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Abstract:
This paper attempts to document the effects of accounting flexibility on managers' propensity to cut R&D expenditures. Using Barton and Simko's (2002) NOA/Sales variable as a proxy for accounting flexibility, we find that managers are more (less) likely to cut R&D when accounting flexibility is low (high), and that managers prefer the use of accrual to real earnings management given ample accounting flexibility. Our results are consistent with theoretical papers that posit substitution effects between accounting and real earnings management choices, with managers being more likely to cut R&D when the marginal costs of accounting manipulations are low relative to real earnings manipulations.

Accruals, Earnings Management, Real Operations, R&D, Research and Development, Intangibles, Benchmarks, Financial Reporting, Substitution

Abstract:
Prior research finds that short sellers act as arbitrageurs of overvalued equity, but also that they rely on other informed agents such as analysts to guide their trades. We examine whether short sellers act on signals of overvaluation when stocks are most overvalued: during periods of high investor sentiment. We find that short sellers correctly utilize firm signals of overvaluation discovered by Baker and Wurgler (2006), but incorrectly utilize analyst signals of overvaluation (coverage, dispersion, and optimism). This dichotomy is consistent with prior literature suggesting that analysts themselves are affected by investor sentiment, and demonstrates that short sellers’ reliance on analysts during high sentiment periods leads to a loss of wealth.

short sellers, short interest, investor sentiment, analyst forecasts, recommendations, informed agents, efficient markets, behavioral finance

Abstract:
I analyze the effects of analysts, institutions, and insiders on price discovery. Due to differing environments, insiders are more informative at longer (12-month) versus shorter (6-month) horizons, and vice-versa for analysts and institutions. When disagreement exists, I find that each group’s informativeness is not only a function of its own signal strength, but also the collective weakness of its counterparts’ signals.

In addition, I find informational advantages for insiders and analysts to be type-dependent. Specifically, insiders(analysts) derive predictive abilities solely from firm-specific(industry-specific) information, with neither party being able to take advantage of informational inefficiencies outside of their specialized area.

information intermediaries, analyst, recommendations, insider trading, institutional investors, money managers, momentum, contrarian, behavioral finance, price discovery, market efficiency, disagreement, FERC, future earnings response coefficient, PIN, synchronicity