scholarly journals Casting Conference Calls

2020 ◽  
Vol 66 (11) ◽  
pp. 5015-5039 ◽  
Author(s):  
Lauren Cohen ◽  
Dong Lou ◽  
Christopher J. Malloy
Keyword(s):  
Firm Behavior ◽  
Abnormal Returns ◽  
Discretionary Accruals ◽  
Conference Calls ◽  
Earnings Expectations ◽  
Earnings Restatements ◽  
Future Earnings ◽  
Control Information ◽  
The United Kingdom ◽  
Earnings Surprises

We explore a subtle but important mechanism through which firms can control information flow to the markets. We find that firms that “cast” their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. A long–short portfolio that exploits this differential firm behavior earns abnormal returns of up to 149 basis points per month or almost 18% per year. We find similar evidence in an international sample of earnings call transcripts from the United Kingdom, Canada, France, and Japan. Firms with higher discretionary accruals, firms that barely meet/exceed earnings expectations, and firms (and their executives) that are about to issue equity, sell shares, and exercise options are all significantly more likely to cast their earnings calls. This paper was accepted by Tyler Shumway, finance.

Making investors feel good during earnings conference calls: The effect of warm-glow rhetoric

2019 ◽  
Vol 44 (2) ◽  
pp. 63-72
Author(s):  
Vivien E Jancenelle ◽  
Susan F Storrud-Barnes ◽  
Anthony Iaquinto
Keyword(s):  
Abnormal Returns ◽  
Theory And Practice ◽  
Computer Assisted ◽  
Warm Glow ◽  
Conference Calls ◽  
Quarterly Earnings ◽  
Top Managers ◽  
Earnings Surprises ◽  
Study Methodology ◽  
Earnings Uncertainty

In recent years, earnings conference calls have become a popular disclosure tool through which top managers can provide more information to the market regarding the quarterly earnings of their firms. Although some research has indicated that the tone of earnings conference calls is crucial in mitigating investors’ negative reactions to earnings surprises, relatively little is still known about other rhetorical tactics that may be available for managers to create value during times of heightened earnings uncertainty. This article contends that warm-glow rhetoric may be another way to mitigate investors’ negative reactions to earnings surprises, as warm-glow theory suggests that individuals are willing to make suboptimal economic choices when they receive warm-glow payouts. Hypotheses drawing on warm-glow theory and the incremental useful information perspective are developed and tested using computer-assisted text analysis (CATA) and event study methodology on a longitudinal sample of 1920 calls, and it is suggested that warm-glow rhetoric positively moderates the relationship between earnings surprises and financial performance (as measured through cumulated abnormal returns). The findings illustrate how the warm-glow effect can be used as an unconventional, yet effective tactic with which managers can create market value. A discussion of the findings and their implications for theory and practice concludes the study.

Can Investors Detect Managers' Lack of Spontaneity? Adherence to Predetermined Scripts during Earnings Conference Calls

2015 ◽  
Vol 91 (1) ◽  
pp. 229-250 ◽  
Author(s):  
Joshua Lee
Keyword(s):  
Firm Performance ◽  
Abnormal Returns ◽  
Bad News ◽  
Conference Calls ◽  
Negatively Associated ◽  
Future Earnings ◽  
Accounting Performance ◽  
Market Participants ◽  
Bid Ask Spreads ◽  
Jel Classifications

ABSTRACT This paper examines whether market participants infer negative information about future unexpected firm performance when managers adhere to predetermined scripts when responding to questions during earnings conference calls. I argue that managers respond to questions from prepared scripts to avoid the disclosure of bad news. Using a measure of the adherence to predetermined language, I provide evidence that a lack of spontaneity is negatively associated with the market reaction to the call and with the abnormal returns in the subsequent quarter. I further find that analysts downgrade their forecasts following these calls. I also provide evidence that adherence to predetermined language is negatively associated with future unexpected firm accounting performance, supporting investors' negative response to it. Finally, I find that bid-ask spreads increase and firms are less likely to guide future earnings when managers adhere to the predetermined language of a script, suggesting that firms provide less information, not more, during these calls. JEL Classifications: G14; M40; M41.

Are CFOs’ Trades More Informative Than CEOs’ Trades?

