Using earnings conference calls to identify analysts with superior private information
- 2.9k Downloads
We examine the extent to which analysts who participate in earnings conference calls by asking questions possess superior private information relative to analysts who do not ask questions. Using a large sample of earnings conference call transcripts over the period 2002–2005, we find that annual earnings forecasts issued immediately after a conference call are both more accurate and timelier for participating analysts relative to nonparticipating analysts. These results hold after controlling for observable analyst characteristics, suggesting conference call participation can serve as a mechanism to identify analysts possessing superior private information. The economic magnitude of the superior private information contained in participating analyst forecasts is small but comparable with magnitudes reported in prior studies with respect to other analyst characteristics. Our mediation analysis does not support the notion that the superior private information stems exclusively from the information received during the call. Therefore, from a regulatory stand point, our results suggest that regulatory intervention to allow for equal participation during conference calls may be unwarranted.
KeywordsConference calls Private information benefits Financial analysts Regulation FD Forecast accuracy Forecast timeliness
JEL ClassificationM41 G24 G29 G38 K22
We appreciate helpful comments and suggestions from three anonymous referees, Larry Brown, Michael Clement, Yonca Ertimur, Jennifer Francis, Richard Frankel, Doron Nissim (the editor), Beverley Walther, Hal White, Richard Willis, Yong Yu, the managing director and director of research at a prominent sell-side research firm, members of the National Investor Relations Institute (NIRI) Triangle chapter and seminar participants at the Duke Accounting mini-brown bag, Fuqua summer brown bag, Texas A&M summer brown bag, Southeast Summer Accounting Research Conference at the University of Georgia, Washington University at St. Louis, and the AAA Financial Accounting and Reporting Section 2010 Midyear meeting.
- Barron, O. E., Kim, O., Lim, S. C., & Stevens, D. E. (1998). Using analysts’ forecasts to measure properties of analysts’ information environment. The Accounting Review, 73(4), 421–433.Google Scholar
- Brochet, F., Miller, G., & Srinivasan, S. (2010). Do analyst/manager relations travel: An analysis of executives changing employers. Working paper, Harvard Business School and University of Michigan.Google Scholar
- Brown, L., & Mohd, E. (2003). The predictive value of analyst characteristics. Journal of Accounting, Auditing and Finance, 18(4), 625–647.Google Scholar
- Cohen, L., Frazzini, A., & Malloy, C. (2010). Hiring cheerleaders: Board appointments of “independent” directors. Working paper, AQR Capital Management and Harvard University.Google Scholar
- Cox, C. (2005). Response letter to Senator Ron Wyden regarding issuer retaliation against research analysts. Securities and Exchange Commission (September 1, 2005).Google Scholar
- Davis, A. (2004). Wall street, companies it covers, agree on honesty policy. The Wall Street Journal (March 11, 2004): C1.Google Scholar
- Erdos & Morgan, (2008). Investor perception study (13th ed.). Conducted on behalf of IR Magazine. Google Scholar
- Groysberg, B., Healy, P. M., & Maber, D. A. (2011). What drives sell-side analyst compensation at high-status banks? Journal of Accounting Research, 49(4), 969–1000. Google Scholar
- Huber, P. J. (1967). The behavior of maximum likelihood estimates under nonstandard conditions. Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, 1, 221–223.Google Scholar
- Johnson, T. (2005). The 2005 All-America research team. Institutional Investor, 39(10), 52–90.Google Scholar
- Jones, S. (2005). Mechanism is in place to resolve analyst-company disputes. Investment News. CFA Institute (October 10, 2005).Google Scholar
- Lowengard, M. (2006). Guide to icing analysts. IR Magazine (July 2006).Google Scholar
- Mayo, M. (2002). Testimony for “Accounting and investor protection issues raised by Enron and other public companies.” U.S. Senate Committee on Banking, Housing and Urban Affairs Hearing (March 19, 2002).Google Scholar
- Mayo, M. (2006). Why independent research is still rare. CFA Magazine, 17(3), 6–7.Google Scholar
- Mayo, M. (2010). Testimony before the financial crisis inquiry commission. January 13, 2010. http://www.fcic.gov/hearings/pdfs/2010-0113-Mayo.pdf.
- McNichols, M., & O’Brien, P. (1997). Self-selection and analyst coverage. Journal of Accounting Research, 35(Supplement), 167–199.Google Scholar
- Morgenson, G. (2005). S.E.C. looks at company’s retaliation on analysts. The New York Times Section 3 (September 23, 2005).Google Scholar
- Preacher, K. J., & Leonardelli, G. J. (2001). Calculation for the Sobel Test: An interactive calculation tool for mediation tests 2001 [cited March 2001]. Available from http://www.quantpsy.org.
- Schipper, K. (1991). Commentary on analysts’ forecasts. Accounting Horizons, 5(December), 105–119.Google Scholar
- Securities Industry Association (SIA). (2005). Letter to SEC re: Comment on release no. 34-51545, sr-nyse-2005-24, and Chairman Donaldson’s remarks on issuer retaliation. Securities Industry Association (May 11, 2005).Google Scholar
- Sobel, M. E. (1982). Asymptotic confidence intervals for indirect effects in structural equation models. Sociological methodology, 13, 290–312.Google Scholar
- Sobel, M. E. (1986). Some new results on indirect effects and their standard errors in covariance structure models. Sociological methodology, 16, 159–186.Google Scholar
- White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4), 817–838.Google Scholar