Publications
Manager-Specific Effects on Earnings Guidance: An Analysis of Top Executive Turnovers
| Authors: | Francois Brochet, Lucile Faurel, and Sarah McVay |
|---|---|
| Publication: | Journal of Accounting Research (forthcoming) |
Abstract
We investigate how managers contribute to the provision of earnings guidance by examining the association between top executive turnovers and guidance. Although firm and industry characteristics are important determinants of guidance, we conclude that CEOs participate in firm-level policy decisions, whereas CFOs are involved in the formation or discussion of guidance. Among firms that historically issued frequent guidance, breaks in guidance following CEO turnovers are relatively permanent and are potentially attributable to firm-initiated changes in guidance policy. Breaks following CFO turnovers, however, likely reflect uncertainty on the part of the newly appointed executive—they are concentrated in the two quarters following the turnover, are associated with the background of the newly appointed CFO, and extend to the relative precision of the guidance. Among firms that did not issue guidance historically, we find some evidence that newly appointed externally hired CEOs increase the likelihood of providing guidance.
Complicated Firms
| Authors: | Lauren Cohen and Dong Lou |
|---|---|
| Publication: | Journal of Financial Economics (forthcoming) |
Abstract
We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Specifically, a simple portfolio strategy that takes advantage of this straightforward vs. complicated information processing classification yields returns of 118 basis points per month. Consistent with processing complexity driving the return relation, we further show that the more complicated the firm, the more pronounced the return predictability. In addition, we find that sell-side analysts are subject to these same information processing constraints, as their forecast revisions of easy-to-analyze firms predict their future revisions of more complicated firms.
The Growing Power of Non-financial Reports
| Authors: | Ioannis Ioannou and George Serafeim |
|---|---|
| Publication: | Business Strategy Review (May 2011) |
Abstract
We are exploring the value of forcing corporations to issue sustainability reports, which provide information about corporate performance in terms of social, environmental and governance issues. In a breakthrough study they asked, what is the effect of mandatory sustainability reporting on management practices across the world?
Read the paper: http://bsr.london.edu/lbs-article/611/index.html
Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs
| Authors: | Mozaffar Khan, Leonid Kogan, and George Serafeim |
|---|---|
| Publication: | Journal of Finance (forthcoming) |
Abstract
In tests of the equity market timing theory of external finance, the prior literature has used overvaluation identifiers such as high market-to-book and high prior returns that are likely correlated with other determinants of SEOs. We use price pressure resulting from purchases by mutual funds with large capital inflows to identify overvalued equity. This is a relatively exogenous overvaluation indicator as it is associated with who is buying—buyers with excess liquidity—rather than what is being purchased. Using this indicator we document that 1) inflow-driven buying pressure by mutual funds has a pronounced and persistent stock price impact, 2) the probability of an SEO increases by 59%, 3) insider sales increase by 7%, and 4) the probability of completing a stock-based acquisition increases by 20% in the four quarters following the buying pressure. These results provide new evidence that firm managers are able to identify and exploit overvalued equity.
Read the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1364974
Working Papers
Corporate Social Responsibility and Access to Finance
| Authors: | Beiting Cheng, Ioannis Ioannou, and George Serafeim |
|---|
Abstract
In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to reduced agency costs, due to enhanced stakeholder engagement through CSR, and reduced informational asymmetries, due to increased transparency through non-financial reporting. Using a large cross-section of firms, we show that firms with better CSR performance face significantly lower capital constraints. The results are confirmed using an instrumental variables and a simultaneous equations approach. Finally, we find that the relation is primarily driven by social and environmental performance, rather than corporate governance.
Download the paper: http://www.hbs.edu/research/pdf/11-130.pdf
Cases & Course Materials
LG Display
Dennis Campbell and Rui Lu
Harvard Business School Case 111-072
An abstract is unavailable at this time.
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http://cb.hbsp.harvard.edu/cb/product/111072-PDF-ENG
The Ford Fiesta
John Deighton and Leora Kornfeld
Harvard Business School Case 511-117
Executives at Ford wondered if social media could be the marketing solution for the launch of the youth-oriented 2010 Fiesta. But with social media came a ceding of control. Some at the company believed that if Ford was going to move beyond its conservative brand image, chances had to be taken. Others erred on the side of caution. Chantel Lenard, Ford's Group Marketing Manager for Global Small Car and Midsize Vehicles, and Connie Fontaine, Ford's Manager of Brand Content and Alliances, pushed for a bold approach to marketing the new vehicle. They and their teams set into motion a comprehensive six-month social media initiative targeting a younger, ethnically diverse, and urban-based market. The program was called "The Fiesta Movement," and with it came the handing over of a large part of the marketing campaign to active young social media enthusiasts across America. The case is set two months into the Movement as the team evaluate the metrics from YouTube, Twitter, Facebook, and Ford's website, and assess whether or not they are doing everything necessary to make the Fiesta a success with a new target market.
