This thesis first examines the determinants of earnings management in an international setting using the Limited Investor Attention Model of Hirshleifer and Teoh (2003). The model predicts that investor attention reduces earnings management. I have four key findings. First, I document that financial analysts curb adjusted absolute abnormal accruals and absolute performance-matched abnormal accruals in global firms. Second, I document that institutional block-holdings curb adjusted absolute abnormal accruals across the world. Third, I document that analyst following is related to more reduction in earnings management in common law countries than in code-law countries. Fourth, I find that institutional block-holders are more effective monitors in common law countries than in code law countries. This thesis also examines the relation between investor attention and stock mispricing of abnormal accruals in an international setting using the Limited Investor Attention Model of Hirshleifer and Teoh (2003). Consistent with the model’s hypothesis that investor attention reduces stock mispricing, I document three key findings. First, I find a significant and negative correlation between stock mispricing and analyst following in global firms. Second, stock mispricing is negatively correlated with institutional ownership in U.S. firms. Stock mispricing is not significantly correlated with institutional block-holdings in global firms. Third, stock mispricing per dollar of abnormal accrual is decreasing in analyst following for sufficiently large abnormal accruals in U.S. and global firms.

This thesis first examines the determinants of earnings management in an international setting using the Limited Investor Attention Model of Hirshleifer and Teoh (2003). The model predicts that investor attention reduces earnings management. I have four key findings. First, I document that financial analysts curb adjusted absolute abnormal accruals and absolute performance-matched abnormal accruals in global firms. Second, I document that institutional block-holdings curb adjusted absolute abnormal accruals across the world. Third, I document that analyst following is related to more reduction in earnings management in common law countries than in code-law countries. Fourth, I find that institutional block-holders are more effective monitors in common law countries than in code law countries. This thesis also examines the relation between investor attention and stock mispricing of abnormal accruals in an international setting using the Limited Investor Attention Model of Hirshleifer and Teoh (2003). Consistent with the model’s hypothesis that investor attention reduces stock mispricing, I document three key findings. First, I find a significant and negative correlation between stock mispricing and analyst following in global firms. Second, stock mispricing is negatively correlated with institutional ownership in U.S. firms. Stock mispricing is not significantly correlated with institutional block-holdings in global firms. Third, stock mispricing per dollar of abnormal accrual is decreasing in analyst following for sufficiently large abnormal accruals in U.S. and global firms.

Uppsatsen ämnar undersöka om ålder har en påverkan på prospektteorin, investor attention och flockbeteende hos investerare. Uppsatsen bidrar till forskningen genom att tydliggöra om det finns en påverkan och vilken påverkan ålder har på de tre beteendena. Metoden består av att en enkät skickas ut på utvalda aktieforum där respondenterna får svara på påståenden och andra frågor. Totalt svarade 101 respondenter på enkäten varav 100 av svaren används och analyseras i uppsatsen. Resultatet visar att ålder endast har ett positivt signifikant samband med flockbeteende. En av orsakerna kan vara den försämrade kognitiva förmågan som uppstår med en äldre ålder. Det finns dock inget signifikant samband mellan ålder och prospektteorin respektive investor attention. Vad resultatet innebär diskuteras vidare i uppsatsens diskussion. I slutsatsen presenteras även framtida forskning som kan utveckla och ge bättre förklaringar till dessa beteenden.

Thesis advisor: Thomas J. Chemmanur / My dissertation is comprised of three chapters. In the first chapter, I analyze the effect of top management changes on subsequent corporate innovation in venture capital-backed private firms using a hand-collected dataset. I find that top management changes are associated with significantly more and higher quality corporate innovation (as measured by their patenting activity). I show that top management changes are likely to be venture-driven and that the effect of top management changes on corporate innovation is stronger for firms where venture capitalists have greater power. An instrumental variable analysis using an exogenous shock to the supply of outside managers available for hire implies a causal effect of top management changes on corporate innovation. I establish that one mechanism through which top management changes enhance corporate innovation is through new management teams hiring more inventors for a given investment size. I also show that both top management changes and corporate innovation have a positive impact on firms' successful exits. In the second chapter, co-authored with Thomas Chemmanur and Karthik Krishnan, we hypothesize that VC-backing garners greater “investor attention” (Merton (1987)) for IPOs, allowing IPO underwriters to perform two information-related roles more efficiently during the book-building and road-show process: information dissemination, where the lead underwriter disseminates noisy information about various aspects of the IPO firm to institutional investors; and information extraction, where the lead underwriter extracts information useful in pricing the IPO firm equity from institutional investors. Using pre-IPO media coverage as a proxy, we show empirically that VC-backed firm IPOs indeed obtain greater investor attention, causally yielding them more favorable IPO characteristics such as higher IPO and secondary market valuations. In the third chapter, co-authored with Thomas Chemmanur, Lei Kong, and Karthik Krishnan, using panel data on top management characteristics and a management quality factor constructed using common factor analysis on individual management quality proxies, we analyze the relation between the human capital or “quality” of firm management and its innovation inputs and outputs. We control for the endogenous matching between firm and management quality using a plausibly exogenous shock to the supply of new managers as an instrument, thereby finding a causal relationship between management quality and innovation activities. We show that higher management quality firms achieve greater innovation output by hiring more and higher quality inventors. / Thesis (PhD) — Boston College, 2017. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

