The Role of Analyst Conference Calls in Capital Markets

textabstractMany firms conduct a conference call with analysts shortly after the quarterly earnings announcement. In these calls, management discusses the completed quarter, and analysts can ask questions. Due to SEC requirements, conference calls in the United States are virtually always live webcasted. A growing number of investors listens in on conference calls, suggesting that calls are useful for investor decision-making. This research clarifies the role of conference calls by analysing a large sample of conference call transcripts, analyst forecasts, and contemporaneous stock market reactions. The study investigates why conference calls are useful. The analysis shows that managers who provide little information in their presentation are actively probed by analysts, and the discussion with analysts becomes longer. Hence, the interactivity of the call enriches the information environment. In a second study, evidence is presented that information about intangible assets is one of the items in conference calls that moves stock markets. This study also shows that managers use the conference call to learn about the information needs of analysts with respect to intangible assets. A third study, suggests that sell-side analysts do not voice their true beliefs on conference calls in an attempt to favour their buy-side clients. Collectively, these results provide evidence that conference calls with analysts enrich the information environment, but their usefulness may be restricted by analyst incentives.

[1]  David J. Skyrme,et al.  Intellectual capital: Core assets for the third millenium enterprise: Annie Brooking, Thomson Publishing (1996), 205 pp., £25 (hb) , 1997 .

[2]  The valuation relevance of R&D expenditures: Time series evidence , 2005 .

[3]  Krishna G. Palepu,et al.  Information Asymmetry, Corporate Disclosure and the Capital Markets: A Review of the Empirical Disclosure Literature , 2000 .

[4]  Geerten van de Kaa,et al.  Standards Battles for Complex Systems: Empirical Research on the Home Network , 2004 .

[5]  Deependra Moitra,et al.  Globalization of R&D: Leveraging Offshoring for Innovative Capability and Organizational Flexibility , 2008 .

[6]  Mirdita N. Elstak,et al.  Flipping the Identity Coin: The Comparative Effect of Perceived, Projected and Desired Organizational Identity on Organizational Identification and Desired Behavior , 2001 .

[7]  Leen Paape,et al.  Corporate governance : The impact on the role, position, and scope of services of the internal audit function , 2007 .

[8]  Douglas J. Skinner,et al.  Implications of Accounting Research for the FASB's Initiatives on Disclosure of Information about Intangible Assets , 2003 .

[9]  R. Hagemeijer,et al.  The Unmasking of the Other , 2005 .

[10]  Emma García‐Meca,et al.  Bridging the gap between disclosure and use of intellectual capital information , 2005 .

[11]  George Foster,et al.  Security analyst multi-year earnings forecasts and the capital market , 1985 .

[12]  Kaouthar Lajili,et al.  Labor cost voluntary disclosures and firm equity values: is human capital information value-relevant? , 2005 .

[13]  Gregory S. Miller,et al.  Open Versus Closed Conference Calls: The Determinants and Effects of Broadening Access to Disclosure , 2002 .

[14]  B. Han,et al.  The value-relevance of R&D and advertising expenditures: Evidence from Korea , 2004 .

[15]  Qiang Cheng,et al.  Institutional Holdings and Analysts' Stock Recommendations , 2005 .

[16]  R. Petty,et al.  Using content analysis as a research method to inquire into intellectual capital reporting , 2004 .

[17]  Guido Berens,et al.  Corporate Branding: The Development of Corporate associations and their Influence on Stakeholder Reactions , 2004 .

[18]  Qiao Liu.  How Good Is Good News? Technology Depth, Book-to-Market Ratio, and Innovative Events , 2006 .

[19]  Krishna G. Palepu,et al.  Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure , 1999 .

[20]  Stephen A. Hillegeist,et al.  Conference Calls and Information Asymmetry , 2003 .

[21]  E. vanLeeuwen.  Recovered-Resource Dependent Industries and the Strategic Renewal of Incumbent Firms: A Multi-Level Study of Recovered-Resource Dependence Management and Strategic Renewal in the European Paper and Board Industry , 2007 .

