Research Interests: retail investors, disclosure versus recognition, mandatory disclosure, voluntary disclosure
Jeremy Michels’ research focuses on how disclosures are used by market participants. Specifically, his work examines how characteristics of a disclosure, such as verifiability, affect how market participants use the disclosure. His work also explores how different types of investors–such as retail investors–use accounting disclosures differently. Jeremy Michels performed his doctoral studies at the University of Colorado Boulder. He holds his CPA license (inactive) in Minnesota and worked as a senior consultant at Protiviti prior to returning to academia to pursue his Ph.D.
Abstract: New technologies have reduced trading costs for retail investors. In this paper, I examine how the corresponding surge in retail investor trade, measured using the number of Robinhood users holding a firm’s shares, is associated with the pricing of earnings. I do not find evidence of informed trade among these investors, as increased holdings pre-earnings announcement predict more negative earnings news. At the earnings announcement, I find that retail investors increase holdings in response to both more positive and more negative earnings news, consistent with attention-driven trade. This manifests in a more pronounced overall market response per unit of earnings surprise, a result driven by positive earnings surprises. Finally, in smaller firms and firms that are costly to sell short, and for both the most positive and negative earnings surprises, returns drift upward following the earnings announcement when retail trade is high.
Abstract: We examine how a specific external and uncontrollable factor—the day’s weather— influences subjective performance evaluations. We use an experiment to test if weather introduces a directional bias to subjective evaluations and if weather interacts with a decision bias documented by prior literature: spillover from performance on an objective measure to the subjective evaluation of an unrelated performance dimension. In contrast to conventional wisdom, we find no evidence that sunny weather results in more positive evaluations. However, we find evidence that cloudy weather mitigates spillover effects in subjective evaluations. Specifically, we find that spillover effects are significantly less pronounced on cloudy days vis-à-vis sunny days in geographic locations where the weather is more likely to influence evaluators. Moreover, we find that, at least in our study, sunshine is a necessary condition for the spillover effect first documented by Bol and Smith (2011). We examine and rule out various channels through which weather may affect the spillover effect, concluding that our results are most likely attributable to cloudy weather inducing a more detailed and systematic cognitive processing style.
Jeremy Michels, Stephen Glaeser, Robert E. Verrecchia (2020), Discretionary Disclosure and Manager Horizon: Evidence from Patenting, Review of Accounting Studies, 25, pp. 597-635. 10.1007/s11142-019-09520-0
Abstract: We examine the relation between manager horizon and discretionary disclosure, using patenting as a measure of disclosure. Patenting reflects, in part, a manager’s decision to disclose the successful outcome of research and development (R&D). When a firm invests in R&D but does not patent, investors are unsure whether this reflects a failed R&D project or the manager choosing not to patent. We suggest that investors’ beliefs about a manager’s horizon—whether the manager seeks to maximize short-term stock price or long-term profits—moderates their reactions. When investors believe a manager’s horizon is short, they expect the manager to disclose successful outcomes and therefore discount nondisclosure more. We predict that managers will patent more per dollar of R&D spending when their horizons are short and that investors will discount the value of nondisclosing firms more when they believe the manager’s horizon is short. We find evidence consistent with these predictions.
Brian Bushee, Matthew Cedergren, Jeremy Michels (2020), Does the Media Help or Hurt Retail Investors during the IPO Quiet Period?, Journal of Accounting and Economics, 69 (1). 10.1016/j.jacceco.2019.101261
Abstract: We examine how the media influences retail trade and market returns during the “quiet period” that follows a firm’s IPO. We find that more media coverage during this period is associated with more purchases by retail investors and that such purchases are attention-driven, rather than information-based. Further, these retail trades are negatively associated with stock returns at the firm’s first earnings announcement post-IPO. Our results suggest that media coverage, combined with market frictions that limit price efficiency in the post-IPO period, leads to worse investing outcomes for retail investors.