In the first chapter, I find counties more likely to be affected by climate change pay more in underwriting fees and initial yields to issue long-term municipal bonds compared to counties unlikely to be affected by climate change. This difference disappears when comparing short-term municipal bonds, implying the market prices climate change risks for long-term securities only. Higher issuance costs for climate risk counties are driven by bonds with lower credit ratings. Investor attention is a driving factor, as the difference in issuance costs on bonds issued by climate and non-climate affected counties increases after the release of the 2006 Stern Review on climate change. In the second chapter, I document the investment value of alternative data and examine how market participants react to the data's dissemination. Using satellite images of parking lots of US retailers, I find a long-short trading strategy based on growth in car count earns an alpha of 1.6% per month. I then show that, after the release of satellite data, hedge fund trades are more sensitive to growth in car count and are more profitable in affected stocks. Conversely, individual investor demand becomes less sensitive to growth in car count and less profitable in affected stocks. Further, the increase in information asymmetry between investors due to the availability of alternative data leads to a decrease in the liquidity of affected firms.

In theory, all relevant information is incorporated in stock prices timely and completely and therefore prices respond related news quickly in efficient financial markets. In today's information age, technological advances provide investors with fast access to a vast number of information resources. One can argue that these advances can help market efficiency due to easy and quick access to relevant information. On the other hand, these technological advances not only facilitate availability of relevant information but also facilitate availability of all types of information--both relevant and irrelevant information signals. In essence, one can argue that there is (over)exposure to information which may come with a cost in the form of distraction and limited attention to relevant information. After considering these previous points, this study sheds more light on investor distraction and its impact on stock prices in two essays. My first essay introduces a new type of investor distraction, which arises from the discrepancy between investors' mood state and the content of the firm news. My second essay shows the importance of culture to explain investors' information processing .Moreover; the findings of my second essay are consistent with an investor distraction effect caused by cultural factors which are assumed as irrelevant factors in investors' information environment. In my first essay titled "Overexposure to Unrelated News and Investor Distraction: Earnings News and Big Sports Games", I use mood-generating events - proxied by big sports games -that contain no information on firm fundamentals but occur concurrently with earnings vi announcements to test the hypothesis that investors' attention shifts away from financial news that is incongruent with investors' mood states, thereby leading to underreaction. I empirically confirm the existence of mood-conflicting distraction. I find stronger post-earnings announcement drift and delayed response ratio, and weaker immediate volume reaction, when the earnings announcing firm's local investors' sports mood is inconsistent with the earnings news' content (good vs. bad). This effect strengthens with firm's proximity to the location of the mood source. In my secon essay titled "Post-Earnings Announcement and Religious Holidays", I show the role of culture, proxied by religion, in financial information processing and the impact of culture on financial outcomes through investor inattention. I examine whether and how the religious holiday calendar affects investors' information processing by investigating price reactions to U.S. firms' earnings announcements that occur during Easter week. I find different patterns for short-term and delayed responses to Easter week earnings surprises. Moreover, there is a stronger immediate (delayed) reaction to good (bad) news, primarily found in less religious, predominantly Protestant areas. The results are consistent with a religion-induced investor distraction effect. The findings also show the role of religious characteristics in firms' information environment and the locality of stock prices.

