Can Investors Detect Managers' Lack of Spontaneity? Adherence to Predetermined Scripts during Earnings Conference Calls

2015 ◽  
Vol 91 (1) ◽  
pp. 229-250 ◽  
Author(s):  
Joshua Lee
Keyword(s):  
Firm Performance ◽  
Abnormal Returns ◽  
Bad News ◽  
Conference Calls ◽  
Negatively Associated ◽  
Future Earnings ◽  
Accounting Performance ◽  
Market Participants ◽  
Bid Ask Spreads ◽  
Jel Classifications

ABSTRACT This paper examines whether market participants infer negative information about future unexpected firm performance when managers adhere to predetermined scripts when responding to questions during earnings conference calls. I argue that managers respond to questions from prepared scripts to avoid the disclosure of bad news. Using a measure of the adherence to predetermined language, I provide evidence that a lack of spontaneity is negatively associated with the market reaction to the call and with the abnormal returns in the subsequent quarter. I further find that analysts downgrade their forecasts following these calls. I also provide evidence that adherence to predetermined language is negatively associated with future unexpected firm accounting performance, supporting investors' negative response to it. Finally, I find that bid-ask spreads increase and firms are less likely to guide future earnings when managers adhere to the predetermined language of a script, suggesting that firms provide less information, not more, during these calls. JEL Classifications: G14; M40; M41.

“Stiff Business Headwinds and Uncharted Economic Waters”: The Use of Euphemisms in Earnings Conference Calls

2021 ◽  
Author(s):  
Kate Suslava
Keyword(s):  
Market Reaction ◽  
Abnormal Returns ◽  
Bad News ◽  
Conference Calls ◽  
Investor Attention ◽  
Earnings Announcement ◽  
Negatively Associated ◽  
The Impact

This paper studies whether euphemisms obfuscate the content of earnings conference calls and cause investors to underreact. I argue that managers’ use of euphemisms can alleviate the impact of bad news and delay the market reaction to adverse information. Using a dictionary of corporate euphemisms, I find that their use by managers—but not by analysts—is negatively associated with both immediate and future abnormal returns, and their frequency moderates the negative market reaction to bad earnings news. Finally, stock underreaction is more pronounced on busy earnings announcement dates, when investor attention is distracted. This paper was accepted by Brian Bushee, accounting.

scholarly journals The Information Content of Risk Factor Disclosures in Quarterly Reports

2015 ◽  
Vol 29 (4) ◽  
pp. 887-916 ◽  
Author(s):  
Joshua J. Filzen
Keyword(s):  
Risk Factors ◽  
Risk Factor ◽  
Abnormal Returns ◽  
Data Availability ◽  
Bad News ◽  
Filing Date ◽  
Unexpected Earnings ◽  
Disclosure Requirement ◽  
Jel Classifications ◽  
Negative Earnings

SYNOPSIS I examine whether recently required risk factor update disclosures in quarterly reports provide investors with timely information regarding potential future negative economic events. Specifically, I examine whether risk factor updates in 10-Q filings are associated with negative abnormal returns at the time the updates are disclosed and whether quarterly updates are followed by negative earnings shocks. I find that firms presenting updates to their risk factor disclosures have significantly lower abnormal returns around the filing date of the 10-Q relative to firms without updates. I also find that firms with updates to their risk factors section have significantly lower future unexpected earnings and are more likely to experience future extreme negative earnings shocks. These findings suggest that the recent disclosure requirement mandated by the SEC was successful in generating timely disclosure of bad news. JEL Classifications: M41; M48; D80; G18. Data Availability: Please contact the author for data availability.

Strategic Use of Volume of Financial Items in 10-K Reports

2021 ◽  
pp. 0148558X2198990
Author(s):  
C. S. Agnes Cheng ◽  
Jiajia Fu ◽  
Wenli Huang ◽  
Jiao Jing
Keyword(s):  
Firm Performance ◽  
Stock Prices ◽  
Financial Statements ◽  
Managerial Incentives ◽  
Bad News ◽  
Annual Reports ◽  
Future Earnings ◽  
Future Performance ◽  
Abnormal Volume ◽  
Low Volume

We investigate whether firms limit the volume of financial items in annual reports (including the financial statements and footnotes) to obfuscate poor future firm performance, and how investors react to this reduced volume. We estimate abnormal volume to capture managers’ discretion over reporting in the 10-K and find that abnormally low volume predicts poor future earnings. This relation is more pronounced in firms where the market has difficulty in detecting managerial intervention in the disclosure process. We also find that abnormally low volume predicts negative future returns, suggesting that managers benefit from disclosing fewer financial items by delaying the incorporation of bad news into stock prices. Further corroborating our results, we find that the volume is abnormally low when there exist strong managerial incentives to withhold bad news and manipulate investor perceptions upward. Overall, our evidence is consistent with the notion that managers attempt to obfuscate poor future performance and inflate current stock prices by disclosing fewer financial items in the 10-K.

