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we're here today was Wharton accounting professor Frank Joe who's going to talk
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to us about someone who's recent research Frank thanks for being here thank you for inviting me and could you
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first give us kind of a short summary of the paper what question you were trying
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to answer okay so in my job market paper I basic look at how does investor learning affect firms voluntary
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disclosure decisions and by voluntary disclosure decision and mean management annual earnings forecast decisions we
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know that management and the earnings work as a very prevalent so it's an important question to ask what are the
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forces that shape management earnings pork at decisions and empirically there is a very interesting phenomenon which
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is that earnings forecasts decision tend to be sticky over time and I basically build a model trying to explain why this
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thickness occurs and try to empirically quantify this mechanism that I proposed and the mechanism is basically is that
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the learning about unknown firm profitability we know that investor they don't know everything so is a reasonable
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assumption that inverted they don't know from profitability and just by taking
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this simple premise I show that in such a learning leads to sticky disclosure incentives and the mechanism is very
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simple basically investors they have their prior information so that's you investing Apple and you think that Apple
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is a pretty good firm just by observing that ad post performance and drops a little bit in one time doesn't mean that
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Apple is about firm for you so in other words in that church beliefs are speaking over time and I show that
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investors build if in turn affect managers voluntary disclosure decisions and that would in turn lead to sticky
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disclosure incentives and my structural estimation shows that investor learning leads to very sticky disclosure
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incentives so that there is 10% increase in the likelihood of disclosure in one year caused by investor learning that
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would in turn lead to about 10% increase in the likelihood of disclosure in the next year so basically I mean for
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investors it's the more they learn the more they kind of confirm their beliefs
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about the firm yes and then the more they confirm their beliefs the more of the firm wants
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to disclose information about itself okay so the set of the investors believes on firm disclosure choice
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depends on whether the beliefs are optimistic or pessimistic if investors believe you're optimistic relative the
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actual firm profitability and that in turn leaves less room for the manager to convey good news and therefore the
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disclosure probability would go down and this basic dis research shows that it's
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important for the manager to take into account where investors beliefs are when they the manager decides whether to
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disclose information or not so basically to be to teach it about disclosure versus where investors are with the firm
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at that interview time yeah and so Charlie kind of going further with that and if I'm a firm or if I'm an investor
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how could I practically apply this research either to my firm decisions or how I act on my activity as an investor
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okay so this research is more from the managers perspective to tell the manager to pay attention to where investors are
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and often you empirically we see that you know some firms release some information which is not like a big
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surprise but there's a very large market reaction versus other times and when man
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like the manager really some information that is like basically in you know there's a very large surprise but
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there's very little stock price movements and my rates of basic tells manager to pay attention to where
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investors beliefs are and how uncertain they are investors are about their beliefs when manager decides whether to
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disclose information or not now are there key indicators in terms of where what investors beliefs are in a given
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time it is it just stock price or there are other things that they would be looking at to kind of stage back so the
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key component would be the stock price audited wasn't manager he or herself believes where the firm fundamentals are
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yeah so that's a key in because the manager knows about a company but investor they don't know so they have
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some valuation about the firm but manager probably knows whether in my firm is good or not so based on that
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that's a key indicator of investors belief and of course in my research I structurally so using a model to buy all
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the investors believe so potentially my model can be useful because I show that the model actually
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states the data pretty well right and so what would next for this research are you gonna follow decide so currently has
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a working paper on how investors process information that is was held from them about 50% of the time management does
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not issue earnings guidance and typically when this happens it indicates bad news and the investor kind of know
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it's bad news but surprisingly what investor when you better prize the firm it actually over prizes it and when the
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earnings are announced there's a subsequent decline in firm value so this is potentially both important to
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investors and to managers because on the one hand manager they're supposed to
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inform investors about what's going on or the manager could statistically take
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advantage of the investors inability to process the lack of disclosure and from the investors perspective they need to
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understand what the implication of firm strategic decisions in this case is disclosure choice and firm makes all
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kinds of strategic decisions and it's probably true that investor have a hard
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time understanding them too so this is the follow-up research great Frank thanks for being with us today okay
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thank you [Music] you [Music]