[academic salon] issue 18: (1)Which corporate social deeds matter? Evidence from the motivated institutional ownership;(2)Competing for Attention: Earnings Management for Record EPS

Time: 15:00 on Wednesday, December 19, 2018

Location: B401 Newhuadu Business School

Sharing guest1: Dr. Sun bingwen

Subject: Which corporate social deeds matter? Evidence from the motivated institutional ownership

Abstract: Among the 41 items from five corporate social responsibility dimensions: community, diversity, employee relations, environment, and human rights, we examine which corporate social deeds influence institutional investors’ motivated equity ownership most in the U.S. We find that enforcing gay-friendly policies significantly increases the motivated institutional ownership while fairly treating the unionized workforce reduces the motivated institutional ownership after we take the endogeneity issue into consideration. Our further analysis suggests that firms’ innovative activities may contribute to this result. In addition, our finding suggests that independent institutional investors avoid corporate social deeds decreasing a firm’s profitability more than grey institutional investors. Furthermore, we find that failing to protect the environment and having bad relations with indigenous peoples attract more diversified and short-term institutions than dedicated and long-term institutions. Finally, stocks with a higher CSR-determined motivated institutional ownership earn a positive risk-adjusted return of 0.21% per month, suggesting that firms can adjust their corporate social deeds to attract more motivated institutional ownership and increase the demand for their stocks. Collectively, our evidence suggests that economic considerations outweigh social values in driving institutional investors’ preferences for corporate social responsibility activities.

Sharing guest2: Dr. Liu rongbing

Subject: Competing for Attention: Earnings Management for Record EPS

Abstract: Investors exposed to tremendous amount of financial information tend to underreact to new information due to human cognitive constraints. Managers have strong incentivesto attract investor attention when they have positive news to announce. This paper studies whether managers strategically apply earnings management in the competition for investor attention. With a large sample of U.S. firms over the period 2003-2015, I find that discretionary accruals are significantly higher for record-high EPS quarters suggesting that managers intentionally manipulate earnings upward to create record EPS. Such earnings management is significantly higher for less visible firms which have a stronger desire for market attention. Such earnings management is also monitored and mitigated by non-transient institutional investors. Further evidence shows that investors are indeed more sensitive to high record EPS which indicates that managers? earnings management for record EPS is effective in attracting investor attention.