scholarly journals Casting Conference Calls

2020 ◽  
Vol 66 (11) ◽  
pp. 5015-5039 ◽  
Author(s):  
Lauren Cohen ◽  
Dong Lou ◽  
Christopher J. Malloy
Keyword(s):  
Firm Behavior ◽  
Abnormal Returns ◽  
Discretionary Accruals ◽  
Conference Calls ◽  
Earnings Expectations ◽  
Earnings Restatements ◽  
Future Earnings ◽  
Control Information ◽  
The United Kingdom ◽  
Earnings Surprises

We explore a subtle but important mechanism through which firms can control information flow to the markets. We find that firms that “cast” their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. A long–short portfolio that exploits this differential firm behavior earns abnormal returns of up to 149 basis points per month or almost 18% per year. We find similar evidence in an international sample of earnings call transcripts from the United Kingdom, Canada, France, and Japan. Firms with higher discretionary accruals, firms that barely meet/exceed earnings expectations, and firms (and their executives) that are about to issue equity, sell shares, and exercise options are all significantly more likely to cast their earnings calls. This paper was accepted by Tyler Shumway, finance.

The Effect of Mandatory Disclosure on Market Inefficiencies: Evidence from FASB Statement No. 161

2020 ◽  
Vol 96 (2) ◽  
pp. 153-176 ◽  
Author(s):  
John L. Campbell ◽  
Urooj Khan ◽  
Spencer Pierce
Keyword(s):  
Firm Performance ◽  
Cash Flow ◽  
Firm Value ◽  
Forecast Accuracy ◽  
Analyst Forecast ◽  
Mandatory Disclosure ◽  
Negatively Associated ◽  
Future Earnings ◽  
Market Inefficiencies ◽  
Accounting Model

ABSTRACT Prior research finds that unrealized gains/losses on cash flow hedges are negatively associated with future earnings, and that investors and analysts fail to anticipate this association. These studies speculate that this mispricing is due to either poor derivatives disclosures or the accounting model for cash flow hedges. We examine whether enhanced mandatory derivatives disclosures set forth in FAS 161 improve users' understanding of firms' hedging activities and offer three main findings. First, we find that this mispricing does not persist after FAS 161. Second, we find that the correction of mispricing is greatest when disclosure might help investors most. Finally, we find that analyst forecast accuracy improves after FAS 161. Overall, our results suggest that the enhanced mandatory derivative disclosures required by FAS 161 improved users' understanding of the effects of derivative and hedging activities on future firm performance and firm value—and consequently mitigated investor mispricing.

Concurrent Earnings Announcements and Analysts' Information Production

2019 ◽  
Vol 95 (1) ◽  
pp. 165-189 ◽  
Author(s):  
Matthew Driskill ◽  
Marcus P. Kirk ◽  
Jennifer Wu Tucker
Keyword(s):  
Earnings Announcements ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Limited Attention ◽  
Conference Calls ◽  
Stock Recommendations ◽  
Rich Information ◽  
Sample Firm ◽  
Jel Classifications

ABSTRACT We examine whether financial analysts are subject to limited attention. We find that when analysts have another firm in their coverage portfolio announcing earnings on the same day as the sample firm (a “concurrent announcement”), they are less likely to issue timely earnings forecasts for the sample firm's subsequent quarter than analysts without a concurrent announcement. Among the analysts who issue timely earnings forecasts, the thoroughness of their work decreases as their number of concurrent announcements increases. In addition, analysts are more sluggish in providing stock recommendations and less likely to ask questions in earnings conference calls as their number of concurrent announcements increases. Moreover, when analysts face concurrent announcements, they tend to allocate their limited attention to firms that already have rich information environments, leaving behind firms in need of attention. Overall, our evidence suggests that even financial analysts, who serve as information specialists, are subject to limited attention. JEL Classifications: G10; G11; G17; G14. Data Availability: Data are publicly available from the sources identified in the paper.

