PUBLICATIONS

1. Face Value: Trait Impressions, Performance Characteristics, and Market Outcomes for Financial Analysts
- with Lin Peng, Siew Hong Teoh, and Yakun Wang, 2022, SSRN
- Journal of Accounting Research 60(2): 653-705.
- Media Coverage: WSJ, UCLA Anderson Review

Abstract: Using machine learning–based algorithms, we measure key impressions about sell-side analysts using their LinkedIn photos. We find that impressions of analysts’ trustworthiness (TRUST) and dominance (DOM) are positively associated with forecast accuracy, especially after recent in-person meetings between analysts and firm managers. High TRUST also enhances stock return sensitivity to forecast revisions, especially for stocks with high institutional ownership. In contrast, the impression of analysts’ attractiveness (ATTRACT) is only positively associated with accuracy for new analysts or when a firm has a new CEO or CFO. Furthermore, while high DOM helps male analysts’ chances of attaining All-Star status, it reduces female analysts’ accuracy and the likelihood of winning the All-Star award. In addition, the relation between TRUST and accuracy is modulated by the disclosure environment and is attenuated by Regulation Fair Disclosure. Our results suggest that face impressions influence analysts’ access to information and the perceived credibility of their reports.

WORKING PAPERS

1. Using Indirect Disclosure to Hide Bad News
- with Nicholas Guest, 2023, SSRN, Dataset
- Revise & Resubmit at The Accounting Review

Abstract: This paper examines a key aspect of semantic progression in financial reports. Namely, circuitousness reflects the indirectness of a disclosure narrative, which we operationalize as the extent to which related information is not grouped together. We find that 10-Ks of firms with lower current earnings and stock returns are more circuitous. Circuitousness is also negatively associated with the persistence of positive earnings, especially for firms with managerial incentives, monitoring, and other disclosure characteristics that indicate high potential for bad news obfuscation. Additional evidence suggests analysts do not immediately incorporate the negative performance implications of circuitousness. We also examine earnings conference calls and find consistent results that help rule out alternative explanations. Moreover, the explanatory power of circuitousness survives and dominates a host of alternative measures of linguistic complexity. Overall, managers seem to hide bad news from the market by presenting a more meandering narrative of the firm.

2. Earnings Pressure and Corporate Diversification
- with Eric Yeung and Xingyu Shen, 2023
- Revise & Resubmit at The Accounting Review

Abstract: Real earnings management to meet short-term earnings expectations is thought to be destroying firm value. Our study provides empirical evidence supporting an alternative view: Earnings pressure forces the managers to refocus on the firm’s core products through cost-cutting, which can be value-enhancing and leads to higher future stock returns. The documented product refocus under earnings pressure is more pronounced when the CEO exhibits high-level agency problems. Our study suggests a bright side of real earnings management under earnings pressure − it helps reduce agency-motivated product diversification.

3. Do Shared Auditors Facilitate Information Sharing between Clients? Evidence from Patent Citations
- with Xuan Tian, and Luo Zuo, 2022, SSRN
- Best Paper Award at 2022 MIT Asia Conference in Accounting
- Revise & Resubmit at Journal of Accounting Research

Abstract: We use patent citations to assess whether auditors reduce their clients’ costs of processing public information. We find that a company is more likely to cite another company’s patents when they are audited by the same audit firm. To mitigate the concern that this result is driven by commonality in the fundamentals of the two companies, we include a rich set of company-pair controls and conduct various tests that are specific to the information mechanism. We show that the effect of a shared auditor on cross-client patent citations is stronger when the two clients both exhibit intensive innovation activities, are industry peers, and share the same practice office of the audit firm. We also find evidence that shared auditors matter more for the citations of patents that are more recent and easier for outsiders to utilize. Overall, our findings suggest that auditors play an information intermediary role and help reduce their clients’ costs of processing public information.