Rock Center for Corporate Governance at Stanford University working paper series Vol. 6, No. 2: Jan 28, 2014 – Latest working papers on SSRN, the Social Science Research Network:
Does Diversity Lead to Diverse Opinions? Evidence from Languages and Stock Markets
Authors: Yen-Cheng Chang, Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, China Academy of Financial Research (CAFR); Harrison G. Hong, Princeton University – Department of Economics, National Bureau of Economic Research (NBER), Larissa Tiedens, Stanford Graduate School of Business, Bin Zhao, Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University (SJTU), China Academy of Financial Research (CAFR)
Date: December 26, 2013
Abstract: An oft-cited premise for why diverse societies, be it ethnic, linguistic or religious, can grow faster than homogeneous ones is that they bring about diverse opinions, which foster problem solving and creativity. We provide evidence for this premise using a linguistic measure of diversity across Chinese provinces and stock market measures of diverse opinions. This cross-province variation in linguistic diversity is correlated with the extent of hilly terrain in a province but is uncorrelated with financial development in that province. Households in provinces with more linguistic diversity have more diverse opinions as measured by greater trading of and disagreement on stock message boards about local stocks. Linguistic diversity is also correlated with small private enterprise diversity. An analogous cross-country regression suggests that our conclusion extrapolates beyond China.
The Timing and Frequency of Corporate Disclosures
Authors: Ivan Marinovic, Stanford Graduate School of Business; Felipe Varas, Duke University
Date: January 23, 2014
Abstract: This paper studies dynamic disclosure in an environment with continuous flow of private and public information. In equilibrium, the manager may both preempt or withhold bad news, depending on the relative importance of litigation risk vs. disclosure costs. Consistent with the evidence, we show that the fear of setting a strong disclosure precedent, may discourage managers from disclosing their information altogether. Our paper sheds light on the puzzling relation between disclosure and litigation. We show that in the presence of litigation risk a higher intensity of public news may increase disclosure; whereas in its absence it would reduce it. Surprisingly, a higher litigation risk may make the manager better off by inducing savings on disclosure costs. Our analysis suggests that the persistence of cash flows is a key determinant of the likelihood of disclosure that has not been considered by extant empirical research.
Authors: Ivan Marinovic, Stanford Graduate School of Business; Felipe Varas, Duke University – Fuqua School of Business – Finance Department
Date: January 24, 2014
Abstract: This paper studies a dynamic communication game in which the seller of an asset, whose credibility is unknown to the market, reports changes in the asset value during multiple periods before selling the asset. We characterize the strategy by which the seller exploits his credibility over time to maximize the asset’s terminal price. Though the asset value is iid across periods, and its distribution is continuous, the equilibrium has a simple Markov structure that depends on a single state variable: the seller’s cumulative report. The possibility of misreporting generates reports that are serially dependent, even when the shocks are independent across periods. In equilibrium, prices are relatively insensitive to good news, particularly in the last period. The seller’s cumulative report tends to grow over time, while the seller’s credibility tends to decrease slowly. The seller is able to maintain inflated prices for as long as necessary. Furthermore, the terminal price explodes as the seller’s horizon grows large.