[22]  Amy P. Hutton,et al.  The Role of Supplementary Statements with Management Earnings Forecasts , 2000 .

[23]  Dawn Matsumoto,et al.  Do Conference Calls Affect Analysts' Forecasts? , 2001 .

[24]  Björn Vroomen,et al.  The Effects of the Internet, Recommendation Quality and Decision Strategies on Consumer Choice , 2006 .

[25]  John Dumay,et al.  Intellectual capital disclosure and price‐sensitive Australian Stock Exchange announcements , 2007 .

[26]  Boris Groysberg,et al.  Which Types of Analyst Firms Are More Optimistic , 2006 .

[27]  Richard A. Riley,et al.  The value relevance of non-financial performance variables and accounting information: the case of the airline industry , 2003 .

[28]  William J. Mayew.  Evidence of Management Discrimination Among Analysts during Earnings Conference Calls , 2008 .

[29]  Mary E. Barth,et al.  The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting: Another View , 2001 .

[30]  H. Quak.  Sustainability of Urban Freight Transport: Retail Distribution and Local Regulations in Cities , 2008 .

[31]  Arjen Mulder,et al.  Government Dilemmas in the Private Provision of Public Goods , 2004 .

[32]  Investor Valuations and Measuring Bank Intangible Assets , 2004 .

[33]  M. Stienstra.  Strategic Renewal in Regulatory Environments: How inter- and intra-organisational institutional forces influence European incumbent energy firms , 2003 .

[34]  Martin Klein,et al.  Poverty Alleviation through Sustainable Strategic Business Models: Essays on Poverty Alleviation as a Business Strategy , 2008 .

[35]  Kaouthar Lajili,et al.  Market performance impacts of human capital disclosures , 2006 .

[36]  Richard A. Lambert.  Customer satisfaction and future financial performance discussion of are nonfinancial measures leading indicators of financial performance? Are analysis of customer satisfaction , 1998 .

[37]  A. Abdel-khalik,et al.  Self-sorting, incentive compensation and human-capital assets , 2003 .

[38]  K. Maas.  Corporate Social Performance: From Output Measurement to Impact Measurement , 2009 .

[39]  H. Burgers.  Managing Corporate Venturing: Multi-level Studies on Project Autonomy, Integration, Knowledge Relatedness, and Phases in the New Business Development Process , 2003 .

[40]  J. Guimón.  Intellectual capital reporting and credit risk analysis , 2005 .

[41]  Ross L. Watts,et al.  The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting , 2000 .

[42]  Marieke van der Poel,et al.  Empirical Essays in Corporate Finance and Financial Reporting , 2003 .

[43]  S. Wennekers,et al.  Entrepreneurship at Country Level: Economic and Non-Economic Determinants , 2006 .

[44]  M. vanDiepen.  Dynamics and Competition in Charitable Giving , 2009 .

[45]  Erik Kole,et al.  On crises, crashes and comovements , 2006 .

[46]  Steven Sweldens,et al.  Evaluative Conditioning 2.0: Direct versus Associative Transfer of Affect to Brands , 2004 .

[47]  W. V. D. Heuvel,et al.  The Economic Lot-Sizing Problem: new results and extensions , 2002 .

[48]  M. Mol.  Outsourcing, Supplier Relations and Internationalisation: Global Sourcing Strategy as a Chinese Puzzle , 2001 .

[49]  D. Rus,et al.  The Dark Side of Leadership: Exploring the Psychology of Leader Self-serving Behavior , 2009 .

[50]  Maureen F. McNichols,et al.  Underwriting relationships, analysts' earnings forecasts and investment recommendations , 1998 .

[51]  Vernon J. Richardson,et al.  The Value Relevance of Announcements of Transformational Information Technology Investments , 2003, MIS Q..

[52]  I. Pouchkarev.  Performance Evaluation of Constrained Portfolios , 2005 .

[53]  M. D. Brito,et al.  Managing reverse logistics or reversing logistics management , 2004 .

