Analysts’ Questions When Peers Are Listening
57 Pages Posted: 28 May 2021 Last revised: 12 Sep 2023
Date Written: September 23, 2023
We study analysts’ choice of distinct versus follow-up questions in earnings conference calls, and how it affects firms’ information environments. We argue that asking distinct questions, which go beyond the topics presented by management, benefits analysts by yielding more-informative answers, but also invites peers to free-ride on revealed information and poses the risk of alienating management, relative to follow-up questions. We find that analysts with higher ex-ante forecast accuracy ask less-distinct questions than less-accurate analysts. A mechanism analysis reveals that such less-distinct questions are less costly – in terms of reduced relative forecast accuracy and a higher likelihood of being excluded from the subsequent call. Consistent with deliberately safeguarding their information advantage, analysts ask less-distinct questions where competition is stronger, information uncertainty is lower, and private communication with management is less likely. Finally, we document that the distinctness of analysts’ questions is associated with the informativeness of managers’ answers and firms’ information environ-ments as perceived by capital market participants.
Keywords: financial analysts; conference calls; question phrasing; forecast accuracy; incentives
JEL Classification: G24, G29, M41
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