{"id":33,"date":"2019-10-14T19:10:31","date_gmt":"2019-10-14T19:10:31","guid":{"rendered":"http:\/\/johnheater.com\/?page_id=33"},"modified":"2026-09-19T20:20:49","modified_gmt":"2026-09-19T20:20:49","slug":"research","status":"publish","type":"page","link":"https:\/\/www.johnheater.com\/?page_id=33","title":{"rendered":"Research"},"content":{"rendered":"\n<div class=\"jh-page jh-research\"><div class=\"jh-shell\"><header class=\"jh-page-intro\"><p class=\"jh-eyebrow\">Scholarship<\/p><h1>Research<\/h1><p>Financial reporting, disclosure, and capital markets.<\/p><div class=\"jh-profile-links\"><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/cf_dev\/AbsByAuth.cfm?per_id=1780199\" target=\"_blank\" rel=\"noopener noreferrer\">SSRN<\/a><a class=\"\" href=\"https:\/\/scholar.google.com\/citations?user=R97UCZkAAAAJ\" target=\"_blank\" rel=\"noopener noreferrer\">Google Scholar<\/a><a class=\"\" href=\"https:\/\/orcid.org\/0000-0002-8377-652X\" target=\"_blank\" rel=\"noopener noreferrer\">ORCID<\/a><\/div><\/header><nav class=\"jh-section-links\" aria-label=\"Research sections\"><a href=\"#publications\">Publications <span>3<\/span><\/a><a href=\"#working-papers\">Working papers <span>7<\/span><\/a><a href=\"#work-in-progress\">Work in progress <span>3<\/span><\/a><\/nav><section class=\"jh-paper-section\" id=\"publications\"><div class=\"jh-section-heading\"><h2>Publications<\/h2><\/div><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">01<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/onlinelibrary.wiley.com\/doi\/abs\/10.1111\/1911-3846.13034\" target=\"_blank\" rel=\"noopener noreferrer\">Winning Is Not Enough: Changing Landscapes of Earnings Surprises and the Market Reaction<\/a><\/h3><p class=\"jh-coauthors\">With Qin Tan, Ye Liu, and Frank Zhang<\/p><p class=\"jh-journal\"><em>Contemporary Accounting Research<\/em> \u00b7 2025<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>We document strikingly opposite time-series patterns of analyst forecast errors (FEs) and associated market reactions, illustrating that analyst forecasts have become a less useful benchmark of the market&#8217;s earnings expectations in recent years. The mean FE has increased from negative one to two cents in the 1990s to positive one to two cents in the 2010s, whereas average earnings announcement returns have declined from 0.30% in the 1990s to \u22120.30% in the 2010s, turning negative in the past 17\u2009years. Underlying the time-series pattern of increasing FEs is a secular trend where firms move away from just meeting or beating, to which the market reaction has become increasingly negative, toward a large beat, while the frequency of meeting or beating the consensus analyst forecast remains stable during the same period. We develop a parsimonious predictive model of earnings surprises based on peer and past analysts&#8217; FEs and find that our predicted FE closely mirrors reported FE, with the average value hovering around one to two cents in most years of the past two decades. The market reaction to \u201caround zero\u201d unexpected FE (FE minus predicted FE) is indistinguishable from zero over time, suggesting that our model serves as a good benchmark of the market&#8217;s expectation. Our evidence has broad implications for appropriate earnings benchmarking, for the disappearing discontinuity of the earnings surprise distribution around zero, for earnings management to beat analysts&#8217; forecasts, for empirical designs when examining the earnings-return relation, and for the disappearing earnings announcement premium.<\/p><\/details><a class=\"jh-paper-link\" href=\"https:\/\/onlinelibrary.wiley.com\/doi\/abs\/10.1111\/1911-3846.13034\" target=\"_blank\" rel=\"noopener noreferrer\">Published article<\/a><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">02<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/doi.org\/10.1016\/j.jacceco.2021.101432\" target=\"_blank\" rel=\"noopener noreferrer\">Aggregate Accruals and Market Returns: The Role of Aggregate M&amp;A Activity<\/a><\/h3><p class=\"jh-coauthors\">With Suresh Nallareddy and Mohan Venkatachalam<\/p><p class=\"jh-journal\"><em>Journal of Accounting and Economics<\/em> \u00b7 2021<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>Extant literature documents that aggregate accruals positively predict future market returns and attributes this relation to either changes in discount rates or systematic earnings management. We offer an alternative explanation: aggregate merger and acquisition (M&amp;A) activity drives this relation. M&amp;A activity affects the magnitude of accruals, which in turn drives the market return predictability of aggregate accruals. We find that the ability of both aggregate accruals and discretionary aggregate accruals (a measure of systematic earnings management) to predict market returns disappears after controlling for aggregate M&amp;A activity. Furthermore, aggregate M&amp;A activity predicts future market returns, consistent with a price response to improvements in macroeconomic outcomes due to aggregate M&amp;A activity.