BANK CONFERENCE CALLS: A TEXTUAL ANALYSIS APPROACH

Abstract

While firms are increasingly providing conference calls to help investors better understand and contextualize financial information, banks’ public disclosures are more opaque than that of non-banks. This study examines the likelihood and information content of bank conference calls as well as related market outcomes. The empirical results document that a higher level of bank systemic risk is associated with a lower likelihood of the bank providing earnings conference calls. However, banks with a higher level of disclosure transparency are more likely to provide conference calls to investors. Furthermore, the empirical evidence suggests that managers demonstrate a consistent behavior in terms of disclosure contents during conference calls. Higher obfuscation is associated with higher bank systemic risk and lower disclosure transparency. When banks have a higher level of disclosure transparency, information components in conference calls are higher, suggesting that managers disclose more information during conference calls. Finally, consistent with theoretical predictions, obfuscation (information) components in bank conference call disclosures are associated with higher (lower) information asymmetry (measured by market illiquidity and analyst forecast errors). Banks are black boxes. Money goes in, and money goes out, but the risks taken in the process of intermediation are hard to observe from outside the bank. —Donald P. Morgan (2002)