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Prof. Stephen Ferris

University of Missouri, Columbia, Missouri, USA

Authors: Pratik Kothari, Don Chance, and Stephen Ferris

Abstract: We examine a sample of S&P 500 firms over the period 1999-2014 that publicly characterize their annual performance with extreme positive words, such as “outstanding” or “exceptional.”  We find that over the previous year, only about 18% of these firms generated positive abnormal returns, thereby adding to shareholder wealth, while about 70% had insignificant abnormal returns, and the remaining 12% of the firms produced negative abnormal returns, thereby destroying value.  Firms with insignificant abnormal returns have very high raw returns, suggesting that they could be crediting themselves with systematic performance.  We find that outperformance in accounting measures seems to motivate such statements, with the effect being less prominent with positive-significant CAR firms.  In comparison to a matched set of firms that did generate increases in shareholder wealth but did not make such statements, our sample firms show stronger industry-adjusted free cash flow growth.  Our results suggest a concern that the overwhelming majority of companies do not understand shareholder wealth or they disregard the question of whether they have increased it.

Full Text:  “Brag, Brag, Brag: Corporate Crowing and Shareholder Wealth”

Projects in Applied Economics for Talented Students is a free 12-week research program designed for talented high school students who wish to gain a deeper understanding of Economics, learn and apply research methodology and pursue their own research interests supervised by experienced academics.

The projects are organized by the Center for Economic Research and Graduate Education – Economic Institute (CERGE-EI), a joint workplace of Charles University in Prague and the Economics Institute of the Czech Academy of Sciences.

Mondays 17:30-19:30
Starting date: 25 September, 2017
Finishing date: 11 December, 2017

Program agenda:

• Basics of Economics and research methods (week 1 – 6)
• Research project based on obtained real data under supervision (week 7 – 10)
• Presentation skills workshop (week 11)
• Research results presentation (week 12)

Read more about the project.