PhD Defense L. Shen

• Location: Cobbenhagen building, Portrettenzaal
• Supervisors: Prof. F. Braggion, Prof. C.A.R. Schneider

Research summary

This Ph.D. dissertation consists of three chapters in behavioral finance and corporate finance. The first chapter examines whether and how ethnicity similarity between analysts and executives affect their interactions in conference calls. The seccond chapter investigates firms' demand for inventor executives, executives with innovation experience, around firms' IPOs. The last chapter studies teams and individual analysts performance differences during the COVID-19 pandemic crisis time.

The first chapter Homophily in Financial Market: Evidence from Executives and Analysts Interactions in Conference Calls examines whether and how ethnicity-based homophily affects executives and analysts interactions in conference calls. The principle of homophily implies that people are more likely to interact and be influenced by those who are similar to them. This preference has been discussed in the finance and accounting literature. However, these studies do not directly test the interactions influenced by the homophily between different agents because interactions between economic agents are unobservable. I provide direct evidence on whether and how homophily measured by the similarity of ethnic background affects interactions between executives and financial analysts in conference calls. The advantage of this setting is that I can directly observe the interactions between executives and analysts via conference call transcripts. I find that homophily exists and has considerable effects on the interactions between executives and analysts. Specifically, executives are more likely to select the same ethnic background analysts to ask questions in the conference call. During the Q&A session, executives communicate more and speak with a more positive tone to the same ethnic group analysts. I exploit the exogenous attention shock to analysts from other industries and CEO turnover events to further verify my baseline results. Next I show that the homophily preference for information communication improves analysts' forecast accuracy and triggers higher market reactions when matched analysts release forecasts.

The second chapter Firms' Demands for Inventor Executives around IPOs examines how going public affects firms' demands for inventor executives who own both management and innovation experience. Transitioning from public to private is one of the most important decisions for a firm. Although there is some literature examining the human capital mobility around IPOs, little is known on the firm's demand for some specific human capital. We provide empirical evidence about the firm's demand for a particular type of human capital which are called “inventor executives”. Using the IPO withdrawn firms as the control group and a manually constructed executive-patent data set, we find robust and constent results that firms demand more inventor executives after IPOs. We posit that newly IPO completed firms need inventor executives to better overcome threats and competition after going public. We split IPO firms sample into subsamples according to the different levels of product market and innovation competitions they face. The results show that the effect is pronounced for firms with higher product market and innovation competition pressure. We next examine how inventor executives impact firms' innovation activities and performance. First, we show that inventor executives still pay attention to innovation activities by filing patents during their tenure as executives after IPOs, especially when firms encounter more competitive pressure. Second, we show that inventor executives turn to more exploitative patents that rely more on existing knowledge after going public successfully. Finally, we find that the number of inventor executives is positively related to firms' innovation performance. In the end, we discuss the supply side of inventor executives and the compensation differences between inventor executives and non-inventor executives.

The last chapter Team versus Individual: Evidence from Financial Analysts during COVID-19 Pandemic investigates whether the performance of teams is better than that of individuals during crisis times. Teams are common in business organizations nowadays. Previous studies mostly compare the performance difference between teams and individuals during normal times. I use the financial analyst teams as the laboratory and exploit the exogenous introduced stay-at-home order during the COVID-19 pandemic to investigate whether analyst teams can perform better compared to individual analysts in crisis periods. This unique setting assumes that the team composition is predetermined and exogenous to the unexpected COVID-19 pandemic shock and allows me to compare differences in responses between team and individual analysts. Applying the difference-in-differences method on a sample of forecasts issued by team and individual analysts in the first three quarters of 2020, I find that after the stay-at-home orders, both teams and individual analysts perform worse during working from home period in terms of less timely and accurate forecasts. However, on average, teams perform better than individual analysts do. Team analysts can issue more timely forecasts than individual analysts without losing forecast accuracy. In addition, team size plays an important role in teams' performance. There exists a monotonic positive relation between team size and analyst forecast timeliness and a U-shaped relationship between team size and forecast accuracy. A further test shows that investors react more to teams' forecasts issued during the pandemic than individual's forecasts. In summary, my results indicate that teams perform better than individuals during tough times.

Lingbo Shen will defend his thesis with the title Essays on Behavioral Finance and Corporate Finance at Tilburg University on Tuesday August 30, 2022