The Influence of Manager-Analyst Interactions on Street Earnings: Evidence from Conference Calls and Excluded Analysts

53 Pages Posted: 27 Jun 2017 Last revised: 13 Feb 2019

See all articles by Ervin L. Black

Ervin L. Black

Steed School of Accounting

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Paraskevi Vicky Kiosse

University of Exeter Business School

Thomas D. Steffen

Yale University School of Management

Date Written: February 9, 2019

Abstract

We investigate how interactions between analysts and managers influence (1) analyst disagreement about the definition of forecasted street earnings and (2) shifts in the definition of actual street earnings. Textual analysis of conference call transcripts indicates that more discussion about non-GAAP earnings and exclusions is associated with larger street earnings exclusions, consistent with prior evidence that both managers and analysts influence street earnings. To measure disagreement among analysts about the definition of forecasted street earnings, we introduce a new measure based on the number of analysts whose forecasts are excluded from the consensus. We find that the discussion of non-GAAP earnings in the question and answer (Q&A) section of the conference call is significantly associated with this measure, indicating that the dialog between managers and analysts about non-GAAP performance metrics is associated with disagreement about how core performance should be defined. We also find that when more analysts are excluded from the consensus, the market response to positive earnings surprises is significantly muted, suggesting that analyst disagreement in defining performance influences a firm’s information environment. Finally, we employ three proxies to capture shifts in the consensus definition of actual street earnings and find that definition shifts are associated with both (1) manager-analyst non-GAAP discussions in conference calls and (2) our new proxy for analyst disagreement about the definition of street earnings. Our results provide a more comprehensive view of the roles played by managers and analysts in determining street earnings.

Keywords: non-GAAP performance measures, street earnings, conference calls, earnings press releases, analyst disagreement

JEL Classification: G14, M40, M41

Suggested Citation

Black, Ervin L. and Christensen, Theodore E. and Kiosse, Paraskevi Vicky and Steffen, Thomas D., The Influence of Manager-Analyst Interactions on Street Earnings: Evidence from Conference Calls and Excluded Analysts (February 9, 2019). Available at SSRN: https://ssrn.com/abstract=2992618 or http://dx.doi.org/10.2139/ssrn.2992618

Ervin L. Black

Steed School of Accounting ( email )

307 W Brooks
Norman, OK 73019
United States
405-325-2401 (Phone)

Theodore E. Christensen (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

Paraskevi Vicky Kiosse

University of Exeter Business School ( email )

Exeter, EX4 4PU
United Kingdom

Thomas D. Steffen

Yale University School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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