<\/p><a class=\"\" href=\"https:\/\/www.youtube.com\/watch?v=46g7_p-VvI0&amp;t=235m55s\" target=\"_blank\" rel=\"noopener noreferrer\">Conference presentation<\/a><\/details><a class=\"jh-paper-link\" href=\"https:\/\/doi.org\/10.1016\/j.jacceco.2021.101432\" target=\"_blank\" rel=\"noopener noreferrer\">Published article<\/a><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">03<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/doi.org\/10.1287\/mnsc.2019.3519\" target=\"_blank\" rel=\"noopener noreferrer\">Chief Financial Officer Co-option and Chief Executive Officer Compensation<\/a><\/h3><p class=\"jh-coauthors\">With Shane S. Dikolli, William J. Mayew, and Mani Sethuraman<\/p><p class=\"jh-journal\"><em>Management Science<\/em> \u00b7 2021<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>We study whether relative power in the CEO-CFO relationship influences CEO compensation. To operationalize relative power of a CEO over a CFO, we define CFO co-option as the appointment of a CFO after a CEO assumes office. We find that CFO co-option is associated with a CEO pay premium of about 10%, which is concentrated more in the early years of the co-opted CFO\u2019s tenure and in components of compensation that vary with the achievement of analyst-based earnings targets. Our evidence also indicates that a primary channel through which CEO power over a co-opted CFO yields the achievement of earnings targets is the use of earnings management to inflate earnings. Co-opted CFOs rely primarily on using discretionary accruals to manage earnings prior to the Sarbanes-Oxley regulatory intervention and switch to real activities manipulation afterwards. The evidence thus suggests that the form of earnings management depends on costs imposed on the CFO to inflate earnings.<\/p><\/details><a class=\"jh-paper-link\" href=\"https:\/\/doi.org\/10.1287\/mnsc.2019.3519\" target=\"_blank\" rel=\"noopener noreferrer\">Published article<\/a><\/div><\/article><\/section><section class=\"jh-paper-section\" id=\"working-papers\"><div class=\"jh-section-heading\"><h2>Working papers<\/h2><\/div><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">01<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=4937651\" target=\"_blank\" rel=\"noopener noreferrer\">Response Latency as a Cue to Management Deception<\/a><\/h3><p class=\"jh-coauthors\">With Doron Reichmann<\/p><p class=\"jh-status\">R&amp;R at Journal of Accounting Research<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>Drawing from established models in psychology, we examine whether managers\u2019 response latency\u2014the pause before a manager begins answering\u2014during conference call question-and-answer sessions serves as a cue to management deception. We provide a three-pronged validation of response latency as a deception cue. First, managerial statements directly quoted in settled securities class action lawsuits exhibit longer response latency, whereas statements quoted in dismissed lawsuits do not. Second, response latency predicts linguistic patterns consistent with deceptive communication theory. Third, analysts respond to high-latency answers with greater skepticism, as evidenced by challenging follow-ups. We then examine whether managers\u2019 high-latency responses predict capital market distortions. We find that a more positive disclosure tone following high response latency leads to an immediate positive stock price reaction that reverses over time, consistent with managers communicating distorted information. Additional analyses suggest that while response latency also increases with observable non-deceptive sources of cognitive strain, such as uncertainty or question dynamics, these factors do not explain our results. Overall, our findings suggest that response latency captures meaningful information about management deception in interactive disclosures. <\/p><\/details><a class=\"jh-paper-link\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=4937651\" target=\"_blank\" rel=\"noopener noreferrer\">Paper on SSRN<\/a><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">02<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3853047\" target=\"_blank\" rel=\"noopener noreferrer\">Evading the Torpedo: Why Managers Avoid Stock Splits<\/a><\/h3><p class=\"jh-coauthors\">With Qin Tan, Ye Liu, and Frank Zhang<\/p><p class=\"jh-status\">Under submission at Journal of Financial and Quantitative Analysis<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>In this paper, we document a previously unknown cost of stock splits: failure to sufficiently beat earnings targets and its associated capital markets punishment. We show that both firms\u2019 earnings announcement returns and likelihood of beating analysts\u2019 expectations by at least two cents decline post-stock split. This patterned decline in both split activity and post-split returns only occurs for publicly-listed firms, whereas abnormal returns for closed-end funds do not consistently vary over time. Overall, the results suggest that declining signaling benefits and increasing costs led to fewer stock splits in recent years.