Come on Over: Analyst/Investor Days as a Disclosure Medium

2016 ◽  
Vol 91 (6) ◽  
pp. 1725-1750 ◽  
Author(s):  
Marcus P. Kirk ◽  
Stanimir Markov
Keyword(s):  
Information Content ◽  
Short Duration ◽  
Price Impact ◽  
Senior Management ◽  
Data Availability ◽  
Market Participants ◽  
Temporal Proximity ◽  
Conference Presentations ◽  
Close Temporal Proximity ◽  
Jel Classifications

ABSTRACT Our study introduces analyst/investor days, a new disclosure medium that allows for private interactions with influential market participants. We also highlight interdependencies in the choice and information content of analyst/investor days and conference presentations, a well-researched disclosure medium that similarly allows for private interactions. Analyst/investor days are less frequent, but with longer duration and greater price impact than conference presentations. They are mostly hosted by firms that already have opportunities to interact with investors at conferences, but whose complex and diverse activities make the short duration and rigid format of a conference presentation an imperfect solution to these firms' information problems. Analyst/investor days and conference presentations tend to occur in different quarters, consistent with their competing for the time and attention of senior management. When these two mediums are scheduled in close temporal proximity to each other, analyst/investor days diminish the information content of conference presentations, but not vice versa, consistent with managers' favoring analyst/investor days over conference presentations as a disclosure medium. JEL Classifications: D82; M41; G11; G12; G14. Data Availability: Data are publicly available from the sources identified in the paper.

Divestiture and Its Market Reaction in a Consolidating Industry: The Global Brewing Industry

2021 ◽  
pp. 1-21
Author(s):  
Ludwig Erl ◽  
Florian Kiesel
Keyword(s):  
Mergers And Acquisitions ◽  
Capital Market ◽  
Market Reaction ◽  
Market Performance ◽  
Abnormal Returns ◽  
Brewing Industry ◽  
Efficiency Gains ◽  
Market Values ◽  
Jel Classifications ◽  
The Capital Market

Abstract This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself. (JEL Classifications: G14, G34, L25, Q14)

scholarly journals Does litigation change managers’ beliefs about the value of voluntarily disclosing bad news?

2021 ◽  
Author(s):  
Mary Brooke Billings ◽  
Matthew C. Cedergren ◽  
Svenja Dube
Keyword(s):  
Legal Liability ◽  
Good Faith ◽  
Bad News ◽  
Press Releases ◽  
Conference Calls ◽  
Consensus Forecasts ◽  
Legal Costs

AbstractResearch suggests that earnings-disclosure-related litigation causes managers to reduce subsequent disclosure, perhaps stemming from a belief that even their good faith disclosures will cause them trouble. This paper considers unexplored dimensions of disclosure and alternative channels of disclosure to provide additional evidence that speaks to how litigation shapes managers’ disclosure strategies. Consistent with Skinner (1994)’s classic legal liability hypothesis, we find that, while managers reduce and delay forecasts of positive earnings news following litigation, they increase the frequency and timeliness of their bad news forecasts. Moreover, many managers who were nonguiders prior to facing legal scrutiny begin guiding following litigation. Managers also maintain (if not increase) the information they provide via press releases and during conference calls following litigation. Supporting the notion that managers use disclosure to walk down expectations, additional analyses document an increase in the likelihood that lawsuit firms report earnings that beat consensus forecasts in the post-lawsuit period. Collectively, our evidence suggests that following litigation managers continue to view disclosure as a valuable tool that shapes their firms’ information environments and reduces expected legal costs. In so doing, it supports an important alternative viewpoint of how firms respond to litigation as well as the effectiveness of litigation as a disciplining mechanism.

scholarly journals The structure of corporate ownership and firm performance: Sri Lankan evidence

2013 ◽  
Vol 11 (1) ◽  
pp. 723-734 ◽  
Author(s):  
Athula Manawaduge ◽  
Anura De Zoysa
Keyword(s):  
Firm Performance ◽  
Performance Measures ◽  
Ownership Structure ◽  
Emerging Market ◽  
Ownership Concentration ◽  
Sri Lankan ◽  
Accounting Performance ◽  
Listed Firms ◽  
Strong Positive Relationship ◽  
The Impact

This paper examines the impact of ownership structure and concentration on firm performance in Sri Lanka, an emerging market in Asia. The study estimates a series of regressions using pooled data for a sample of Sri Lankan-listed firms to investigate the impact of ownership concentration and structure on firm performance based on agency theory framework, using both accounting and market-based performance indicators. The results of the study provide evidence for a strong positive relationship between ownership concentration and accounting performance measures. This suggests that a greater concentration of ownership leads to better performance. However, we found no significant impact using market-based performance measures, which suggests the existence of numerous market inefficiencies and anomalies. Furthermore, the findings of the study show that ownership structure does not have a significant distinguishable effect on performance.

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