近年，投資人對資訊反應不足與反應過度，是行為財務學側重的一塊。許多文獻與實證研究皆探討投資人的投資決策與其對資訊反應不足與反應過度之間的關連性，以及究竟投資人是否有設定投資定錨的傾向。而本研究為了實證台灣股市存在之反應不足或過度反應的現象，且投資人具有限注意力並有設定投資定錨的傾向，在博覽眾多相關文獻與研究後，決定依循Li and Yu（2012）的理論基礎，使用週價比與歷價作為反應不足與過度反應的代理變數，並將模型改建成適用於台灣股市的迴歸模型。 本研究以台灣股價加權指數作為主要迴歸樣本，將模型分為週資料迴歸模型與月資料迴歸模型，檢視兩個代理變數在控制景氣循環以及沒有台灣經濟泡沫樣本下可否用於台灣股市反映投資行為，並作為預測未來市場報酬的指標。最後，為實證投資人有限注意力與心理定錨設置之理論成立，本研究將台灣50指數與摩根台股指數作為樣本分別進行迴歸，以探討是否有比台灣加權股價指數更具顯著預測能力的指數存在。 研究結果顯示，假說一「週/歷價比與未來市場報酬成正/負相關」與假說二「選用能見度高的指數作為樣本應使週價比與歷價比更具顯著的預測能力」皆成立。即台灣股市確實存在反應不足或過度反應的現象，且投資人具有限注意力並有設定投資定錨的傾向，而台灣市場中最具顯著預測能力的指數為摩根台股指數。此外，週資料迴歸模型比月資料迴歸模型更適用於台灣股票市場。 / Currently, much academic research is concerned about investor underreaction & overreaction in behavioral finance. It mainly discusses the relationship between investment strategies and underreaction & overreaction and whether investors have tendency to utilize investment anchor. This study determined to follow basis of Li and Yu（2012） in order to examine the existence of underreaction & overreaction, investor limited attention and the tendency to set anchor in Taiwan stock market. We use nearness to the 52-week high and nearness to the historical high as proxies capturing the degree of investor underreaction and overreaction to news. In this study, we adopt TAIEX as main data and run two different types of regression model based on weekly and monthly data. Except under normal condition, we further examine these two proxies with controlling business cycle and without Taiwan economic bubble. Finally, we compare the predictive ability to forecast future aggregate market returns among TAIEX, TW 50 and MSCI Taiwan index. Our empirical results support the hypothesis 1, “nearness to the 52-week high positively predicts future market returns and nearness to the historical high negatively predicts future market returns” and hypothesis 2, “using index with higher visibility results in significantly predictive ability for nearness to the 52-week high and nearness to the historical high,” while MSCI Taiwan Index is the most significant. Besides, weekly regression is more suited to Taiwan stock market than monthly regression. These findings are consistent with the limited investor attention and anchoring research.

In the first essay I examine the relation between firm advertising and tax aggressiveness. Advertising increases firm visibility in both the product and the financial market. While investors would appreciate more tax savings, they are aware of the negative impact of tax aggressiveness on consumers’ views of the firm and hence its competitive positions in the product market. We find that firms that spend more on advertising have fewer tax sheltering activities, lower book-tax differences, and higher cash effective tax rates. Specifically, an increase of 1% on Advertisingi,t (ADVGPi,t), the firm pays an additional tax of $0.70 million ($10.92 million). However, the negative impact of advertising on tax aggressiveness becomes weaker (and even reverses) for firms having great transparency, more public scrutiny, or strong external monitoring. We control for endogeneity using propensity score matching and an instrumental variable approach. Our findings are consistent with the argument that advertising enhances corporate reputation and is an important determinant in firms’ tax planning. In the second essay I document a significant increase in opportunistic insider trades when retail investors are paying greater attention to the stock. Using Google SVI to proxy for their level of attention, we find that a higher (lower) SVI on a stock is associated with more insider sales (purchases) of the stock and greater abnormal returns on the sales (purchases). A value-weighted long-short portfolio mimicking insider trades would earn an abnormal return of 1.19% per month (14.28% per year), excluding transaction costs. We also fund that the SVI-related insider traders tend to be non-independent directors who have long tenures but no senior executive positions in their firm and the firm tends to exhibit weaker governance, lower reputation, and poorer social responsibility. Our results are more pronounced for lottery-type stocks but are weaker for stocks with large attention of local investors. Interestingly, the risk of SEC investigation and litigation is lower on SVI-related insider sales and this type of sales actually rises following an increase in news releases of SEC enforcement action. Overall, certain insiders appear to engage in trades to take advantage of variations of retail investors’ attention to their stock.

