How firms strategically disclose information through selected channels

65 Pages Posted: 20 Apr 2021 Last revised: 11 Oct 2023

See all articles by Wolfgang Breuer

Wolfgang Breuer

RWTH Aachen University

Anthony Haake

RWTH Aachen University - Department of Finance

Bertram I. Steininger

Royal Institute of Technology (KTH)

Date Written: October 1, 2023

Abstract

This study investigates the strategic use of two disclosure channels for distributing positive or negative information and thereby optimizing for their stock market impact. By drawing from media richness and media naturalness theory, we predict that firms favor earnings conference calls (ECCs) for disclosing positive news to highlight them and earnings press releases (EPRs) for disclosing negative news to understate them. Our results based on textual and machine-learning-based analysis support this conclusion, since if firms distribute information according to its positivity, the tone and the readability of their ECCs improve, whereas they deteriorate for EPRs. Information distribution through distinct channels is pronounced if firms have a high market-to-book ratio, high cash balances, or volatile purchases of fixed assets or if they operate in the financial or regulated industries, i.e., in situations with elevated information demands of investors, which firms cater to with good news. Opposed to that, we find that firms distribute similar information through ECC and EPR, if they have more debt or more volatile cash flows, if they operate under macroeconomic uncertainty, or if they have bad news coverage, i.e., in situations with limited relevance of voluntary information. Firms that use a positive tone in ECCs increase the cumulative abnormal stock returns fourfold compared to EPRs, and a portfolio – which holds the quintile of firms that use ECCs as complementary to EPRs – yields significant abnormal returns (equal to 4.4 % in five-factor adjusted alpha per annum).

Keywords: conference calls, press releases, textual analysis, management language, stock market reaction

JEL Classification: G10, G14, G40, G41

Suggested Citation

Breuer, Wolfgang and Haake, Anthony and Steininger, Bertram I., How firms strategically disclose information through selected channels (October 1, 2023). Available at SSRN: https://ssrn.com/abstract=3830097 or http://dx.doi.org/10.2139/ssrn.3830097

Wolfgang Breuer

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Anthony Haake

RWTH Aachen University - Department of Finance ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Bertram I. Steininger (Contact Author)

Royal Institute of Technology (KTH) ( email )

Stockholm
Sweden

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