Department of Finance Professor Don Chance’s Paper Accepted for Publication by the Journal of Corporate Finance
January 6, 2021
BATON ROUGE- Muhammed Ali once said “It ain’t bragging if you can back it up,” but when companies brag, do they back it up? That is the question posed by LSU Department of Finance Professor Don Chance and co-authors Pratik Kothari of Cornerstone Research and Steve Ferris of Ball State University in a paper recently accepted in the Journal of Corporate Finance titled “Bragging Rights: Does Corporate Boasting Imply Value Creation?”
In this paper, the authors ask, “When companies brag about their performance, do they have anything to brag about? Have they created value for their shareholders?” The authors examined firms that use boastful language to describe their recent annual performance to answer these questions. Their findings showed that about 80 percent of the time these companies failed to do anything for their shareholders, and in some cases, destroyed value. The primary focus of the companies was on accounting numbers and not their shareholders’ wealth. In conclusion, the researchers discovered that even though companies talk a lot about creating value, they do not understand what it means to do so.
This is the second paper Chance and Ferris have done on the language used by companies in public statements. In a 2015 paper also in the Journal of Corporate Finance published with James Cicon, they found that companies that blame poor performance on factors outside of their control are in most cases deflecting the fault away from themselves.
Investors, regulators, and the general public pay a great deal of attention to the carefully crafted language that appears in corporate press releases. These articles show that some of the more extreme statements that blame and boast are often entirely inaccurate.
The Journal of Corporate Finance aims to publish high quality, original manuscripts or shorter format papers in both theoretical and empirical corporate finance. Areas of interest include, but are not limited to: financial structure, governance, product markets, payout, labor, innovation, risk management, financial contracting, and international finance. Papers at the intersection of corporate finance and macroeconomics, asset pricing, household, behavioral, fintech and blockchain, law, financial intermediation, or microstructure also are encouraged.
About the Department of Finance
The Department of Finance offers high-quality curricula to undergraduate and graduate students interested in careers in corporate finance, asset management, real estate, insurance, banking, financial planning and business law. The department boasts internationally renowned research faculty in several areas, including derivatives, asset management, banking and spatial econometrics. The department’s Securities Markets Analysis Research & Trading Lab utilizes the Bloomberg Professional service, the platform used by more than 300,000 leading business and financial professionals worldwide to make informed business decisions, and an extensive library of financial databases including the Wharton WRDS System. Additionally, the department encourages, supports and conducts research in real estate by housing the nationally renowned Real Estate Research Institute. For more information, visit lsu.edu/business/finance or call 225-578-6291.
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E. J. Ourso College of Business