We explore the implications of a subtle “default” choice that firms make in their regular reporting practices, namely that firms typically repeat what they most recently reported. Using the complete history of regular quarterly and annual filings by U.S. corporations from 1995-2014, we show that when firms make an active change in their reporting practices, this conveys an important signal about the firm. Changes to the language and construction of financial reports have strong implications for firms’ future returns: a portfolio that shorts “changers” and buys “non-changers” earns up to 188 basis points per month (over 22% per year) in abnormal returns in the future. These reporting changes are concentrated in the management discussion (MD&A) section. Changes in language referring to the executive (CEO and CFO) team, or regarding litigation, are especially in formative for future returns.

Christopher Malloy is the Sylvan C. Coleman Chaired Professor of Financial Management in the Finance Unit at Harvard Business School, and a Research Associate at the National Bureau of Economic Research.  Prior to joining HBS in 2007, Professor Malloy was an Assistant Professor in the Finance Department at London Business School, where he was on faculty from 2003-2007. Before beginning his doctoral studies, he worked at the Board of Governors of the Federal Reserve System in Washington, DC in the Monetary and Financial Studies Section.

His research focuses on behavioral finance, asset pricing, investments and portfolio choice, labor economics, and empirical corporate finance. His research has appeared in the Journal of Political Economy, the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies, and has been described in The Financial Times, The Wall Street Journal, The New York Times, and various other media outlets. Professor Malloy received a PhD in Finance and an MBA from The University of Chicago Graduate School of Business, and a BA in Economics from Yale University.