Tuesday, July 8, 2014

Mutual Funds and Information Diffusion: The Role of Country-Level Governance

LIN Melissa, MASSA Massimo, ZHANG Hong
Mutual Funds and Information Diffusion: The Role of Country-Level Governance Review of Financial Studies (forthcoming)

We hypothesize that poor country-level governance, which makes public information less reliable, induces fund managers to increase their use of semi-public information. Utilizing data from international mutual funds and stocks over the 2000-2009 period, we find that semi-public information-related stock rebalancing can be five times higher in countries with the worst quality of governance than in countries with the best. The use of semi-public information increases price informativeness but also increases information asymmetry and reduces stock liquidity. It also intensifies the price impact and liquidity crunch during the recent global financial crisis.

Monday, July 7, 2014

Social Hierarchy, Social Status and Status Consumption

Social Hierarchy, Social Status and Status Consumption in Cambridge Handbook of Consumer Psychology Derek D. Rucker, Mike I. Norton, Cait P. Lamberton (Eds.), Cambridge University Press (forthcoming)

Social hierarchy is a fundamental feature of most existing societies and organizations (Sidanius and Prato 1999). Common to any hierarchical structure is the adoption of a ranking system, in which every individual occupies a specific position, or social status relative to others. Although hierarchical ordering is a multifaceted construct (Weber 1922/1978 ), it typically stems from one or several attributes (e.g., race, gender, income, education, ancestry, occupation) that become status markers in social groups. This ordering simultaneously transforms every member into a sender and a recipient of status signals, and guides individuals’ actions vis-à-vis these signals. Because of their profound effects on individuals’ thoughts, feelings and behaviors as well as group dynamics, status and stratification processes have received a lot of interest in key areas of social sciences such as sociology (e.g., Joseph and Hamit 2006; Podolny 1993; 2005; Ridgeway et al., 2009), psychology (e.g., Fiske 2010; Kraus et al. 2012; Magee and Galinsky 2008), economics (e.g., Frank 2007), and even health care and epidemiology (e.g., Bobak et al. 1998; Marmot 2004).

Friday, July 4, 2014

Finalist, 2014 EFMD Excellence in Practice Award

Finalist, 2014 EFMD Excellence in Practice Award
Executive Development Category

“Astellas-INSEAD Leadership Journey”

Thursday, July 3, 2014

Financial Reporting Policy Committee of the American Accounting Association's Financial Accounting and Reporting Section: Accounting Standard Setting for Private Companies

BRADSHAW Mark, BENS Daniel A., FROST Carol Ann, GORDON Elizabeth, McVAY Sarah, MILLER Gregory, PFEIFFER Ray, PLUMLEE Marlene, SHAKESPEARE Catherine, THOMAS Wayne, WONG Franco
Access the publisher's website
Accounting Horizons 28, 1 (2014) 175-192

In this paper, we (the Financial Reporting Policy Committee of the American Accounting Association's Financial Accounting and Reporting Section) consider the 2011 Plan to Establish the Private Company Standards Improvement Council authored by the Financial Accounting Foundation (FAF). The FAF's proposal called for a standard-setting approach more sensitive to the needs of private companies, with the likely outcome being different accounting and disclosure standards for these companies than for public companies. Members of the committee have differences of opinion about the FAF's proposal. Five members generally support the FAF's plan (though raising significant implementation issues), while six oppose it and instead argue against different reporting standards for private companies. In this paper, we discuss three issues and present points and counterpoints for each, along with other related standard-setting concerns. This approach is designed to present our differing views on these issues clearly, to help standard setters, preparers, users, and academics form their own views on this highly controversial matter. 

Wednesday, July 2, 2014

CEO Optimism and Analyst Forecast Bias

WONG Franco, ZHANG Frank
Access the publisher's website
Journal of Accounting, Auditing and Finance 29, 3 (2014) 367-392

We examine analysts’ forecast behavior in a setting in which CEOs are optimistic and analysts react rationally to CEO optimism. We document that the bias in analysts’ consensus forecasts is negatively related to the level of CEO optimism. The negative relation is stronger for small firms, firms with low analyst followings, and firms with high uncertainty. Analysts revise downward their forecasts for next year’s earnings less relative to their revision for current year’s earnings for firms with more optimistic CEOs, a result consistent with optimistic CEOs are subject to self-attribution bias. The stock price reactions to downward forecast revisions and missing analysts’ forecasts are less negative for firms with optimistic CEOs, indicating that investors understand the implications of CEO optimism for analysts’ forecast bias and subsequent revisions.