Using managers' expectations for ex-ante policy evaluation: Evidence from the COVID-19 crisis

Evaluation of the impacts of government policies during an economic crisis is often delayed until the outcomes are realized. Policies can be better guided if they can be evaluated amid a crisis, before the realization of outcomes. This study examines whether survey data on the expectations of small business managers can help evaluate two high-stake subsidies for firms amid the COVID-19 crisis in Japan, namely, Subsidy Program for Sustaining Businesses (SPSB) and Employment Adjustment Subsidy (EAS). We evaluate the accuracy of managers' expectations, estimate the impact of subsidies on the expected firm survival, and compare it with the estimated impact on realized survival. We find that the managers' expectations on their future sales, survival rate, and the possibility of receiving these subsidies predict the realized outcomes, although they were highly pessimistic about their survival rates. We find that the estimated impacts of the SPSB on the expected survival rates have the same sign as the estimated impact on the realized survival rates, but the size is more than twice because of the pessimism on survival. The estimated impacts of the EAS are both insignificant. Therefore, although its impact may be overestimated, managers' expectations are useful for selecting an effective policy.     

Topic tones of analyst reports and stock returns: A deep learning approach

We present a novel approach that analyzes topics and tones of analyst reports using a deep neural network in a supervised learning approach. By letting trained classifiers evaluate topics and tones of the reports, we find that incorporation of topic tones significantly enhances the accuracy of predicting cumulative abnormal returns, increasing adjusted ${\mathrm{R}}^2$ from 6.1% without considering textual information to 17.9% with detailed topic tones. This improvement is primarily driven by the inclusion of opinion and corporate fact type of topics. Our findings highlight importance of topic assessment to make the most use of analyst reports for informed investment decisions.