Reuven Lehavy’s research while affiliated with University of Michigan and other places

This study examines the properties of innovation disclosures contained in new product announcements, a form of voluntary, nonfinancial disclosure. We analyze these properties using a novel, text-based measure of the extent of product innovation disclosed in new product announcements. We find that stock prices react more positively to announcements with more extensive innovation disclosure. In our main analyses, we first find that a higher level of innovation disclosure predicts a greater increase in future sales. We further find that this predictive ability falls when managers have stronger incentives to maximize their wealth and when the corporate governance structure and customers’ bargaining power weaken. Our research enhances the understanding of the properties of managerial voluntary, nonfinancial disclosures and contributes a text-based measure of innovation that captures managerial assessment of the extent of product innovation. This new measure is more generalizable and incrementally informative for firm value and future performance than conventional innovation measures that depend on the existence of patents or research and development expenses.

We examine the effect of managerial expectations on asymmetric cost behavior in the context of resource adjustment costs and unused resource constraints. Our results show that the incremental impact of managerial expectations on cost asymmetry is the strongest when adjustment costs and unused resources are high. Conversely, when both are low, expectations have no impact on the degree of cost asymmetry. Furthermore, when the degree of unused resources is high, managerial pessimism is associated with anti-sticky cost behavior but managerial optimism reverses this relation and results in cost stickiness. Finally, we find the strongest cost stickiness under the following: a low degree of unused resources, a high magnitude of adjustment costs, and optimistic managerial expectations; by contrast, the strongest cost anti-stickiness occurs when all three drivers operate in the opposite direction. Our study suggests that additional economic determinants should be considered when assessing the impact of managerial expectations on cost behavior.

We examine the suitability of using overnight returns to measure firm-specific investor sentiment by analyzing whether they possess characteristics expected of a sentiment measure. We document short-term overnight-return persistence, consistent with existing evidence of short-term persistence in the share demand of sentiment-influenced investors. We find that short-term persistence is stronger for harder-to-value firms, consistent with existing evidence that sentiment plays a larger role for such firms. We show that stocks with high (low) overnight returns underperform (outperform) over the longer term, consistent with prior evidence of temporary sentiment-driven mispricing. Overall, our evidence supports using overnight returns to measure firm-specific sentiment.

This study examines analyst information intermediary roles using a textual analysis of analyst reports and corporate disclosures. We employ a topic modeling methodology from computational linguistic research to compare the thematic content of a large sample of analyst reports issued promptly after earnings conference calls with the content of the calls themselves. We show that analysts discuss exclusive topics beyond those from conference calls and interpret topics from conference calls. In addition, we find that investors place a greater value on new information in analyst reports when managers face greater incentives to withhold value-relevant information. Analyst interpretation is particularly valuable when the processing costs of conference call information increase. Finally, we document that investors react to analyst report content that simply confirms managers’ conference call discussions. Overall, our study shows that analysts play the information intermediary roles by discovering information beyond corporate disclosures and by clarifying and confirming corporate disclosures. The Internet appendix is available at https://doi.org/10.1287/mnsc.2017.2751 . This paper was accepted by Suraj Srinivasan, accounting.

The documentation of asymmetric cost behavior in response to changes in demand has attracted much scholarly attention over the past decade. Most studies propose that this cost asymmetry is due to the influence of management expectations on their deliberate resource allocation decisions. This study examines empirically the effect of management expectations on cost asymmetry, and, principally, the tension between these expectation-based decisions and constrains imposed on these decisions by two economic drivers of the cost asymmetry — the availability of initial slack resources and adjustment costs. Using the tone in the forward-looking statements (FLS) of a sample of 10-K reports as a measure of management expectations, we document a positive and significant relation between the favorableness of management FLS tone and the degree of cost stickiness. Furthermore, we demonstrate that managers’ expectation-driven decisions can reverse the previously documented anti-sticky cost behavior imposed by high slack resources. Notably, we find the impact of management expectations on the degree of cost asymmetry is strongest when both the initial amount of slack resources and the magnitude of the adjustment costs are high. Conversely, when both the magnitude of the adjustment costs and the initial amount of slack resource are low, management expectations have no impact on the degree of cost asymmetry. Our combined evidence supports the theoretical explanation in the literature that management expectations influence their resource allocation decisions, and indicates that other economic determinants may need to be considered when assessing the impact of these decisions on a firm’s cost structure.

In this study, we employ an advanced topic modeling methodology from computational linguistic research to compare and contrast the thematic content of a large sample of analyst reports to that of conference calls. This methodology allows us to explicitly identify and empirically quantify the amount of information analysts discover and interpret in their reports, without referencing to the equity market reaction. Consistent with information discovery, we document that analyst reports issued promptly after conference calls contain a significant amount of discussion on exclusive topics that were not referred to in the conference calls. Moreover, when analysts do discuss the topics covered in the conference call, they frequently use a different vocabulary from that used by managers, consistent with their information interpretation role. Cross-sectionally, we document evidence that analysts respond to investor demand for their services by playing a greater information discovery role when firms’ proprietary cost is high and providing more interpretation when the processing cost of the information in conference calls is high. Finally, we show that investors value both the information interpretation and the information discovery roles played by analysts.