The SEC Review of Earnings Conference Calls

Abstract

The Securities and Exchange Commission (SEC) reviews companies’ mandatory filings and issues comment letters to ensure compliance with applicable financial reporting requirements. We explore the nature, determinants, and consequences of SEC comment letters that refer to information disclosed in voluntary earnings conference calls. First, we provide a rich descriptive analysis of the subject and format of conference call disclosures targeted by the SEC. Next, we document that conference call comment letters are more likely when filing reviews are more complex and conference calls are informative; these comment letters are less likely when SEC staff are resource-constrained. We find that factors associated with overall regulatory scrutiny and firm visibility are not strong drivers of SEC attention to conference calls. In terms of consequences, we find that comment letters referencing calls are associated with higher-quality reviews, and we observe higher remediation costs for these letters. Finally, we show that relative to the typical filing review process, SEC use of conference call disclosures leads to more changes in firms’ future mandatory disclosures along with an increase in overall information asymmetry.

Keywords: Conference calls, SEC comment letters, voluntary disclosure, regulators

JEL Classification: D82, G18, M40, M48