2012 ◽  
Vol 47 (4) ◽  
pp. 743-762 ◽  
Author(s):  
Weimin Wang ◽  
Yong-Chul Shin ◽  
Bill B. Francis
Keyword(s):  
Risk Factors ◽  
Stock Returns ◽  
Chief Executive Officers ◽  
Abnormal Returns ◽  
Chief Executive ◽  
Superior Performance ◽  
Chief Financial Officers ◽  
Future Earnings ◽  
Earnings Surprises ◽  
Executive Officers

AbstractWe investigate whether trades made by chief financial officers (CFOs) reveal more information about future stock returns than those by chief executive officers (CEOs). We find that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs. During 1992–2002, CFOs earned an average 12-month excess return that is 5% higher than that by CEOs. The superior performance by CFOs occurs notwithstanding controls for risk factors and persists even after their trades are publicly disclosed. Further analysis shows that CFO purchases are associated with more positive future earnings surprises than CEO purchases, suggesting that CFOs incorporate better information about future earnings.

scholarly journals Equity Incentives and Earnings Management

2005 ◽  
Vol 80 (2) ◽  
pp. 441-476 ◽  
Author(s):  
Qiang Cheng ◽  
Terry D. Warfield
Keyword(s):  
Earnings Management ◽  
Stock Ownership ◽  
Stock Performance ◽  
Future Earnings ◽  
Equity Incentives ◽  
Time Period ◽  
Earnings Surprises ◽  
The Future

This paper examines the link between managers' equity incentives—arising from stock-based compensation and stock ownership—and earnings management. We hypothesize that managers with high equity incentives are more likely to sell shares in the future and this motivates these managers to engage in earnings management to increase the value of the shares to be sold. Using stock-based compensation and stock ownership data over the 1993–2000 time period, we document that managers with high equity incentives sell more shares in subsequent periods. As expected, we find that managers with high equity incentives are more likely to report earnings that meet or just beat analysts' forecasts. We also find that managers with consistently high equity incentives are less likely to report large positive earnings surprises. This finding is consistent with the wealth of these managers being more sensitive to future stock performance, which leads to increased reserving of current earnings to avoid future earnings disappointments. Collectively, our results indicate that equity incentives lead to incentives for earnings management.

Usefulness of Accounting Estimates

2016 ◽  
Vol 32 (1) ◽  
pp. 123-135 ◽  
Author(s):  
Li Li Eng ◽  
Thanyaluk Vichitsarawong
Keyword(s):  
Cash Flow ◽  
Exploratory Study ◽  
Abnormal Returns ◽  
Cash Flows ◽  
Recent Period ◽  
Future Earnings ◽  
China And India ◽  
Accounting Estimates ◽  
Out Of Sample ◽  
Over Time

This is an exploratory study to examine the quality or usefulness of accounting estimates of companies in China and India over time. Specifically, we examine how well the accounting estimates are able to predict future earnings and cash flows during the period 2003-2013. The results for India indicate that the out-of-sample earnings and cash flow predictions derived are more accurate and more efficient in the more recent period (2010-2013) than the earlier period (2003-2006). In contrast, the out-of-sample earnings and cash flow predictions for China are generally more biased, less accurate, and less efficient. The results indicate abnormal returns earned on hedge portfolios formed on earnings (cash flow) predictions for India in the recent period. In contrast, none of the portfolios for China earn positive returns. The results suggest that the accounting estimates in India in recent years have become better predictors of future earnings and cash flow than accounting estimates in the earlier period. However, the accounting estimates in China are not relevant for predicting earnings and cash flows over the years in the sample period.

“Stiff Business Headwinds and Uncharted Economic Waters”: The Use of Euphemisms in Earnings Conference Calls

2021 ◽  
Author(s):  
Kate Suslava
Keyword(s):  
Market Reaction ◽  
Abnormal Returns ◽  
Bad News ◽  
Conference Calls ◽  
Investor Attention ◽  
Earnings Announcement ◽  
Negatively Associated ◽  
The Impact

This paper studies whether euphemisms obfuscate the content of earnings conference calls and cause investors to underreact. I argue that managers’ use of euphemisms can alleviate the impact of bad news and delay the market reaction to adverse information. Using a dictionary of corporate euphemisms, I find that their use by managers—but not by analysts—is negatively associated with both immediate and future abnormal returns, and their frequency moderates the negative market reaction to bad earnings news. Finally, stock underreaction is more pronounced on busy earnings announcement dates, when investor attention is distracted. This paper was accepted by Brian Bushee, accounting.

