Research
“Racial Diversity Exposure and Firm Responses Following the Murder of George Floyd”
with Karthik Balakrishnan, Rafael Copat, and K. Ramesh
Journal of Accounting Research, Forthcoming
Presented at the 2022 JAR Conference
Abstract: George Floyd’s murder caused many firms to reveal how exposed they are to racial diversity issues. We examine investor and firm behaviors after this socially significant event to provide evidence on the valuation effects of the exposure and ensuing corporate responses. We develop a text-based measure of a firm’s exposure to racial diversity issues from conference call transcripts and find that, after the murder of George Floyd, firms with diversity exposure experience a stock price decrease of approximately 0.7% around the date of the conference call. We provide evidence that this effect is attributable to race-related exposure and not gender-related exposure. Initiatives taken by firms mitigate the negative market reaction. We document that firms with racial diversity exposure respond by appointing Black directors. The stock market views appointments of Black directors more favorably after George Floyd’s murder, except when they are perceived as symbolic. We also find that firms with greater exposure to racial diversity are more likely to establish DEI departments, appoint DEI leaders, specify diversity goals, increase supply chain diversity, and donate to racial justice causes. Our paper provides evidence that exposure to racial diversity issues adversely affects firm value, and companies address the exposure by taking actions.
Click here to watch the 2022 JAR Conference presentation! 
“Disclosure Firmness of Corporate Language in the Presence of Increased Entry Threat”
Job Market Paper
Abstract: I study firms’ disclosure choices in response to heightened entry threat and their effectiveness at deterring potential entrants. Using the MD&A section of 10-K filings, I develop and validate a measure of disclosure firmness that aggregates hard and soft disclosure attributes consisting of vague, tonal, forward-looking, explanatory, numerical, and specific information, as well as novel metrics of historical and objective content based on natural language processing and machine learning. I find that firms provide firmer/harder disclosures when faced with increased competition threat. This behavior is consistent with an entry-deterrence strategy that relies on more detailed, verifiable, and credible information aimed at convincing potential rivals that entering the market is not profitable. Specifically, firms make greater use of numerical, specific, and factual-based language when entry costs are lower, as well as after import tariff rate reductions that exogenously increase entry threat. Evidence suggests that this disclosure strategy can effectively deter subsequent entry.
Click here to see how I used Machine Learning in my Job Market Paper! 
“The Sound of Uncertainty: Examining Managerial Acoustic Uncertainty in Conference Calls”
with John Gallemore
Abstract: Building on the literature in linguistics showing that the manner in which individuals speak provides context incremental to the actual spoken words, we study whether uncertainty expressed via the acoustic features of managerial speech in conference calls impacts analyst behavior. Using a novel measure of managerial acoustic uncertainty, we find that when managers sound more uncertain in their responses to analyst questions, analyst forecast dispersion increases, even after accounting for characteristics of the actual language being used by managers and analysts. This finding is consistent with analysts relying less on information conveyed via acoustically uncertain responses, and thus more on information idiosyncratic to the analyst. Furthermore, we find that the association between acoustic uncertainty and analyst forecast dispersion varies predictably with the characteristics of these manager-analyst interactions, such as the specificity and forward-looking nature of the manager’s response. Finally, we find that managerial acoustic uncertainty is positively associated with bid-ask spreads, and that this is concentrated within firms with greater increases in post-conference call forecast dispersion. Our findings suggest that uncertainty expressed in the acoustic features of managerial speech can affect market participants. Furthermore, our study creates and validates an approach to measuring managerial acoustic uncertainty.
“Protecting Forward Looking Statements”
with Maclean Gaulin and K. Ramesh
Abstract: We examine the increasingly prevalent managerial disclosure practice of listing specific keywords in SEC filings to identify forward-looking statements for obtaining “safe harbor” protection under the Private Securities Litigation Reform Act. We show that proxies for ex ante litigation risk, network/herding effects, disclosure supply, and economic uncertainty are strongly associated with the decision to include the keyword list and the number of keywords. Responding to transient economic circumstances, firms periodically change the number of keywords to customize their forward-looking disclosures. Using factor analysis we unravel the specific linguistic attributes implied by the keywords and show how they enable firms to tailor their disclosure of quantitative and qualitative forward-looking information. Finally, managers facing higher litigation risk find it imperative to protect disclosures that capital markets view as value relevant. Overall, the decision to include the list and the choice of the keywords it contains are neither boilerplate nor ad hoc. Together, our evidence provides an important first look at the determinants of firms’ decisions regarding a central feature of forward-looking disclosures’ “safe harbor” protection.