<\/p><\/details><a class=\"jh-paper-link\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3853047\" target=\"_blank\" rel=\"noopener noreferrer\">Paper on SSRN<\/a><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">03<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3923046\" target=\"_blank\" rel=\"noopener noreferrer\">Does Mandatory Short Selling Disclosure Lead to Investor Herding Behavior?<\/a><\/h3><p class=\"jh-coauthors\">With Qin Tan, Ye Liu, and Frank Zhang<\/p><p class=\"jh-status\">Under submission at Contemporary Accounting Research<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>We investigate two competing hypotheses for why clustering of trades occur around short sale disclosure in the UK: herding- and information-based trading. First, we use a matched sample of firms with similar short interest to compare firms with and without short selling disclosure and find that firm-level short interest exhibits a much smaller reversal for disclosure stocks than for matched non-disclosure stocks. A smaller reversal for disclosure stocks is consistent with short position disclosure inducing investor herding behavior and thus making short interest more persistent. Second, we explore the role of corporate news on the premise that information-based trading is related to news about firm fundamentals. We find that short sale disclosure occurs with similar frequency across the pre-earnings announcement, post-earnings announcement, and no-information windows, suggesting that information shocks related to firm fundamentals are not a major factor of short sale disclosure clustering. More importantly, the clustering of short sale disclosure does not vary significantly between good and bad earnings news. Overall, the evidence is most consistent with investor herding behavior for the clustering of short sale disclosure.<\/p><\/details><a class=\"jh-paper-link\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3923046\" target=\"_blank\" rel=\"noopener noreferrer\">Paper on SSRN<\/a><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">04<\/span><div class=\"jh-paper-body\"><h3>Decomposing Stock Returns and the Return on Private Information<\/h3><p class=\"jh-coauthors\">With Salman Arif and Pengju Wang<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>We decompose daily, signed firm-level returns into five components: private information revealed through trading, public information, market-wide information, noise and discount rate. The private information component of returns positively predicts returns and fundamentals and spans the momentum factor. However, momentum does not span the private information factor. Around earnings announcements, private information absorbs significantly more alpha from post-earnings announcement drift (PEAD) than the public information component. Noise predicts return continuations (reversals) when aligned with (opposed to) private information. Overall, our results suggest that gradual diffusion of private information drives more of momentum and PEAD than underreaction to public information.<\/p><\/details><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">05<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=4081278\" target=\"_blank\" rel=\"noopener noreferrer\">The Consequences of Fund-level Liquidity Requirements<\/a><\/h3><p class=\"jh-coauthors\">With Indraneel Chakraborty, Elia Ferracuti, and Matthew Phillips<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>We investigate the effects that mutual fund liquidity requirements have on fragility. In 2018, SEC Rule 22e-4 restricted ownership of illiquid securities in funds. As expected, post-rule, funds hold more liquid securities. Firms issuing illiquid securities face higher costs due to a smaller investor pool. However, higher liquidity does not ameliorate adverse shocks. Facing outflows, funds maintain cash levels and sell illiquid securities. This is because liquidity requirements are not sufficiently countercyclical: funds must maintain cash even when they should use it to mitigate flow pressures. Hence, outflows force funds to sell more illiquid securities post-rule change, unintentionally increasing fragility.<\/p><a class=\"\" href=\"https:\/\/business.lehigh.edu\/centers\/center-financial-services\/news-and-events\/annual-conference-financial-market-regulation\" target=\"_blank\" rel=\"noopener noreferrer\">Conference presentation<\/a><a class=\"\" href=\"https:\/\/www.sec.gov\/dera\/announcement\/dera_event-050622_9th-annual-conference-fin-market-reg\" target=\"_blank\" rel=\"noopener noreferrer\">SEC conference page<\/a><\/details><a class=\"jh-paper-link\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=4081278\" target=\"_blank\" rel=\"noopener noreferrer\">Paper on SSRN<\/a><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">06<\/span><div class=\"jh-paper-body\"><h3>Saying it Once or Twice: The Semantic Wedge between Mandatory and Voluntary Performance Disclosure<\/h3><p class=\"jh-coauthors\">With Doron Reichmann and Boyan Zhu<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>We examine the consequences of divergence between a firm\u2019s principal disclosure outlets across mandatory and voluntary venues. We develop a decomposable measure of semantic distance using sentence-level transformer embeddings through a Blinder-Oaxaca framework. Using the semantic wedge between disclosures in the 10-K\u2019s required MD&amp;A and the voluntary disclosures made during the earnings call\u2019s presentation, we find larger gaps between these disclosures result in a negative drift in returns following the 10-K filing. Decomposing the semantic distance into differences in topic coverage (i.e., topic selection and emphasis) and framing (i.e., how the two channels characterize the same topics) reveals that the drift is attributable to selective differences in topic coverage across disclosure channels. Our evidence indicates that cross-channel omission is a priced but slowly incorporated signal: what a firm declines to say \u201ctwice\u201d is more informative than how it reframes what it repeats.