Date of Award
Doctor of Philosophy in Business Administration
The purpose of this dissertation is to investigate the managerial behaviors and their impacts. In the first manuscript, we examine the relationship between managerial equity incentives and two anomalies: net share issuance anomaly and asset growth anomaly. In the presence of asymmetric information, managerial equity incentives mitigate the managers' empire-building motives while increasing their market timing motives. If the market underreacts to these motives, the negative return predicting effects (anomalies) of net share issuance and asset growth would be stronger, respectively, among stocks with higher and lower managerial equity incentives. Our evidence strongly supports this prediction. A hybrid strategy, which exploits the two anomalies in different groups of stocks screened by managerial equity incentives, earns significant alphas beyond transaction costs, even after controlling for the investment and profitability factors that are known to attenuate the two anomalies.
The second manuscript explores the predictability of market risk disclosure for stock price crash risk. The uncertainty surrounding a firm's exposure to a market risk factor may induce a negative skewness in its equity returns (crash risk). If so, an informative market risk disclosure can mitigate crash risk by reducing the factor exposure uncertainty. Motivated by this theoretical prediction, we posit a negative relationship between the level of narrative market risk disclosures (in Item 7A of Form 10K) and crash risk. Using Latent Dirichlet Allocation (LDA), we cluster the textual information in Item 7A into eight latent topics. Narratives of two of these topics, both related to risk exposures of input costs and/or output prices, are negatively associated with crash risk. The remaining six narratives, related to interest rate and foreign exchange rate exposures, do not convey significant information about crash risk. This evidence contributes to the on-going regulatory discussion on the value of narrative market risk disclosures (in Item 7A) and demonstrates the usefulness of LDA in analyzing unstructured textual information in narrative disclosures.
The third manuscript examines an external power, institutional ownership, on discretionary behavior (market risk disclosure). By exploring why firms voluntarily provide more informative market risk disclosures, we document that institutional ownership plays an important role in enhancing readability and consistency. We find that investors' short-term investment horizon is positively related to the readability of market risk disclosure, and investors' independence is positively associated with both readability and consistency. Our additional analyses indicate that institutional investors' information needs drive the improvement in the readability of market risk disclosure and that their monitoring effects heighten the consistency of market risk disclosure.
Wang, Zhao, "Essays on Corporate Disclosure, Governance, and Capital Markets" (2019). Open Access Dissertations. Paper 837.