In Search of Interaction

Abstract

Corporate managers increasingly employ interactive media to communicate with market participants. Exploiting the live, interactive nature of conference call question-and-answer (Q&A) sessions, in which participants get the opportunity to ask their questions, our analysis reveals that conference calls oftentimes pass with an inadequate number of questions raised by the participants. In the post-Regulation Fair Disclosure world, this practice makes information acquisition and interpretation more costly, particularly for less sophisticated investors. We find that, when no one asks questions, firms experience a 13 percent smaller reduction in bid-ask spread and downward pressure on their stock price (i.e., next-day abnormal return is 72 basis points lower), consistent with a cost disadvantage. Our results hold across three identification strategies, and extend to calls in which the number of questions raised falls far below expectations.

Keywords: Interactive communication, information asymmetry, conference calls

JEL Classification: M41, G12, G14