John Shon

DO STOCK RETURNS VARY WITH CAMPAIGN CONTRIBUTIONS? BUSH VS. GORE: THE FLORIDA RECOUNT

I examine the relation between campaign contributions and stock returns during the Florida recount period of the 2000 presidential elections. Using the full population of publicly traded firms, I find an economically significant positive (negative) relation between pre-election campaign contributions to Bush (Gore) and stock returns during the 37-day election recount period. This relation exists for both the level and partisanship of contributions, and exists incrementally at both the firm and industry levels. These relations are robust to several different specifications, including alternative event windows that exclude the potentially confounding House/Senate races. The firm-level analysis is consistent with contributions being influence-motivated.

Are Earnings Surprises Interpreted More Optimistically on Very Sunny Days? Behavioral Bias in Interpreting Accounting Information

Using bootstrap randomization procedures, we find that market reactions to earnings surprises are higher when earnings are announced on very sunny days in New York City, The effect exists for firms traded in New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) (i.e., New York-based exchanges), but does not exist for firms traded on NASDAQ (National Association of Securities Dealers Automated Quotation). Moreover, this sunshine effect is most (least) prominent for firms that are more likely to be followed by naive (sophisticated) investors. The sunshine effect is most prevalent on unambiguously sunny days, however, and is weaker on moderately sunny days. Average bid-ask spreads are lower on sunny days relative to cloudy days, suggesting that market-makers may contribute to the effect. Lastly, we find evidence of a short-term reversal of the sunshine-induced overreaction and underreaction.

R&D Cuts and Subsequent Reversals: Meeting or Beating Quarterly Analyst Forecasts

Abstract Among firms that meet or beat earnings expectations, we find that cuts to R&D spending are more prevalent in Q4 relative to other interim quarters. This is consistent with the relative costs of real-activities management (accruals-based earnings management) decreasing (increasing) in Q4 due to the annual audit. More importantly, we find that the subsequent reversal of such R&D cuts is more prevalent and economically more significant following Q4 cuts relative to the reversals that follow cuts in other interim quarters. Our findings suggest that examination at the quarterly level (rather than annual level) lends new insights into the current debate regarding the prevalence of potentially value-destroying R&D cuts that managers make. Indeed, our findings suggest that some cuts may merely be temporary deferrals of R&D outlays.

Information Asymmetry and Voluntary SFAS 157 Fair Value Disclosures by Bank Holding Companies During the 2007 Financial Crisis

We hand-collect SFAS 157 voluntary fair value disclosures of 18 bank holding companies. The SECs Division of Corporate Finance likely targeted these entities in 2008 through their “Dear CFO” letters in which they requested specific, additional disclosure items. We collect disclosures that match the SEC recommendations and create eight common factor disclosure variables to examine the effect of such disclosures on information asymmetry. We find that disclosure variables about the use of broker quotes or prices from pricing services and the use of market indices and illiquidity adjustments are related to lower information asymmetry. However, disclosure variables about valuation techniques and asset-backed securities are related to greater information asymmetry. We also document that disclosure complexity, and disclosure tone (uncertainty and litigious) is related to greater information asymmetry. These findings are consistent with criticism that corporate disclosures are voluminous; management may obfuscate unfavorable information which in turn increases market participants’ assessment of uncertainty associated with the fair value measures. We caveat that the setting of the financial crisis and a small sample size may limit the ability to generalize these inferences to other time periods or other financial firms.