In this paper I show that the bond price reaction to earnings announcements has predictive power for post-announcement stock returns and that it is incremental to previously documented accounting-related anomalies. I find that bonds' predictive ability is driven by non-investment grade bonds, for which earnings releases provide more value-relevant information. It is also stronger in firms with a lower proportion of institutional shareholders and for bonds whose trading is more heavily dominated by sophisticated investors. This suggests that the greater level of investor sophistication in the bond market relative to the stock market is what gives bond returns the ability to predict future stock returns. By demonstrating that a firm's bond price reaction to an earnings announcement can predict future stock returns, this paper adds to the literature which documents that various earnings components also have predictive ability for post-announcement stock returns.

I investigate whether managers obtain and exploit private information about who is buying and selling their firm’s securities. To do so, I examine insider trading prior to activist investors’ disclosure of Schedule 13Ds. Schedule 13Ds are required when investors have acquired more than 5% of a firm’s shares, and they cause a significant price jump of approximately 6% upon disclosure. I find that insider purchases (sales) are abnormally high (low) in the days prior to the disclosure of Schedule 13Ds. Cross-sectionally, pre-disclosure insider purchases are higher when activist investors make larger trades, since they are more likely to be detected by insiders. Furthermore, the stock market fails to recognize that insiders trade ahead of the Schedule13D filings, reflected by the fact that pre-disclosure insider trading does not facilitate price discovery in the underlying firms. Finally, I show that pre-disclosure insider trading is predictive of the firm’s future stock and operating performance, consistent with managers exploiting private information when they expect it to generate greater profits. Taken together, my results show that managers obtain private information concerning their firm’s investor base and exploit it for personal gain.

This paper examines the capital market implications of media accessibility. I exploit the staggered adoption of digital paywalls, which charge readers for access to previously free online news content, by major U.S. local newspapers as a negative shock to media accessibility. Focusing specifically on the disclosure dissemination role of the media, I find that after the adoption of digital paywalls, firms that receive persistent earnings announcement media coverage from their local newspaper experience reduced abnormal trading volume, which is driven by a reduction in abnormal retail trading volume. Additionally, these firms experience reduced liquidity, and slower speed of price discovery. These results are driven by low-visibility firms for which local investors, the likely readers of local newspapers, are more likely to be the marginal investor. Using a placebo test, I show it is unlikely the results are driven by an unmodeled factor. While prior literature has extensively documented the capital market effects of earnings announcement media coverage, my findings underscore that the effects of media coverage depend on the accessibility of media content.

Corporate disclosures are important means for managers to communicate firm performance and are essential information sources for investors. This dissertation examines corporate disclosures from two distinct angles: economic determinants and consequences of corporate disclosures. I investigate these two topics separately in Chapters 1 and 2.

In Chapter 1, The Jobs Act Did Not Raise IPO Underpricing, my co-authors and I examine how the amount of pre-IPO disclosures affects IPO pricing. While the intended goal of the 2012 JOBS Act was to ease access to capital for Emerging Growth Companies (EGCs), prior studies, notably Barth et al. (2017), find evidence of an increase in IPO underpricing and a higher cost of equity capital for EGC issuers. Using a difference-in-differences design, we find that changes in overall IPO market conditions explain the seeming increase in IPO underpricing. In fact, EGC issuers that take advantage of the accounting disclosure relief afforded by the Act raise capital at higher pre-IPO multiples. These reduced-accounting disclosure EGCs have more speculative valuation profiles and lower institutional ownership and are more likely to destroy long-term shareholder value in the IPO aftermarket. Overall, this chapter offers an alternative perspective on the effect of the JOBS Act on IPO pricing.

In Chapter 2, I examine whether and how the recognition of operating leases on balance sheets influences managerial leasing decisions. In 2019 the FASB implemented ASC 842, which requires companies to capitalize operating leases. Given prior operating lease disclosure in footnotes, it was unclear if capitalization would affect financial statement users or managers. I find that firms' use of operating leases decreases upon the new standard's adoption and that this decline is driven by lease-intensive and less-levered firms. I also document a systematic substitution of operating leases with short-term and variable leases, both of which can still be left off balance sheet. The latter finding suggests that the FASB has not entirely succeeded in preventing firms from opportunistically omitting liabilities from balance sheets. My study responds directly to the FASB's call for research that examines the new standard's unintended consequences on managerial leasing decisions. Overall, I provide evidence that disclosure location (footnote vs. balance sheet) exerts a real effect on managerial behavior.