[54]  Emma García‐Meca,et al.  Assessing the quality of disclosure on intangibles in the Spanish capital market , 2005 .

[55]  S. C. Tasker,et al.  Bridging the Information Gap: Quarterly Conference Calls as a Medium for Voluntary Disclosure , 1999 .

[56]  J. Hassell,et al.  Why Do Managers Explain Their Earnings Forecasts , 2004 .

[57]  Marilyn F. Johnson,et al.  An Empirical Examination of Conference Calls as a Voluntary Disclosure Medium , 1997 .

[58]  Hong Chen,et al.  Individual mobile communication services and tariffs , 2008, Erasmus research institute of management : ERIM.

[59]  Productivity, R&D and Entrepreneurship , 2008 .

[60]  A. Gutkowska,et al.  Essays on the Dynamic Portfolio Choice , 2006 .

[61]  G. Hübner,et al.  Concentrated Announcements on Clustered Data: An Event Study on Biotechnology Stocks , 2004 .

[62]  Joost Loef.  Incongruity between Ads and Consumer Expectations of Advertising , 2002 .

[63]  Patricia M. Dechow,et al.  The Relation between Analysts' Forecasts of Long-Term Earnings Growth and Stock Price Performance Following Equity Offerings , 1999 .

[64]  Scott A. Richardson,et al.  The Walk-down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives* , 2004 .

[65]  H. Alvarez,et al.  Distributed Collaborative Learning Communities Enabled by Information Communication Technology , 2006 .

[66]  A. Keizer,et al.  The Changing Logic of Japanese Employment Practices: A Firm-Level Analysis of Four Industries , 2005 .

[67]  Charles E. Wasley,et al.  Capital Markets Research in Accounting , 2001 .

[68]  Bert de Groot,et al.  Essays on economic cycles , 2006 .

[69]  Xueyuan Zhang,et al.  Strategizing of Foreign Firms in China : An institution-based perspective , 2007 .

[70]  C. Huurman,et al.  Dealing with Electricity Prices , 2002 .

[71]  Csaba Attila Boer.  Distributed Simulation in Industry , 2005 .

[72]  Charles Shi.  On the trade-off between the future benefits and riskiness of R&D: a bondholders’ perspective ☆ , 2002 .

[73]  Dominique Delporte-Vermeiren.  Improving the flexibility and profitability of ICT-enabled business networks: an assessment method and tool. , 2003 .

[74]  J. V. Oostrum,et al.  Applying Mathematical Models to Surgical Patient Planning , 2009 .

[75]  Laurens M. Sloot,et al.  Understanding Consumer Reactions to Assortment Unavailability , 2006 .

[76]  Govert Gijsbers,et al.  Agricultural Innovation in Asia: Drivers, Paradigms and Performance , 2009 .

[77]  Mohammad J. Abdolmohammadi,et al.  Intellectual capital disclosure and market capitalization , 2005 .

[78]  Michael D. Kimbrough.  The Effect of Conference Calls on Analyst and Market Underreaction to Earnings Announcements , 2005 .

[79]  Gregory S. Miller,et al.  Earnings Performance and Discretionary Disclosures , 1999 .

[80]  R. Petty,et al.  Intellectual capital: Australian annual reporting practices , 2000 .

[81]  Zenlin Kwee,et al.  Investigating Three Key Principles of Sustained Strategic Renewal: A Longitudinal Study of Long-Lived Firms , 2004 .

[82]  R. Prins,et al.  Modeling Consumer Adoption and Usage of Value-Added Mobile Services , 2003 .

[83]  M. Brennan,et al.  INVESTOR RELATIONS, LIQUIDITY, AND STOCK PRICES , 2000 .

[84]  O. Koppius.  Information Architecture and Electronic Market Performance , 2002 .

[85]  I.F.A. Vis,et al.  Planning and Control Concepts for Material Handling Systems , 2002 .

[86]  Feng Li.  Annual Report Readability, Current Earnings, and Earnings Persistence , 2008 .

[87]  Dan Givoly,et al.  The information content of financial analysts' forecasts of earnings: Some evidence on semi-strong inefficiency , 1979 .

