Analyst Conflict of Interest and Earnings Conference Call Informativeness
58 Pages Posted: 31 Aug 2018 Last revised: 6 Apr 2019
Date Written: April 04, 2019
We examine the informativeness of dialogues between managers and analysts during earnings conference calls. We distinguish between favored and disfavored analysts who face differential conflicts with firm management. Favored analysts curry favor with management by providing favorable recommendations and achievable earnings forecasts. Using intra-day absolute stock price reactions around specific analyst-manager dialogues to proxy for informativeness, we find that manager dialogues with disfavored analysts are more informative. Disfavored analysts engage in longer dialogues with more back-and-forth iterations relative to favored analysts. Stock prices directionally respond to both the analyst’s linguistic tone and the manager’s voice pitch. While favored analysts exhibit a more positive tone compared to disfavored analysts, managers reduce their voice pitch to signal dominance regardless of analyst favor. We find no evidence that disfavored (favored) analysts systematically drive stock prices down (up). Overall, the capital market effects of earnings conference calls are far more nuanced than previously documented.
Keywords: Conference Calls, Financial Analysts, Favored Analysts, Price Formation, Market Microstructure, Conflict of Interest
JEL Classification: M41
Suggested Citation: Suggested Citation