Analyst Forecasts, Managerial Learning, and Corporate Investment

Analyst Monitoring and Managerial Incentives

In this paper, we investigate whether an increase in analyst monitoring, which improves the informational efficiency of stock prices, necessarily translates into firms’ managers taking more value-enhancing decisions (“real efficiency”). We show that when the manager’s compensation is tied to stock prices, then an increase in analyst monitoring weakens managerial incentives by making the firm’s ...

Corporate financing decisions, managerial market timing, and real investment

Both market timing and investment-based theories of corporate financing predict underperformance after firms raise capital, but only market timing predicts that the composition of financing (equity compared to debt) should also forecast returns. In cross-sectional tests, we find that the amount of net financing is more important than its composition in explaining future stock returns. In the ti...

Relative valuation and analyst target price forecasts

We document that within industry relative valuations implicit in analyst target prices do provide investors with valuable information although the implied absolute valuations themselves are much less informative. Importantly, our findings are not merely a small stock phenomenon but apply to the sample of S&P 500 stocks and do not rely on trading at the exact time of announcement. Using a large ...

Managerial Optimism and Corporate Finance

Managerial Optimism and Investment Choice

This paper analyzes whether it might be desir~ble for a firm to hire an overoptimistic manager to commit to a certain R&D strategy. I consider a Cournot model with an ex-ante R&D stage where firms can invest in cost reduction before product market competition takes place. I show that firms want to hire overoptimistic managers and argue that a manager's type may serve as a substitute for strateg...