Miró Feller | University of Zurich, Switzerland (original) (raw)
Papers by Miró Feller
The Accounting Review
We study a model in which financial reports are used in labor markets to learn about managerial t... more We study a model in which financial reports are used in labor markets to learn about managerial talent. A manager manipulates reports to influence the labor market assessment of his talent. If investors are uncertain about the manager’s incentives, manipulation introduces noise into the report and reduces its usefulness for the capital market. We consider price informativeness and expected reporting bias as measures of capital market efficiency and develop novel empirical predictions. We show that higher uncertainty about the manager’s contribution to firm value can decrease price informativeness and earnings response coefficients. Intuitively, supplemental disclosures about managerial talent can mitigate the detrimental consequences of uncertain labor market incentives. Perhaps surprisingly, we show that the usefulness of such supplemental disclosures may increase in their susceptibility to manipulation.
In line with previous studies, we find that a higher degree of investor sophistication represente... more In line with previous studies, we find that a higher degree of investor sophistication represented by a higher (lower) proportion of informed (limited attention) traders reduces the price response to the accounting report and therefore earnings management incentives. However, a further decline in investor sophistication through a higher fraction of liquidity traders can increase earnings management due to countervailing effects: More liquidity traders in the market imply a lower sensitivity of the aggregate demand for shares to the accounting report and, simultaneously, increase the aggregate valuation risk which reduces the sensitivity of demand to changes of the share price. Since the first effect decreases and the second effect increases earnings management, the overall impact is ambiguous. Contrary to empirical evidence, we show that price efficiency can be increasing in limited attention: An increase in the fraction of limited attention traders decreases both, the covariance between value and price and the variance of the price. Because price efficiency is negatively affected by a lower covariance but positively affected by a lower price volatility, price efficiency is increasing in limited attention if the latter effect dominates the former. Overall, our results suggest that a careful definition of investor sophistication is crucial for empirical research in this field.
ERN: Econometric Studies of Corporate Governance (Topic), 2017
We consider a manager’s decision to bias earnings reports if he faces both financial incentives a... more We consider a manager’s decision to bias earnings reports if he faces both financial incentives and career concerns. Previous theoretical literature extensively studies the effect of financial incentives on earnings management, showing that managers tend to inflate earnings reports if they are compensated for stock price movements. Although career concerns have undoubtedly impact on managerial decision making, there is only scarce theoretical insight into their implications for reporting bias. Our analysis gives new insights on the simultaneous effects of financial and career incentives on reporting bias assuming that earnings provide information on firm value and managerial talent. If the manager’s reporting objectives are unknown, the financial market and labor market incentives are not independent, but have substitutive effects. We identify conditions under which – for given financial incentives – stronger career incentives reduce the average reporting bias. Reporting bias might ...
This study adds to the literature demonstrating the adverse market reaction to acquisitions by ov... more This study adds to the literature demonstrating the adverse market reaction to acquisitions by overconfident CEOs (e.g., . In particular, it explores the parallel role played by overconfident target firm CEOs in explaining the premium paid, and value destruction in such deals, and, most importantly, the "perfect storm" of the interaction between the two overconfident parties. Our results indicate that overconfident CEOs tend to pay a higher premium in acquisitions than their non-overconfident counterparts. However, the premium paid when both acquiring firm and target firm CEOs are overconfident is between 7% to 9% higher than if neither, or only one, side of the deal manifests such behavioral bias. We also show how the adverse market reaction to deals by overconfident acquirers is augmented when target firm CEOs are similarly prone to this judgmental bias.
Drafts by Miró Feller
The Accounting Review, 2024
We study a model in which financial reports are used in labor markets to learn about managerial t... more We study a model in which financial reports are used in labor markets to learn about managerial talent. A manager manipulates reports to influence the labor market assessment of his talent. If investors are uncertain about the manager’s incentives, manipulation introduces noise into the report and reduces its usefulness for the capital market. We consider price informativeness and expected reporting bias as measures of capital market efficiency and develop novel empirical predictions. We show that higher uncertainty about the manager’s contribution to firm value can decrease price informativeness and earnings response coefficients. Intuitively, supplemental disclosures about managerial talent can mitigate the detrimental consequences of uncertain labor market incentives. Perhaps surprisingly, we show that the usefulness of such supplemental disclosures may increase in their susceptibility to manipulation.
