Jonathan L. Rogers

Credibility of Management Forecasts

We examine how the markets ability to assess the truthfulness of management earnings forecasts affects the extent to which managers bias their forecasts, and we evaluate whether the markets response to management forecasts is consistent with it identifying the predictable bias in forecasts. We find that managers more likely to face litigation release less optimistic forecasts than managers less likely to face litigation, and this incentive is dampened when it is more difficult to detect whether managers have misrepresented their forward-looking information. Further, when it is more difficult to detect forecast bias, we find that managers are more likely to offer forecasts that increase their profits from insider transactions and managers of financially distressed firms are more optimistic than those of healthy firms. With regard to the stock price response to forecasts, we find the markets immediate response varies with the predictable bias in good but not bad news forecasts. The markets subsequent response, however, is consistent with investors eventually identifying the bias in bad news forecasts and modifying their valuation of the firm in the appropriate direction.

Disclosure Tone and Shareholder Litigation

We examine the relation between disclosure tone and shareholder litigation to determine whether managers’ use of optimistic language increases litigation risk. Using both general-purpose and context-specific text dictionaries to quantify tone, we find that plaintiffs target more optimistic statements in their lawsuits and that sued firms’ earnings announcements are unusually optimistic relative to other firms experiencing similar economic circumstances. These findings are consistent with optimistic language increasing litigation risk. In addition, we find incrementally greater litigation risk when managers are both optimistic and engaging in abnormal selling, consistent with insider selling providing evidence that the managers optimistic statements were intended to mislead. Finally, we find that insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic.

The Role of the Media in Disseminating Insider-Trading News

We use the process through which insider trading (SEC Form 4) filings are made public to investigate whether media coverage affects the way securities markets assimilate news. To do this, we use recent changes in disclosure rules governing insider trades as well as the initiation of coverage by Dow Jones to cleanly identify media effects. Using high-resolution intraday data, we find clear effects of media dissemination on the way prices and volume respond to insider trading news in the minutes after its release. These results help to resolve open questions regarding the role of the media in capital markets, including why apparently second hand news affects securities prices.

Run EDGAR Run: SEC Dissemination in a High-Frequency World

We describe the process through which the Securities and Exchange Commission (SEC) makes filings “publicly available.” For a sample of Form 4 (insider trade) filings, we show that, during the period we examine, the majority of filings are available to paying subscribers of the SECs public dissemination system (PDS) feed before they are posted to the EDGAR website, and so provide subscribers and their clients with a private advantage. We show that this advantage translates into an economically significant trading advantage, and prices, volumes, and spreads respond to the news contained in filings beginning around 30 seconds before public posting. These findings indicate that the SEC dissemination process does not always provide a level playing field and that the meaning of publicly available information in capital markets is no longer simple or obvious. In response to our study, the SEC launched an investigation and agreed to eliminate the PDS timing advantage.

The Multinational Advantage

Using a confidential dataset, we evaluate whether the degree of foreign operations affects U.S. multinational corporation (MNC) value by comparing actual value to imputed value for these firms. We control for differences in discount rates and expected growth rates across countries and industries through time with benchmark firms matched on these dimensions. This isolates the value effects of organizing otherwise independent activities within a multinational network. Our analyses offer robust evidence of a MNC value premium relative to a benchmark portfolio of independent firms operating in the same country-industry footprint as the MNC.

Do Managers Tacitly Collude to Withhold Industry-Wide Bad News?

Our paper examines voluntary disclosure choice about a different type of “news” than traditional models consider. Firms are exposed to a continuous flow of information about industry conditions that are correlated and uncertain. We predict that capital market pressure and externality costs associated with being the second mover to disclose could make coordinated withholding of adverse industry-wide signals a difficult equilibrium to sustain. A cooperative withholding equilibrium is possible, but its sustainability depends on the structure of the industry and the nature of news in the industry. We empirically document cases of increased intra-industry obfuscation of adverse signals in annual 10-Ks, controlling for changes in fundamentals. Strategic withholding is more likely in industries with greater negative tailrisk, greater equity incentives, and industry associations that foster interpersonal connections. The results have implications for understanding when economic forces are sufficient to generate voluntary disclosure of industry-wide adverse conditions.

Bridging the Gap: Evidence from Externally Hired CEOs: BRIDGING THE GAP: EVIDENCE FROM EXTERNALLY HIRED CEOS

External CEOs often experience an employment gap (i.e., a period during which they do not hold an executive position at a public company) prior to joining their new firm. These gaps cannot be accurately identified in common databases. A hand-collected sample of 50 randomly selected new CEOs indicates that approximately half of new CEOs are external hires. These new CEOs experience mean (median) gaps of 2.26 (1.65) years. We hypothesize that labor market frictions and executive skillsets contribute to the existence and length of these executive employment gaps. We also use theories from labor economics to predict (equilibrium) associations between two measures of “fit” (executive compensation and long-term match quality) and gaps (both existence and length). Finally, we will provide descriptive evidence on what executives do (e.g., sit on public company boards, work for private consulting companies, teach, consume leisure) during their gaps.

Why Can’t I Trade? Exchange Discretion in Calling Halts Around Important Information Events

Stock exchanges are an important information intermediary that affect how information about firms enters price. Individual stock trading halts are a key tool (often exercised at the exchanges’ discretion) to prevent extraordinary price volatility in the presence of new information, however, the decision making behind the halt remains a “mystery�? (WSJ, 2018). Using both firm-quarter and 8-K samples, we investigate how exchanges use discretion and whether the use of discretion alters the effectiveness of the halts. Between 2012 and 2015 halts are associated with large price movements (on-average 11%) and occur frequently with 97% of trading days having five or more halts. Our findings suggest that Nasdaq has a greater propensity to call halts than NYSE, ceteris parabis. Further, halts reflect the preferences of listed firms as opposed to simply the stated objectives of the exchanges (i.e., minimizing excess volatility and trades at off-equilibrium prices). Specifically, we find halts are less likely for (i) good news than bad, (ii) firms with opportunistic CEO traders, and (iii) firms with low short interests. We also find some evidence that CEO characteristics are associated with halt outcomes. Concerning halt effectiveness, we find the level of unexplained halt discretion is positively associated with both small halt returns and larger post-halt stock return reversals, suggesting halts with more discretion are less effective.