Christopher D. Ittner and Jeremy Michels (2017), Risk-Based Forecasting and Planning and Management Earnings Forecasts, Review of Accounting Studies, 11 (3), pp. 1005-1047. 10.1007/s11142-017-9396-0
Abstract: This study examines the association between a firm’s internal information environment and the accuracy of its externally-disclosed management earnings forecasts. Internally, firms use forecasts to plan for uncertain futures. The risk management literature argues that integrating risk-related information into forecasts and plans can improve a firm’s ability to forecast future financial outcomes. We investigate whether this internal information manifests itself in the accuracy of external earnings guidance. Using detailed survey data and publicly-disclosed management earnings forecasts from a sample of publicly-traded U.S. companies, we find that more sophisticated risk-based forecasting and planning processes are associated with smaller earnings forecast errors and narrower forecast widths. These associations hold across a variety of different planning horizons (ranging from annual budgeting to long-term strategic planning), providing empirical support for the theoretical link between internal information quality and the quality of external disclosures.
Jeremy Michels (2017), Disclosure versus Recognition: Inferences from Subsequent Events, Journal of Accounting Research, 55 (1), pp. 3-34. 10.1111/1475-679X.12128
Abstract: Standard setters explicitly state that disclosure should not substitute for recognition in financial reports. Consistent with this directive, prior research shows that investors find recognized values more pertinent than disclosed values. However, it remains unclear whether reporting items are recognized because they are more relevant for investing decisions, or whether requiring recognition itself prompts differing behavior on the part of firms and investors. Using the setting of subsequent events, I identify the differential effect of requiring disclosure versus recognition in a setting where the accounting treatment of an item is exogenously determined. For comparable events, I find a stronger initial market response for firms required to recognize relative to firms that must disclose, although the large magnitude of the identified effect calls into question whether this difference can be attributed to accounting treatments alone. In examining various reasons for the stronger market response to recognized values, I fail to find support for the hypothesis that this difference is due to differential reliability of disclosed and recognized values. I do find some evidence that investors underreact to disclosed events, consistent with investors incurring higher processing costs when using disclosed information.
Jeremy Michels and Stella Park (Working), Is Disclosure Priced Ex Ante?.
Abstract: A large literature examines the relation between a firm’s disclosure policy and its required return. However, this prior work typically takes an ex post perspective, examining how disclosure affects a firm’s required return after the disclosure is made. Thus, it does not examine the possibility that the anticipation of the disclosure increases risk in the period leading up to the disclosure, potentially offsetting the decrease in risk the disclosure sets in motion. This paper thus addresses a gap in the literature by examining how a firm’s disclosure policy relates to risk both at the time of the disclosure and over longer horizons. Findings indicate that firms with more informative disclosure policies experience a greater increase in risk at the time of the disclosure, but that these firms have lower required returns overall. In sum, our evidence supports the notion that investors price disclosure ex ante.
Jeremy Michels (2012), Do Unverifiable Disclosures Matter? Evidence from Peer-to-Peer Lending, The Accounting Review, 87 (4), pp. 1385-1413. 10.2308/accr-50159
Abstract: The role of disclosure in attenuating market inefficiencies has been the subject of extensive research. While costless, voluntary, and unverifiable disclosures are unlikely to be credible sources of information, prior research demonstrates that individuals' decisions can be influenced by uninformative content. I use a unique dataset from a peer-to-peer lending website, Prosper.com, to demonstrate an economically large effect of voluntary, unverifiable disclosures in reducing the cost of debt. My results show an additional unverifiable disclosure is associated with a 1.27 percentage point reduction in interest rate and an 8 percent increase in bidding activity.
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 course provides an introduction to both financial and managerial accounting, and emphasizes the analysis and evaluation of accounting information as part of the managerial processes of planning, decision-making, and control. A large aspect of the course covers the fundamentals of financial accounting. The objective is to provide a basic overview of financial accounting, including basic accounting concepts and principles, as well as the structure of the income statement, balance sheet, and statement of cash flows. The course also introduces elements of managerial accounting and emphasizes the development and use of accounting information for internal decisions. Topics include cost behavior and analysis, product and service costing, and relevant costs for internal decision-making. This course is recommended for students who will be using accounting information for managing manufacturing and service operations, controlling costs, and making strategic decisions, as well as those going into general consulting or thinking of starting their own businesses.
This is Part III 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.
Small investors are reacting to both positive and negative earnings surprises by lifting stock prices, a Wharton study of Robinhood trades reveals.…Read MoreKnowledge at Wharton - 7/13/2021