The Accounting Review
We study a model in which financial reports are used in labor markets to learn about managerial t... more We study a model in which financial reports are used in labor markets to learn about managerial talent. A manager manipulates reports to influence the labor market assessment of his talent. If investors are uncertain about the manager’s incentives, manipulation introduces noise into the report and reduces its usefulness for the capital market. We consider price informativeness and expected reporting bias as measures of capital market efficiency and develop novel empirical predictions. We show that higher uncertainty about the manager’s contribution to firm value can decrease price informativeness and earnings response coefficients. Intuitively, supplemental disclosures about managerial talent can mitigate the detrimental consequences of uncertain labor market incentives. Perhaps surprisingly, we show that the usefulness of such supplemental disclosures may increase in their susceptibility to manipulation.
In line with previous studies, we find that a higher degree of investor sophistication represente... more In line with previous studies, we find that a higher degree of investor sophistication represented by a higher (lower) proportion of informed (limited attention) traders reduces the price response to the accounting report and therefore earnings management incentives. However, a further decline in investor sophistication through a higher fraction of liquidity traders can increase earnings management due to countervailing effects: More liquidity traders in the market imply a lower sensitivity of the aggregate demand for shares to the accounting report and, simultaneously, increase the aggregate valuation risk which reduces the sensitivity of demand to changes of the share price. Since the first effect decreases and the second effect increases earnings management, the overall impact is ambiguous. Contrary to empirical evidence, we show that price efficiency can be increasing in limited attention: An increase in the fraction of limited attention traders decreases both, the covariance between value and price and the variance of the price. Because price efficiency is negatively affected by a lower covariance but positively affected by a lower price volatility, price efficiency is increasing in limited attention if the latter effect dominates the former. Overall, our results suggest that a careful definition of investor sophistication is crucial for empirical research in this field.
ERN: Econometric Studies of Corporate Governance (Topic), 2017
We consider a manager’s decision to bias earnings reports if he faces both financial incentives a... more We consider a manager’s decision to bias earnings reports if he faces both financial incentives and career concerns. Previous theoretical literature extensively studies the effect of financial incentives on earnings management, showing that managers tend to inflate earnings reports if they are compensated for stock price movements. Although career concerns have undoubtedly impact on managerial decision making, there is only scarce theoretical insight into their implications for reporting bias. Our analysis gives new insights on the simultaneous effects of financial and career incentives on reporting bias assuming that earnings provide information on firm value and managerial talent. If the manager’s reporting objectives are unknown, the financial market and labor market incentives are not independent, but have substitutive effects. We identify conditions under which – for given financial incentives – stronger career incentives reduce the average reporting bias. Reporting bias might ...
This study adds to the literature demonstrating the adverse market reaction to acquisitions by ov... more This study adds to the literature demonstrating the adverse market reaction to acquisitions by overconfident CEOs (e.g., . In particular, it explores the parallel role played by overconfident target firm CEOs in explaining the premium paid, and value destruction in such deals, and, most importantly, the "perfect storm" of the interaction between the two overconfident parties. Our results indicate that overconfident CEOs tend to pay a higher premium in acquisitions than their non-overconfident counterparts. However, the premium paid when both acquiring firm and target firm CEOs are overconfident is between 7% to 9% higher than if neither, or only one, side of the deal manifests such behavioral bias. We also show how the adverse market reaction to deals by overconfident acquirers is augmented when target firm CEOs are similarly prone to this judgmental bias.
The Accounting Review, 2024
We study a model in which financial reports are used in labor markets to learn about managerial t... more We study a model in which financial reports are used in labor markets to learn about managerial talent. A manager manipulates reports to influence the labor market assessment of his talent. If investors are uncertain about the manager’s incentives, manipulation introduces noise into the report and reduces its usefulness for the capital market. We consider price informativeness and expected reporting bias as measures of capital market efficiency and develop novel empirical predictions. We show that higher uncertainty about the manager’s contribution to firm value can decrease price informativeness and earnings response coefficients. Intuitively, supplemental disclosures about managerial talent can mitigate the detrimental consequences of uncertain labor market incentives. Perhaps surprisingly, we show that the usefulness of such supplemental disclosures may increase in their susceptibility to manipulation.