Since 2001, the number of financial statement line items forecasted by analysts and managers that I/B/E/S and FactSet capture in their data feeds has soared. Using this new data, we find that 13 item surprises—11 income statement and 2 cash flow statement analyst and management guidance surprises—reliably explain firms’ signed earnings announcement returns.
We examine how abnormal dark market share changes at earnings announcements and find a statistically and economically significant increase in abnormal dark market share in the weeks prior to, during, and following the earnings announcement.
In a series of influential studies, McKinsey (2015, 2018, 2020) report a statistically significant positive relation between the industry-adjusted EBIT margin of global samples of large public firms and the racial/ethnic diversity of their executives. However, when we revisit McKinsey’s tests using recent data for US S&P 500® firms, we find statistically insignificant relations between McKinsey’s inverse normalized Herfindahl-Hirschman measures of executive racial/ethnic diversity and not only industry-adjusted EBIT margin, but also industry-adjusted sales growth, gross margin, ROA, ROE, and TSR. Our results suggest that despite the imprimatur often given to McKinsey’s (2015, 2018, 2020) studies, caution is warranted in relying on their findings to support the view that US publicly traded firms can deliver improved financial performance if they increase the racial/ethnic diversity of their executives.
We evaluate sell-side equity analysts’ multiyear forecasted income statements, balance sheets and cash flow statements, and the profitability, efficiency and leverage ratios that they imply.
Despite the central role played by human capital in entrepreneurship, little is known about how employees in entrepreneurial firms are compensated and incentivized. We address this gap in the literature by studying 18,935 non-CEO compensation contracts across 1,809 privately held venture-backed companies.
We measure and calibrate the racial/ethnic densities (RAEDs) of executives in US public companies. We show that the magnitudes of underrepresentation for Blacks and Hispanics and overrepresentation for Whites are 10+ times larger when executive RAEDS are calibrated against the US population than when calibrated against an economic benchmark that reflects the demand for and supply of proto-executive talent. We conclude that at least 90% of the underrepresentation of Black and Hispanic executives in US public companies comes from factors in effect before US public companies hire proto-executive talent rather than actions taken by companies after such talent is hired.
We investigate the number of and reasons for errors and questionable judgments that sell-side equity analysts make in constructing and executing discounted cash flow (DCF) equity valuation models. For a sample of 120 DCF models detailed in reports issued by U.S. brokers in 2012 and 2013, we estimate that analysts make a median of three theory-related and/or execution errors and four questionable economic judgments per DCF.