and outside the blockchain, which limits both channels' ability to generate information. We show that the information provision can even fall below the benchmark case in which blockchain technology is not available. JEL-Classification: D21, D40, M41, M48 B {0,0,1,1} B {1,0,1,1} B {1,0,1,1} B {0,0,1,1} B {1,0,1,0}γ {1,0,1,0}γ{1,0,1,0} γ {1,0,1,1}γ{0,0,1,1} γ BB {0,0,1,1} B {1,0,1,1} B {1,0,1,1} B {0,0,1,1} B {1,0,1,0}γ {1,0,1,0}γ{1,0,1,0} γ {1,0,1,1} γ {0,0,1,1}

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“…32 This paper also relates to other theories that suggest reasons for why it might be optimal for firms to reveal imprecise information (for a more comprehensive survey see Goldstein and Sapra (2013)). For example accurate disclosure may distort managerial investment decisions (Edmans et al (2016)), aggravate principal agent problems (Hermalin and Weisbach (2012)), make it difficult to hire highly-skilled managers (Subrahmanyam (2005)), or depress the incentives for traders to gather information that will be embedded in prices (Goldstein and Yang (2016)).…”

Section: Relation To Literaturementioning

confidence: 99%

A Theory of Disclosure in Speculative Markets

Hertzberg

2018

Management Science

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This paper presents a theory of disclosure in a market where investors have heterogeneous beliefs and face short-sale constraints. Assets trade above fundamentals reflecting the value of the option to sell to more optimistic investors in the future. The initial seller has an incentive to commit to an imprecise disclosure policy, despite the negative effect this has on the fundamental value of the asset, in order to increase the potential for disagreement and hence the magnitude of the speculative premium. I show that there is a strategic complementarity between sellers in their disclosure decisions. This explains why financial misreporting and episodes of speculation occur together in waves and demonstrates that the endogenous choice of imprecise disclosure amplifies the extent to which assets are overpriced.

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The Real Costs of Financial Efficiency When Some Information Is Soft

Cited by 100 publications

References 73 publications

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Does the cessation of quarterly earnings guidance reduce investors’ short-termism?

Can You Trust the Blockchain? The (Limited) Power of Peer-to-Peer Networks for Information Provision

A Theory of Disclosure in Speculative Markets

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