[88]  Wayne R. Landsman,et al.  The Valuation Implications of Employee Stock Option Accounting for Profitable Computer Software Firms , 2002 .

[89]  R. Wall,et al.  NETSCAPE: Cities and Global Corporate Networks , 2009 .

[90]  G. Liang,et al.  New Competition; Foreign Direct Investment and Industrial Development in China , 2004 .

[91]  R. Dye.  DISCLOSURE OF NONPROPRIETARY INFORMATION , 1985 .

[92]  I. Verheul,et al.  Is there a (fe)male approach? Understanding gender differences in entrepreneurship , 2005 .

[93]  M. V. Assem.  Deal or No Deal? Decision Making under Risk in a Large-Stake TV Game Show and Related Experiments , 2008 .

[94]  B. Lev,et al.  VOLUNTARY FORECAST DISCLOSURE, NONDISCLOSURE, AND STOCK-PRICES , 1990 .

[95]  Robert van der Meer,et al.  Operational Control of Internal Transport , 2000 .

[96]  R. Jacobson,et al.  The Information Content of Brand Attributes , 2006 .

[97]  Jennifer Francis,et al.  Voluntary Disclosure, Earnings Quality, and Cost of Capital , 2008 .

[98]  Jeroen G. Kuilman,et al.  The Re-Emergence of Foreign Banks in Shanghai: An Ecological Analysis , 2005 .

[99]  Roni Michaely,et al.  Conflict of interest and the credibility of underwriter analyst recommendations , 1999 .

[100]  Sunil Wahal,et al.  Institutional Trading and Soft Dollars , 1997 .

[101]  W. D. Maeseneire,et al.  Essays on Firm Valuation and Value Appropriation , 2002 .

[102]  Jennifer Francis,et al.  The relative informativeness of analysts' stock recommendations and earnings forecast revisions , 1997 .

[103]  J. Hermans,et al.  ICT in Information Services; Use and deployment of ICT in the Dutch securities trade 1860-1970 , 1999 .

[104]  Jennifer L. Juergens,et al.  Getting Out Early: An Analysis of Market Making Activity at the Recommending Analyst's Firm , 2006 .

[105]  P. Wells,et al.  Identifiable Intangible Asset Disclosures, Stock Prices and Future Earnings , 2006 .

[106]  L. Rook.  Imitation in Creative Task Performance , 2002 .

[107]  Suresh Kotha,et al.  The Value-Relevance of Network Advantages: The Case of E-Commerce Firms , 2003 .

[108]  A. R. van deEijk.  Behind Networks: Knowledge Transfer, Favor Exchange and Performance , 2009 .

[109]  Russell J. Lundholm,et al.  CROSS- SECTIONAL DETERMINANTS OF ANALYST RATINGS OF CORPORATE DISCLOSURES , 1993 .

[110]  Shuping Chen,et al.  Management-Provided Information , 2006 .

[111]  Manuel García-Ayuso Covarsí,et al.  Accounting for intangibles: a literature review , 2004 .

[112]  Haikun Ning.  Hierarchical Portfolio Management: Theory and Applications , 2003 .

[113]  Andrea Ganzaroli,et al.  Creating trust between local and global systems , 2002 .

[114]  S. Balasubramanian,et al.  The impact of high-quality firm achievements on shareholder value: Focus on Malcolm Baldrige and J. D. Power and associates awards , 2005 .

[115]  Tao Jiao.  Essays in Financial Accounting , 2009 .

[116]  Jos van Iwaarden,et al.  Changing Quality Controls: the effects of increasing product variety and shortening product life cycles , 2002 .

[117]  Mary E. Barth,et al.  Analyst Coverage and Intangible Assets , 2000 .

[118]  M. Bradshaw.  How Do Analysts Use Their Earnings Forecasts in Generating Stock Recommendations? , 2000 .

[119]  Reginald Hooghiemstra,et al.  The Construction of Reality , 2003 .

