Showing papers by "Mark H. Lang published in 1998"

Corporate Disclosure Policy and Analyst Behavior

Abstract: This paper examines the relation between the disclosure practices of firms, the number of analysts following each firm, and properties of the analysts' earnings forecasts. Using data from the Financial Analysts Federation Corporate Information Committee Report (FAF Report), we provide evidence that firms with more informative disclosure policies have a larger analyst following, more accurate analyst earnings forecasts, less dispersion among individual analyst forecasts and less volatility in forecast revisions. The results enhance our understanding of the role of analysts in capital markets. Further, they suggest that potential benefits to disclosure include increased investor following, reduced estimation risk and reduced information asymmetry, each of which have been shown to reduce a firm's cost of capital in theoretical research.

Cross-Jurisdictional Income Shifting and Earnings Valuation

Abstract: This research investigates the extent to which U.S. multinational enterprises (MNEs) engage in tax-motivated income shifting between the U.S. and foreign jurisdictions and whether investors differentially capitalize shifted income, based on its true source or its reported source. We find evidence that U.S. MNEs facing foreign tax rates that on average exceed the U.S. statutory tax rate shift taxable income into the United States, and that investors recognize firms' income-shifting patterns when valuing the foreign versus domestic components of reported earnings. We examine U.S. multinational manufacturing companies from 1984 to 1992 to determine the cross-sectional relation between firm-level foreign profit margins and average foreign tax rates. If U.S. MNEs respond to high (low) foreign tax rates by shifting income into (out of) the United States, then ceteris paribus we expect a negative relation between foreign profit margins and average foreign tax rates. In addition,

Employee Stock Option Exercises: An Empirical Analysis

Abstract: This paper describes the exercise behavior of over 50,000 employees who hold long term options on employer stock at eight corporations. Exercise is strongly associated with recent stock price movements, the market-to-strike ratio, proximity to vesting dates, time to maturity, and volatility. Much of the exercise activity occurs years before the options expire. Employees commonly sacrifice half of the Black-Scholes value by exercising before expiration. The employee's level within the company explains, in part, differences in behavior. These findings have implications for the FASB as it develops a new disclosure standard for stock compensation.

Psychological Factors and Stock Option Exercise

Abstract: We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors in*uence exer- cise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends|exercise is positively related to stock returns during the pre- ceding month and negatively related to returns over longer horizons. Consistent with psychological models of values that include reference points, employee exercise activity roughly doubles when the stock price exceeds the maximum price attained during the previous year.

The Relation Between Security Returns, Firm Earnings and Industry Earnings

Abstract: In this paper we examine the relation between a firm's stock return and the earnings of other firms in the same industry, controlling for the firm's own earnings. We present a model in which the sign of this relation depends on the relative uncertainty there is about the size of the total industry value versus the division of that value between firms. We document considerable cross-industry variation in the relation between a firm's return and other firms' earnings, and demonstrate empirically that the sign of the relation depends on information provided prior to the industry earnings announcement period.