Professor Zhu’s primary research interest is empirical financial accounting. The underlying theme of her work is that costly information acquisition has economic consequences. Her research studies different elements of the feedback loop between investors’ information acquisition costs, stock price efficiency, and managers’ incentives and actions.
Professor Zhu received her Ph.D. in Business Administration (Accounting) from Stanford University and a B.A. in Economics and B.S. in Mathematics from Stanford University. Prior to pursuing her Ph.D. degree, she was an investment banking analyst at Perella Weinberg Partners.
Abstract: Mutual funds hold 32% of the U.S. equity market and comprise 58% of retirement savings, yet retail investors consistently make poor choices when selecting funds. Theory suggests that poor choices are partially due to mutual fund managers creating unnecessarily complex disclosures and fee structures to keep investors uninformed and to obfuscate poor performance. An empirical challenge in investigating this “strategic obfuscation” theory is isolating manipulated complexity from complexity arising from inherent differences across funds. We examine obfuscation among S&P 500 index funds, which have largely the same regulations, risks, and gross returns but can charge widely different fees. Using bespoke measures of complexity designed for mutual funds, we find evidence consistent with funds attempting to obfuscate high fees. This study improves our understanding of why investors make poor mutual fund choices, and of how price dispersion persists among homogeneous index funds. We also discuss insights for mutual fund regulation and the academic literature on corporate disclosures.
Abstract: We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination. We find AMFs are drawn to, and participate disproportionately more in, earnings announcements (EAs) that include bundled managerial guidance. When the two pieces of news are directionally inconsistent, AMFs trade in the direction of future guidance rather than current earnings. AMFs exhibit an ability to discern, and adapt their trading to, the bias in bundled guidance. While AMF trades at EAs are generally more profitable than their non-EA trades, this result reverses when guidance bias is extreme. Overall, we find increased AMF trading during EAs leads to faster price adjustment. Collectively, these findings suggest AMFs are sophisticated processors of bundled earnings news, and their trading generally improves market price discovery.
David F. Larcker, Charles McClure, Christina Zhu (Working), Peer-Group Choice, Chief Executive Officer Compensation, and Firm Performance.
Abstract: We examine the selection of peer groups that boards of directors use when setting CEO compensation. The challenge is to ascertain whether peer groups are selected to (i) attract and retain executive talent and/or (ii) enable rent extraction by inappropriately increasing compensation. We find that the inferences in prior research are based on questionable methodological choices and do not generalize with an expanded sample. After addressing these concerns, we find that, on average, excess peer compensation has a negative association with future firm operating performance. However, significant variation in CEO talent and corporate governance exists within the cross-section of firms. The negative association between excess peer compensation and future performance is mitigated when the firm has a high level of CEO talent, and exacerbated when the firm has low-quality corporate governance. Thus, the economic consequences of peer-group choice are highly contextual. In general, we find that talent motivations explain more of the variation in the future performance implications of peer-group choice than corporate governance.
Abstract: While the shareholder benefits of investor conferences are well-documented, evidence on whether these conferences facilitate managerial opportunism is scarce. In this paper, we examine whether managers opportunistically exploit heightened attention around the conference to "hype" the stock. Consistent with hype, we find that managers increase the quantity of voluntary disclosure over the ten days prior to the conference, and that these disclosures increase prices to a greater extent than post-conference disclosures. Investigating managers’ incentives for pre-conference disclosure, we find that the increase in pre-conference disclosure is more pronounced when insiders sell their shares immediately prior to the conference. In those circumstances where pre-conference disclosures coincide with pre-conference insider selling, we find evidence of a significant return reversal: large positive returns before the conference, and large negative returns after the conference. Collectively, our findings are consistent with some managers hyping the stock prior to the conference and selling their shares at inflated prices.
Alan Kwan and Christina Zhu (Working), Does Context Matter? Evidence from Internet Research Activity by Sophisticated Investors.
