Conference Calls and Information Asymmetry

Posted: 1 Oct 2004

See all articles by Stephen Brown

Stephen Brown

University of Maryland - Department of Accounting & Information Assurance

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy

Kin Lo

University of British Columbia (UBC) - Sauder School of Business

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Abstract

We hypothesize that conference calls are voluntary disclosures that lead to long-term reductions in information asymmetry among equity investors. Both cross-sectional and time-series tests show that information asymmetry is negatively associated with conference call activity. In particular, firms that initiate a policy of regularly holding conference calls on average experience a statistically and economically significant 1/20th reduction in information asymmetry, and this reduction is sustained over the long-term. In contrast, one-time callers experience no significant decline in asymmetry.

Prior work shows that the cost of equity capital is increasing in the level of information asymmetry. Our results, therefore, suggest that firms that hold conference calls more frequently have lower costs of capital. Applying the estimates of Easley et al. (2002), we estimate that conference call initiators enjoy a 25 basis point reduction in the equity cost of capital.

Keywords: Information asymmetry, voluntary disclosures, conference calls, microstructure, probability of informed trade

JEL Classification: M41, G45, G12, G14

Suggested Citation

Brown, Stephen and Hillegeist, Stephen A. and Lo, Kin, Conference Calls and Information Asymmetry. Journal of Accounting & Economics, Vol. 37, pp. 343-366, September 2004. Available at SSRN: https://ssrn.com/abstract=597943

Stephen Brown

University of Maryland - Department of Accounting & Information Assurance ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy ( email )

Tempe, AZ 85287-3706
United States
480-965-6614 (Phone)

Kin Lo (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8430 (Phone)
604-822-9470 (Fax)

HOME PAGE: http://www.sauder.ubc.ca/Faculty/People/Faculty_Members/Lo_Kin

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