Rachel Xi Zhang

• Shawn Kim, Luzi Hail, Rachel Xi Zhang (Working), How Do Managers Greenwash? Evidence from Earnings Conference Calls. Abstract

  We investigate three forms of potential greenwashing during earnings conference calls, an important channel of direct communication between a company’s top management team, investors, equity analysts, and the business press. First, using analyst questions as a proxy for firms’ underlying climate change activities, we show that corporate managers’ over-discussion of climate change issues is associated with favorable external ESG ratings, investment from green mutual funds, and lower likelihood of forced CEO terminations. Second, we show that within the same conference call, managers are more likely to mention climate change, and in a more optimistic and confident tone, when responding to difficult questions. This is consistent with managers using climate change to shift the narrative and to avoid difficult questions. Finally, within the same call, managers talk about firm-related climate change issues more positively and with greater certainty, as compared to how they talk about the firm’s current and future performance, as well as compared to how analysts talk about climate change-related issues. These results are consistent with managers overstating their firm’s environmental performance. Overall, our evidence suggests that greenwashing is prevalent in the regular communication between managers and investors and that such greenwashing occurs at the top management team’s discretion.

• Christopher Armstrong, Luzi Hail, Rachel Xi Zhang, Executive Compensation Contracts in the Presence of Adverse Selection. Abstract

  We develop three complementary tests to examine how adverse selection affects the design of executive compensation contracts: First, we show that externally-hired CEOs receive higher total pay and have fewer equity incentives relative to internally-promoted CEOs, consistent with their ability to extract larger information rents due to greater private information. These differences are more pronounced when less is known about the prospective CEO, but quickly dissipate over time. Second, we show that external CEOs’ initial contracts differ more from those of their firm’s incumbent senior managers than do those of internal CEOs—particularly in terms of accounting performance metrics and equity-based pay, in line with the use of these features to elicit private information. Third, we find that following an unanticipated change in option vesting schedules prompted by SFAS 123R, newly appointed executives do not increase their option exercises and share sales—despite their newfound ability to do so—while longer-tenured executives do, consistent with contracts initially being designed to screen for certain types of managers before shifting to encourage certain behaviors. Combined, our evidence supports the distinct role of adverse selection in the design of executive compensation contracts.

   

   

• Rachel Xi Zhang, Do Managers Learn from Institutional Investors through Direct Interactions?. Abstract

  Prior evidence suggests that managers learn indirectly from stock prices, which contain private information impounded by informed investors’ trades. However, stock price is an indirect aggregate signal, which is likely to be insufficient for managerial learning. I propose that managers seek out direct interactions with institutional investors as a further mechanism to learn relevant information about their firms. Using investor conferences and investor days as the medium for direct learning, I find that managers seek more direct interactions when they have a high demand for information concerning industry trends and supply chain dynamics, and when they expect their current base of institutional investors to be knowledgeable. I also predict that information learned through direct interactions will be reflected in the manager’s subsequent corporate and personal decisions. I find that the frequency and accuracy of management forecasts increase after direct learning. Comparing insider trades in the same firm-month, trades executed by participating insiders within seven days after a conference earn greater positive abnormal returns, consistent with managers’ information set expanding as a result of their direct learning.

Past Courses

• ACCT1020 - Strategic Cost Analysis

  Strategic Cost Analysis is the process of analyzing and managing costs in order to improve the strategic position of the business. This goal can be accomplished by having a thorough understanding of which activities and costs support an organization's strategic position and which activities and costs either weaken it or have no impact. Subsequent cost management efforts can then focus on reducing or limiting expenditures on activities that add little or no strategic value, while increasing expenditures on activities that support the strategic position of the organization. Performance can then be evaluated to ensure that the chosen actions are taken, and that these actions are yielding improved strategic performance. Throughout the course, a strategic cost analysis and management framework will be applied across functions and organizations to highlight the cost analysis and performance evaluation methods available to forecast financial performance and improve strategic position.

Knowledge @ Wharton

• How Dynamic Electricity Pricing Can Improve Market Efficiency, Knowledge @ Wharton - 11/12/2024
• Is Algorithmic Management Too Controlling?, Knowledge @ Wharton - 11/12/2024
• The Hidden Cost of AI Energy Consumption, Knowledge @ Wharton - 11/12/2024
• Charitable and Political Giving | Pinar Yildirim, Knowledge @ Wharton - 11/12/2024
• The Future of Banking, Knowledge @ Wharton - 11/11/2024
• Election Statistics, Knowledge @ Wharton - 11/06/2024
• Robots Are Taking Over Low-skilled Jobs — and Changing Votes, Knowledge @ Wharton - 11/05/2024
• Crypto Politics: Liberals’ and Conservatives’ Confidence in Cryptocurrencies, Knowledge @ Wharton - 11/05/2024
• Leadership and Elections | Mike Useem, Knowledge @ Wharton - 11/05/2024
• Automation Is Harming Low-skilled Workers and Possibly Their Voting Preferences, Knowledge @ Wharton - 11/01/2024