<\/p><\/details><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">07<\/span><div class=\"jh-paper-body\"><h3><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3886980\" target=\"_blank\" rel=\"noopener noreferrer\">Mandated Performance Disclosure and Managerial Risk-Taking<\/a><\/h3><p class=\"jh-coauthors\">Solo-authored dissertation<\/p><details class=\"jh-abstract\"><summary>Abstract<\/summary><p>I document that mandated performance disclosure increased managerial risk-taking, resulting in significant unintended consequences and agency conflicts. After the SEC required that all mutual funds disclose a self-selected primary benchmark, I find that most fund managers chose a benchmark that was not the best fit index. Furthermore, I provide evidence that actively managed funds increased risk-taking relative to their disclosed benchmarks in response to the disclosure change. I also find that the mandated disclosure requirement exacerbated the well-documented tendency of managers who underperform during the first half of the year to increase the risks they take in the second half of the year.<\/p><\/details><a class=\"jh-paper-link\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3886980\" target=\"_blank\" rel=\"noopener noreferrer\">Paper on SSRN<\/a><\/div><\/article><\/section><section class=\"jh-paper-section\" id=\"work-in-progress\"><div class=\"jh-section-heading\"><h2>Work in progress<\/h2><\/div><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">01<\/span><div class=\"jh-paper-body\"><h3>In Some CEOs We Trust, All Others Must Disclose<\/h3><p class=\"jh-coauthors\">With Kevin D. Chen and Mohan Venkatachalam<\/p><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">02<\/span><div class=\"jh-paper-body\"><h3>Passive Funds, Ownership Dynamics, and Corporate Governance<\/h3><p class=\"jh-coauthors\">With Kevin D. Chen<\/p><\/div><\/article><article class=\"jh-paper\"><span class=\"jh-number\" aria-hidden=\"true\">03<\/span><div class=\"jh-paper-body\"><h3>Passive Ownership, Active Compensation: Consequences of Incentives to Engage<\/h3><p class=\"jh-coauthors\">With Mary Ellen Carter and Emma Haithcock<\/p><\/div><\/article><\/section><footer class=\"jh-footer\"><div><strong>John C. Heater<\/strong><span>Carlson School of Management \u00b7 University of Minnesota<\/span><\/div><nav aria-label=\"Academic and contact links\"><a class=\"\" href=\"https:\/\/scholar.google.com\/citations?user=R97UCZkAAAAJ\" target=\"_blank\" rel=\"noopener noreferrer\">Google Scholar<\/a><a class=\"\" href=\"https:\/\/papers.ssrn.com\/sol3\/cf_dev\/AbsByAuth.cfm?per_id=1780199\" target=\"_blank\" rel=\"noopener noreferrer\">SSRN<\/a><a class=\"\" href=\"https:\/\/carlsonschool.umn.edu\/faculty\/john-heater\" target=\"_blank\" rel=\"noopener noreferrer\">Faculty profile<\/a><a class=\"\" href=\"https:\/\/www.linkedin.com\/in\/johnheater\" target=\"_blank\" rel=\"noopener noreferrer\">LinkedIn<\/a><a class=\"\" href=\"https:\/\/twitter.com\/john_heater\" target=\"_blank\" rel=\"noopener noreferrer\">X<\/a><a class=\"\" href=\"mailto:heater@umn.edu\">Email<\/a><\/nav><\/footer><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Scholarship Research Financial reporting, disclosure, and capital markets. SSRNGoogle ScholarORCID Publications 3Working papers 7Work in progress 3 Publications 01 Winning Is Not Enough: Changing Landscapes of Earnings Surprises and the Market Reaction With Qin Tan, Ye Liu, and Frank Zhang Contemporary Accounting Research \u00b7 2025 Abstract We document strikingly opposite time-series patterns of analyst forecast [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-33","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/www.johnheater.com\/index.php?rest_route=\/wp\/v2\/pages\/33","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.johnheater.com\/index.php?rest_route=\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.johnheater.com\/index.php?rest_route=\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.johnheater.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.johnheater.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33"}],"version-history":[{"count":47,"href":"https:\/\/www.johnheater.com\/index.php?rest_route=\/wp\/v2\/pages\/33\/revisions"}],"predecessor-version":[{"id":310,"href":"https:\/\/www.johnheater.com\/index.php?rest_route=\/wp\/v2\/pages\/33\/revisions\/310"}],"wp:attachment":[{"href":"https:\/\/www.johnheater.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}