The Role of Analyst Conference Calls in Capital Markets

Many 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.

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