Conference Calls and Information Asymmetry
Posted: 1 Oct 2004
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: Suggested Citation