Thesis advisor: Rui Albuquerque / Thesis advisor: Thomas J. Chemmanur / In my first essay, I develop a model of investor behavior around prescheduled macroeconomic announcements to analyze the optimal allocation of investor attention between systematic and idiosyncratic risk factors when a macroeconomic announcement is anticipated. Skilled investors, when producing information under a limited attention capacity, optimally allocate more of their attention to analyzing the idiosyncratic risk factor when they anticipate more precise public information about the systematic risk factor from the macroeconomic announcement. Consequently, my model predicts that, the more informative (precise) the macroeconomic announcement is expected to be about the underlying risk factors, ceteris paribus, the more uncertainty pre-announcement, the more resolution of uncertainty post-announcement, and the higher the trading volume around the announcement on the market index. My empirical analysis of trading by investors around both FOMC and CPI announcements support my model's predictions. In particular, my empirical findings are consistent with model predictions about the effect of the anticipated macroeconomic announcement precision on investor attention allocation, the effect of investor attention on the levels of pre-announcement and post-announcement trading volumes, and the effect of investor attention on the ratio of post-announcement trading volume over the pre-announcement trading volume. In my second essay, we analyze, theoretically and empirically, how investor attention affects the stock market reaction to innovation announcements. In a dynamic model with limited investor attention, we show that the immediate reaction to innovation announcements increases, while the post-announcement stock return drift decreases, in investor attention. We empirically confirm our model predictions using a matched sample of pharmaceutical industry patent grant and subsequent FDA drug approval announcements and also a general USPTO patent sample. We show that post-announcement drift has predictive power for firm growth, profitability, and productivity, drawing implications for enhancing measures of patents' economic value and for trading strategy. In my third essay, we analyze, theoretically and empirically, the implications of a fraction of investors in the equity market paying only delayed attention to SEO announcements. We first show theoretically that, in the above setting, the announcement effect of an SEO will be positively related to the fraction of investors paying attention to the announcement and that there will be a post-announcement stock-return drift that is negatively related to investor attention. In the second part of the paper, we test the above predictions using the media coverage of firms announcing SEOs as a proxy for investor attention, and find evidence consistent with the above predictions. In the third part of the paper, we develop and test various hypotheses relating investor attention paid to the issuing firm (between the announcement and the equity issue) to various SEO characteristics. We empirically show that SEO underpricing, institutional investor participation in SEOs, and the post-SEO equity market valuation of firms are all positively related to investor attention. The results of our identification tests show that the above results are causal. / Thesis (PhD) — Boston College, 2020. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.

The objective of this dissertation is to study the dynamics of size and value risk premia in an equilibrium model with belief dependent preferences and to analyze the impact of investor attention on asset pricing. There is ample evidence that size and value risk premia are non-constant and vary over the business cycle. Empirical patterns, however, are unknown and traditional equilibrium models cannot fit the observed dynamic patterns. The representative agent model with belief dependent preferences is known to fit both unconditional moments such as the equity premium as well as times-series features of volatilities and market prices of risk. The basic model is extended to capture the dynamics of size and value risk premia. The representative agent in this model is a rational Bayesian decision maker who updates her beliefs continuously when new information arrives. However, information processing costs are non-zero and opportunity costs of non-continuous updating of beliefs are higher during times of crisis. In the second part of this dissertation, the representative agent model with beliefs dependent preferences is extended to incorporate the notion of investor attention. The attention version of the model is shown to increase the dynamic fit of equilibrium asset pricing quantities by dampening the volatility of bond yields, market prices of risk, and stock volatility. As such the inattention version of the model with belief dependent preferences is shown to improve the intertemporal fit. Chapter 1 provides a overview of existing studies about the dynamics of size and value risk premia and investor attention. Chapter 2 investigates the dynamic features for size and value risk premia. An asset pricing model with regime dependent risk aversion and incomplete information about economic regimes is introduced to derive closed-form formulas for market prices of risk, asset prices, their volatilities, and risk premia of value and size style indices. Both size and value risk premia vary across normal, recession and boom periods. The premia amplify in recession times but tend to reverse or disappear during boom times. Such findings match the historical performances of small-minus-big (SMB) and high-minus-low (HML) portfolios. Chapter 3 integrates investor attention into regime-switching learning model with regime-dependent risk aversion. The model provides a good fit to the time series of stock volatility, bond volatility and bond yields. Investor attention at the aggregate level is captured by a new representative agent measure which combines the continuously updated beliefs about regimes of a rational Bayesian decision maker with those of a decision maker using steady state regime probabilities. The new representative agent measure can capture the scenario where investor updates her beliefs about economic regimes according to time-varying attention to the available market information. Equilibrium asset pricing quantities are obtained in closed form in the extended model with investor attention. Unconditional asset pricing model moments match their empirical counterparts including the equity premium, the stock volatility and the correlations between stock returns and consumption and dividends. Dynamics features of the data can be well captured. Stock and bond volatilities, bond yield and interest rate time series all have smaller mean square errors compared to the model which does not consider investor attentions. The scale and volatilities for these financial time series are also close to real financial data.