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.
Brian Bushee, Daniel Taylor, Christina Zhu (Forthcoming), The Dark Side of Investor Conferences: Evidence of Managerial Opportunism, The Accounting Review. 10.2308/TAR-2020-0624
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. We find that managers increase the quantity of voluntary disclosure leading up to the conference; that these disclosures are more positive in tone and increase prices to a greater extent than post-conference disclosures; and that these disclosures are more pronounced when insiders sell their shares immediately prior to the conference. In 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––and that the firm is more likely to be named in a securities class action lawsuit. Collectively, our findings are consistent with some managers hyping the stock prior to the conference.
Abstract: This study tests whether disclosing a trader's identity dampens or stimulates subsequent trading volume based on the trader's reputation for being informed. Reputation signals the quality of private information that exists in the market. While a reputation for being informed makes markets less liquid, thus inhibiting subsequent trade (“illiquidity effect”), the information others glean from informed trade might motivate subsequent trade (“information effect”). To study which of these countervailing forces dominates, we use a setting where mandated short-position disclosures in Europe reveal the trader's identity at the time of trade. Changes in bid-ask spreads, price adjustments, and changes in subsequent trading volume are positively associated with several proxies for the short seller's reputation: the short seller is local, has higher returns from previous short sales, and is a hedge fund or investment adviser. Despite the positive association between reputation and illiquidity, we show that reputation motivates more subsequent trade from other investors learning from the disclosure. The informational efficiency of prices also increases with trader reputation. Thus, our results support the notion that the “information effect” dominates the “illiquidity effect.” Our study contributes to the literature by investigating the interaction among investor identification, adverse selection, and trade.
Abstract: We find that financial reporting spurs consumer behavior. Using granular GPS data, we find that foot-traffic to firms’ commerce locations significantly increases in the days following their earnings announcements. Foot-traffic increases more for announcements with extreme earnings surprises, that correspond to firms’ fiscal year-ends, that occur outside of Fridays, and that elicit greater internet search volume, consistent with earnings announcements spurring consumer behavior by garnering attention. Foot-traffic also rises with positive earnings surprises among firms selling durable goods, consistent with consumers responding to information about longevity conveyed by some firms’ earnings news. Using demographic information, we find financial reporting disproportionately affects foot-traffic in populations more likely to consume financial news. Collectively, these results suggest that earnings announcements serve a marketing function by drawing attention to and providing information about firms, and that a byproduct of the financial reporting process is that it shapes consumer behavior.
Abstract: We examine the economic consequences of a rule designed to improve consumers' understanding of mortgage information. The 2015 TILA-RESPA Integrated Disclosures (TRID) rule simplifies the disclosures provided to consumers, reducing their information processing costs and increasing lenders' compliance-related frictions. We posit that TRID-affected mortgages become less attractive to lenders as an investment opportunity. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule's effective date. We document evidence consistent with both a decrease in consumers' information costs and an increase in compliance-related frictions faced by lenders, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending. Additional analyses suggest positive consequences for some consumers and negative consequences for others. Our study provides a better understanding of the broader economic consequences of transparency regulation for both the regulated firms and consumers, and provides a complementary perspective to the literature examining bank-level transparency in lending markets.
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.
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 poor choices are partially due to fund managers creating unnecessarily complex disclosures and fee structures to keep investors uninformed and 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 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 how price dispersion persists among homogeneous index funds. We also discuss insights for mutual fund regulation and academic literature on corporate disclosures.
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.
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.
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.
This is Part IV of a theoretical and empirical literature survey sequence covering topics that include corporate disclosure, cost of capital, incentives, compensation, governance, financial intermediation, financial reporting, tax, agency theory, cost accounting, capital structure, international financial reporting, analysts, and market efficiency. Please contact the accounting doctoral coordinator for information on the specific upcoming modules/topics that will be taught.
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 Blankespoor, deHaan, and Zhu (2018), 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.
Recent Wharton research finds evidence of company insiders timing voluntary disclosures ahead of corporate events, profiting off heightened visibility.…Read MoreKnowledge at Wharton - 11/15/2022