[120]  Eva Niesten,et al.  Regulation, Governance and Adaptation: Governance transformations in the Dutch and French liberalizing electricity industries , 2009 .

[121]  Marcel van Rinsum,et al.  Performance Measurement and Managerial Time Orientation , 1999 .

[122]  Longitudinal value relevance of earnings and intangible assets: Evidence from Australian firms , 2006 .

[123]  Sophie Schweizer,et al.  An Individual Psychology of Novelty-Seeking, Creativity and Innovation , 2000 .

[124]  Jan Mouritsen,et al.  Disclosure of information on intellectual capital in Danish IPO prospectuses , 2005 .

[125]  Leon W P Peeters,et al.  Cyclic Railway Timetable Optimization , 2003 .

[126]  Pieter van der Vlist,et al.  Synchronizing the retail supply chain , 2007 .

[127]  R. Govers,et al.  Virtual Tourism Destination Image: Glocal identities constructed, perceived and experienced , 2005 .

[128]  Chiung-Ju Liang,et al.  The Value-Relevance of Financial and Nonfinancial Information—Evidence from Taiwan’s Information Electronics Industry , 2005 .

[129]  Georgi Nalbantov,et al.  Essays on Some Recent Penalization Methods with Applications in Finance and Marketing , 2004 .

[130]  Maarten Jennen,et al.  Empirical Essays on Office Market Dynamics , 2004 .

[131]  R. Pownall,et al.  Rethinking risk in international financial markets , 2001 .

[132]  Michael D. Kimbrough.  The Influences of Financial Statement Recognition and Analyst Coverage on the Market's Valuation of R&D Capital , 2007 .

[133]  Linda Teunter,et al.  Analysis of Sales Promotion Effects on Household Purchase Behavior , 2002 .

[134]  P. Daniševská,et al.  Empirical Studies on Financial Intermediation and Corporate Policies , 2004 .

[135]  N. P. van deWeerdt,et al.  Organizational Flexibility for Hypercompetitive Markets : Empirical Evidence of the Composition and Context Specificity of Dynamic Capabilities and Organization Design Parameters , 2009 .

[136]  Jiaqi Yang,et al.  Towards the Restructuring and Co-ordination Mechanisms for the Architecture of Chinese Transport Logistics , 2009 .

[137]  R. Petty,et al.  The voluntary reporting of intellectual capital , 2006 .

[138]  B. Lev.  Intangibles: Management, Measurement, and Reporting , 2001 .

[139]  Frédérique Six,et al.  Trust and trouble; Building interpersonal trust within organizations , 2004 .

[140]  Ramon M Lentink,et al.  Algorithmic Decision Support for Shunt Planning , 2006 .

[141]  Thomas Jeanjean,et al.  The negative impact of R&D capitalization: A value relevance approach , 2006 .

[142]  R. Speklé,et al.  Beyond generics: A closer look at hybrid and hierarchical governance , 2001 .

[143]  Matthijs Wolters,et al.  The Business of Modularity and the Modularity of Business , 1999 .

[144]  B. Lev,et al.  The Information Content of Royalty Income , 2004 .

[145]  Sanjay Kallapur,et al.  The Value Relevance and Reliability of Brand Assets Recognized by U.K. Firms , 2004 .

[146]  Robert E. Verrecchia,et al.  The Effect of Informedness and Consensus on Price and Volume Behavior , 2008 .

[147]  Lin Lin,et al.  Analyst Impartiality and Investment Banking Relationships , 2005 .

[148]  Katalin Boer-Sorban.  Agent-Based Simulation of Financial Markets: A Modular, Continuous-time Approach , 2008 .

[149]  K. deValck.  Virtual Communities of Consumption: Networks of Consumer Knowledge and Companionship , 2005 .

[150]  Kamran Ahmed,et al.  The value relevance of management’s research and development reporting choice: Evidence from Australia , 2006 .

[151]  Amy P. Hutton.  Determinants of Managerial Earnings Guidance Prior to Regulation Fair Disclosure and Bias in Analysts' Earnings Forecasts , 2002 .