Managerial Equity Holdings and Income Smoothing Incentives

2017 ◽  
Vol 31 (1) ◽  
pp. 195-218 ◽  
Author(s):  
Sydney Qing Shu ◽  
Wayne B. Thomas
Keyword(s):  
Risk Taking ◽  
Agency Problems ◽  
Discretionary Accruals ◽  
Stock Option ◽  
Income Smoothing ◽  
Future Earnings ◽  
Future Performance ◽  
Excessive Risk Taking ◽  
Excessive Risk ◽  
Equity Holdings

ABSTRACT We explore how managerial stock holdings and option holdings affect CEOs' income smoothing incentives. Given the different roles of stock holdings and option holdings in solving agency problems, managers may smooth past earnings using discretionary accruals for the purpose of revealing information to help investors better predict future earnings or for the purpose of hiding volatility of past earnings. We find the association between past smoothing and predictability of future earnings is increasing (decreasing) in CEO stock (option) holdings. Results are consistent with stock holdings aligning the interests of managers and shareholders, and managers using discretionary accruals to smooth past earnings to reveal information to investors about future performance. In contrast, option holdings have been linked with excessive risk taking by managers, and managers use discretionary accruals to mask volatility of less predictable earnings. We demonstrate that income smoothing can be informative or opportunistic, depending on the incentives of CEOs.

Tone Management

2013 ◽  
Vol 89 (3) ◽  
pp. 1083-1113 ◽  
Author(s):  
Xuan Huang ◽  
Siew Hong Teoh ◽  
Yinglei Zhang
Keyword(s):  
Balance Sheet ◽  
Cash Flows ◽  
Stock Option ◽  
Earnings Restatements ◽  
Future Earnings ◽  
Accruals Management ◽  
Perception Management ◽  
The One ◽  
Return Effect ◽  
Earnings Press Releases

ABSTRACT We investigate whether and when firms manage the tone of words in earnings press releases, and how investors react to tone management. We estimate abnormal positive tone, ABTONE, as a measure of tone management from residuals of a tone model that controls for firm quantitative fundamentals such as performance, risk, and complexity. We find that ABTONE predicts negative future earnings and cash flows, is positively associated with upward perception management events, such as, just meeting/beating thresholds, future earnings restatements, SEO, and M&A, and is negatively associated with a downward perception management event, stock option grants. ABTONE has a positive stock return effect at the earnings announcement and a delayed negative reaction in the one and two quarters afterward. Balance sheet constrained firms and older firms are more likely to employ tone management over accruals management. Overall, the evidence is consistent with managers using strategic tone management to mislead investors about firm fundamentals.

Earnings Surprises that Motivate Analysts to Reduce Average Forecast Error

2008 ◽  
Vol 83 (2) ◽  
pp. 303-325 ◽  
Author(s):  
Orie E. Barron ◽  
Donal Byard ◽  
Yong Yu
Keyword(s):  
Private Information ◽  
Forecast Error ◽  
Earnings Forecasts ◽  
Forecast Errors ◽  
Future Earnings ◽  
Earnings Surprises ◽  
The Mean ◽  
Negative Earnings

Large earnings surprises and negative earnings surprises represent more egregious errors in analysts' earnings forecasts. We find evidence consistent with our expectation that egregious forecast errors motivate analysts to work harder to develop or acquire relatively more private information in an effort to avoid future forecasting failures. Specifically, we find that after large or negative earnings surprises there is a greater reduction in the error in individual analysts' forecasts of future earnings, and these individual forecasts are based more heavily on individual analysts' private information. This increased reliance on private information reduces the error in the mean forecast of upcoming earnings (even after controlling for the effect of reduced error in individual forecasts). As reliance on private information increases, more of each individual forecast error is idiosyncratic, and thus averaged out in the computation of the mean forecast.

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