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http://cb.hbsp.harvard.edu/cb/product/511117-PDF-ENG
Dropbox: 'It Just Works'
Thomas R. Eisenmann and Michael Pao
Harvard Business School Case 811-065
Dropbox is a venture-backed Silicon valley startup, founded in 2006, that provides online storage and backup services to millions of customers using a "freemium" (free + premium offers) business model. The case recounts Dropbox's history from conception through mid-2010, when founder/CEO Drew Houston must make strategic decisions about new product features, how to target enterprise customers, and whether to pursue distribution deals with smartphone manufactures.
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http://cb.hbsp.harvard.edu/cb/product/811065-PDF-ENG
Daniel Kim's Dilemma (A)
Bill George and Natalie Kindred
Harvard Business School Case 411-009
Daniel Kim was considering "blowing the whistle" on his friend, the CEO of a fast-growing startup where Kim had spent most of his professional career. When Kim joined the company, called Cardio-Metric, in 2002, it consisted of seven young engineers (including its two 25-year-old founders) working from a one-bedroom Minneapolis apartment. By 2008, when the venture capital-backed company recorded $110 million in revenues, Kim had become close friends with the founders, who served as CEO and chairman. Cardio-Metric's success, however, concealed troubling internal developments. Since 2002, the CEO's management style had progressed from unconventional, to questionable, to egregious. Kim, Cardio-Metric's on-and-off CFO, had repeatedly confronted the CEO over his behavior-including charging large purchases with no clear business purpose to Cardio-Metric and presenting unrealistic financial projections to investors-but the CEO dismissed Kim's concerns and ordered him not to share them with others at the company. By April 2009, Kim believed the problem had grown out of control, and he was considering disclosing the CEO's actions to the board of directors and a team of external auditors. There was much at stake. Kim's disclosure would undoubtedly ruin his friendship with the CEO, endanger Kim's own role at the company, and even jeopardize the future of Cardio-Metric itself.
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http://cb.hbsp.harvard.edu/cb/product/411009-PDF-ENG
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http://cb.hbsp.harvard.edu/cb/product/411054-PDF-ENG
Groupon
Sunil Gupta, Ray Weaver, and Dharmishta Rood
Harvard Business School Case 511-094
This case is set in early 2011, after a period of incredible customer and revenue growth for Groupon. Reviewing Groupon's rise, the case explores whether Groupon promotions are really good for local merchants, whether it can continue to thrive amidst increasingly intense competition, and the key reasons for the company's remarkable early success.
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http://cb.hbsp.harvard.edu/cb/product/511094-PDF-ENG
1366 Technologies: Scaling the Venture
Joseph B. Lassiter III, Ramana Nanda, David Kiron, and Evan Richardson
Harvard Business School Case 811-076
For some time, 1366's co-founders, Frank van Mierlo and Ely Sachs, had faced a choice, which was now made all the more stark: 1366 could expand to produce silicon wafers itself, raising the required capital from "friendly" investors and building shipment volume slowly, or 1366 could accelerate its market entry dramatically by partnering with the Asian manufacturers that had begun to dominate the worldwide solar industry. While accelerated growth was attractive to 1366 and its current investors, the company believed that it would face considerable risks if it were to expose its intellectual property to the "wrong" partners. 1366 had no intention of losing control of its technology, but given the pace of innovation and the active role of governments in the solar industry, van Mierlo and Sachs feared this might not be a race that could be won by the cautious.
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Note on Lobbying and the Dodd-Frank Financial Reforms
Clayton S. Rose and Aldo Sesia
Harvard Business School Note 311-094
The note provides background on the Dodd-Frank Wall Street Reform and Consumer Protection Act, brief background on lobbying, and aspects of the lobbying effort by the financial industry and JP Morgan Chase with regard to Dodd-Frank. It is intended as a companion to "The Tip of the Iceberg: JP Morgan Chase and Bear Stearns (A)," HBS No. 309-001, to facilitate class discussion and, as such, provides only an overview of specific aspects of the issues discussed.
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