Abstract: Using a unique dataset of internet research on business media sites matched to the identities of investors, we argue that broadly available media content can help sophisticated investors generate private information. Prior work finds that adverse selection increases at earnings announcements because some traders make superior assessments of firm value based on the disclosure. We find a positive relation between sophisticated investors’ pre-earnings announcement gathering of industry-relevant, “contextual” information and illiquidity at the time of the announcement, suggesting this specific source of public information provides some investors with a comparative advantage in interpreting earnings announcements.
Abstract: This study empirically investigates two effects of alternative data availability: stock price informativeness and its disciplining effect on managers’ actions. Recent computing advancements have enabled technology companies to collect real-time, granular indicators of fundamentals to sell to investment professionals. These data include consumer transactions and satellite images. The introduction of these data increases price informativeness through decreased information acquisition costs, particularly in firms in which sophisticated investors have higher incentives to uncover information. I document two effects on managers. First, managers reduce their opportunistic trading. Second, investment efficiency increases, consistent with price informativeness improving managers’ incentives to invest and divest efficiently.
Elizabeth Blankespoor, Ed deHaan, John Wertz, Christina Zhu (2019), Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs, Journal of Accounting Research, 57 (1), pp. 53-84. 10.1111/1475-679X.12248
Abstract: Individual investors often neglect value-relevant accounting information and instead underperform by trading on technical trends. We investigate the frictions that impede individual investors’ use of accounting information, and in particular their costs of monitoring and acquiring accounting disclosures. We do so using an archival setting where individuals are presented with automated media articles that report both current earnings news and past stock returns. Although these investors have earnings information readily available, we find no evidence that their trades incorporate earnings news. Instead we find that they trade in response to the trailing stock returns presented in the articles. Our study raises questions about the likely efficacy of regulations that aim to aid less sophisticated investors by increasing their awareness of, and access to, accounting information.
Elizabeth Blankespoor, Ed deHaan, Christina Zhu (2018), Capital Market Effects of Media Synthesis and Dissemination: Evidence from Robo-Journalism, Review of Accounting Studies, 23 (1), pp. 1-36. 10.1007/S11142-017-9422-2
Abstract: In 2014, the Associated Press (AP) began using algorithms to write articles about firms’ earnings announcements. These Brobo-journalism^ articles synthesize information from firms’ press releases, analyst reports, and stock performance and are widely disseminated by major news outlets a few hours after the earnings release. The articles are available for thousands of firms on a quarterly basis, many of which previously received little or no media attention. We use AP’s staggered implementation of robo-journalism to examine the effects of media synthesis and dissemination, in a setting where the articles are devoid of private information and are largely exogenous to the firm’s earnings news and disclosure choices. We find compelling evidence that automated articles increase firms’trading volume and liquidity. The effects are most likely driven by retail traders.We find no evidence that the articles improve or impede the speed of price discovery. Our study provides novel evidence on the impact of pure synthesis and dissemination of public information in capital markets and initial insights into the implications of automated journalism for market efficiency.
This course is an introduction to the basic concepts and standards underlying financial accounting systems. Several important concepts will be studied in detail, including: revenue recognition, inventory, long-lived assets, present value, and long term liabilities. The course emphasizes the construction of the basic financial accounting statements - the income statement, balance sheet, and cash flow statement - as well as their interpretation.
Please see Github repository: https://github.com/czhuuu/retail-trade.git.
Adjusted Intraperiod Timeliness (Adjusted IPT): a measure of speed of price discovery that penalizes for inefficient overreaction.
Please see Github repository: https://github.com/czhuuu/Adjusted-IPT.git.
The simpler Adjusted IPT file contains a SAS macro to calculate the simpler Adjusted IPT measure, as implemented in “Capital Market Effects of Media Synthesis and Dissemination: Evidence from Robo-Journalism,” assumes that the daily return accumulation is immediately at open, while the more complex Adjusted IPT measure assumes even return accumulation over a given day. The Adjusted IPT file contains a SAS macro to calculate IPT (without the adjustment) and (the more complex) Adjusted IPT. For more details on the two different assumptions, please see the Internet Appendix.