Volkan Muslu

Forward-Looking MD&A Disclosures and the Information Environment

We use computer-intensive techniques to study the informational properties of forward-looking disclosures in the management discussion and analysis (MD&A) sections of 10-K filings made with the Securities and Exchange Commission. We find that firms make more forward-looking MD&A disclosures when their stock prices have lower informational efficiency, i.e., when their stock prices poorly reflect future earnings information. The greater levels of forward-looking MD&A disclosures help improve yet are unable to completely mitigate the lower informational efficiency of stock prices for such firms. These findings are stronger for operations-related forward-looking disclosures, disclosures that are made prior to 2000, and disclosures made by loss firms.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1921 . This paper was accepted by Mary Barth, accounting .

Executive Directors, Pay Disclosures, and Incentive Compensation in Large European Companies

My thesis examines how the lack of board-of-director independence affects the structure and disclosure of executive compensation. I find that European companies with more insiders on their boards grant their executives more incentive compensation, after controlling for the level and economic determinants of executive compensation. This effect is more pronounced in countries with less protection for outside shareholders. The companies with more insiders on their boards also disclose more transparent information about executive compensation. Overall, my evidence supports the contracting hypothesis, in which capital market investors understand potential detrimental effects of insiders and drive companies to mitigate these effects through greater incentive compensation and improved compensation disclosure. The evidence is inconsistent with the opportunism hypothesis, in which risk-averse insiders grant themselves more fixed pay and disclose less transparent information about their compensation. Thesis Supervisor: S.P. Kothari Title: Gordon Y Billard Professor of Accounting

Sell-side analyst research and stock comovement

We document that a stocks price around a recommendation or forecast covaries with prices of other stocks the issuing analyst covers. The effect of shared analyst coverage on stock price comovement extends beyond analyst activity days. A stocks daily returns covary with the returns of other stocks with which it shares analyst coverage. These links between stock price comovement and shared analyst coverage are consistent with the coverage-specific information we find in earnings forecasts; analysts who cover both stocks in a pair expect future earnings of the stocks to be more highly correlated than do analysts who cover only one stock from the pair. Collectively, our evidence indicates that analyst research produces coverage-specific spillovers that raise price comovement among stocks that share analyst coverage. The strength of these spillovers is comparable to spillovers from broad industry and market information in analyst research.

Analyst Tipping: Additional Evidence

We investigate whether the price run-up in a company’s stock prior to the initiation of analyst coverage with a favorable recommendation is related to the occurrence of an analyst-hosted invitation-only investor conference attended by the company. We document an average abnormal return of 2.41% (0.91%) during the twenty days prior to analyst initiations when conferences are hosted by initiating (non-initiating) analysts and 0.54% in the absence of these conferences. The abnormal returns are concentrated on conference days at 0.58% (0.17%) when conferences are hosted by initiating (non-initiating) analysts. Further, the price run-up and conference day returns predict the level of initiating recommendations. We conclude that investor conferences are significant venues where select investors obtain initiation-related information from initiating analysts or participating companies that other investors obtain when the initiations are publicly announced. Our conclusions are consistent with anecdotal evidence that securities firms communicate their research increasingly with the most profitable clients.

Oil Prices, Earnings, and Stock Returns

Research has failed to document a consistent association between oil prices and stock prices. We propose and examine whether that failure is due to the need to link oil price changes to firm-level changes in earnings and investments. We find that the impact of oil prices on a firm’s earnings and investments varies significantly by industry and by whether the firm is an oil producer or oil consumer. Nevertheless, firm fixed effects explain more than 10 times the variation between oil prices and a firm’s earnings and investments than industry and time fixed effects combined, indicating that aggregation by industry and time can mask the unique impact of oil prices on an individual firm’s earnings and investments. We also find that investors react more strongly to oil-related earnings than non-oil-related earnings, particularly for oil consumers. Investor reaction to oil-related earnings also spills over to the stock prices of industry peers. By providing a firm-level mapping of the impact of oil prices on earnings, investments, and stock prices, our paper extends studies that have examined the impact of oil prices on the aggregate economy and stock markets.

Benefits of Public Reporting to the Capital Markets: Evidence from IPOs Backed by Listed Private Equity Firms

Some private equity firms list their shares in public stock exchanges, thereby committing to regular and extensive public disclosures. This commitment stands in stark contrast with the traditional model of private equity, which relies on private contracting and communication with partner institutional investors. We investigate the existence of any incremental capital market benefits of the two models of private equity. We find that IPO companies that are backed by listed private equity firms report lower discretionary accruals and recognize losses on a more timely basis than IPO companies that are backed by unlisted private equity firms. IPO companies that are backed by listed private equity firms also have higher stock returns during the year after the IPOs. The findings are robust to controls for endogenous selection of portfolio companies by listed and unlisted private equity firms. Overall, the findings suggest a spillover of high-quality financial reporting between the listed private equity firms and their portfolio companies. JEL Codes: G24, D80Private equity firms that are listed in stock exchanges commit to extensive public disclosures. In contrast, unlisted private equity firms communicate privately with partner investors. We examine the reporting quality of portfolio companies that are backed by listed and unlisted private equity firms worldwide. We find that portfolio companies that are backed by listed private equity firms report lower abnormal accruals, recognize losses faster, and experience higher post-IPO stock returns. These findings are stronger for smaller and European portfolio companies, and those that receive direct private equity investments. Overall, our findings suggest that the public reporting model of listed private equity firms brings greater capital market benefits than the private reporting model of unlisted private equity firms.