Product Market Competition, Disclosure Framing, and Casting in Earnings Conference Calls
59 Pages Posted: 23 Mar 2020 Last revised: 18 Sep 2020
Date Written: September 8, 2020
An extensive stream of literature investigates how product market competition, by increasing the proprietary costs of disclosure, influences corporate disclosure policy. However, prior research generally examines disclosure as a binary choice: disclose or withhold. We hypothesize that the extent of proprietary costs incurred is not only determined by whether a disclosure is made, but also by how the disclosure is framed and structured. We predict and find that intensity of competition in the product market is associated with more negative and uncertain earnings calls, both in the management prepared narrative and managers’ responses to analysts’ questions. We also find evidence of managers “casting calls” by emphasizing more pessimistic analysts’ questions earlier in the call and responding to negative questions more completely when facing higher product market competition. Our results are robust to matched analyses on cash flow uncertainty and hold when only examining sentences referencing the future. Finally, we find consistent results using alternative measures of linguistic framing (disclosure length and Q&A scripting) and in an alternative channel of disclosure with an alternative measure of linguistic framing (i.e., disclosure readability in 10-Ks). Our results demonstrate that managers attempt to mitigate proprietary costs by managing discretionary disclosure structure and framing their calls.
Keywords: product market competition; proprietary costs; disclosure framing; conference calls.
JEL Classification: G14, M40, M41, M48
Suggested Citation: Suggested Citation