Contextualization of Numbers in Earnings Conference Calls

56 Pages Posted: 16 Jun 2021

See all articles by Kristian D. Allee

Kristian D. Allee

University of Arkansas - Department of Accounting

Chuong Do

University of Nevada, Reno

Huy Do

City University of NY, Baruch College, Zicklin School of Business

Date Written: June 14, 2021

Abstract

Prior research generally finds that using numbers in financial disclosure is beneficial. However, numbers can also be strategically proffered due to their perceived precision and informativeness. We hypothesize that firms use undercontextualized numbers to create a false impression of certainty and transparency. We find that the use of undercontextualized numbers in earnings conference calls is associated with short-term benefits but negative longer-term consequences. Specifically, undercontextualization is associated with a short-term positive market return, positive analysts’ forecast revisions, and more positive analysts’ tone on the call. Furthermore, undercontextualization is associated with a longer-term negative market return, a decrease in year-over-year earnings, and a higher incidence of restatements. In additional analyses, we find that undercontextualization appears to be intentional as it is associated with conference call casting and insider trading. Given the uniqueness of our undercontextualization measure, we also document its association with analyst scrutiny and other proxies for strategic call behavior.

Keywords: textual analysis, strategic disclosure, conference calls, analysts’ forecasts, insider trading, restatements

JEL Classification: G14, M40, M41, M48

Suggested Citation

Allee, Kristian D. and Do, Chuong and Do, Huy, Contextualization of Numbers in Earnings Conference Calls (June 14, 2021). Available at SSRN: https://ssrn.com/abstract=3867023 or http://dx.doi.org/10.2139/ssrn.3867023

Kristian D. Allee (Contact Author)

University of Arkansas - Department of Accounting ( email )

University of Arkansas
Business Building 458
Fayetteville, AR 72701
United States
479-575-5227 (Phone)

Chuong Do

University of Nevada, Reno ( email )

1664 N. Virginia St
Reno, NV 89557
United States

Huy Do

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

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