How firms strategically disclose Information through selected channels

Abstract

This paper examines firms’ information disclosure through different channels (earnings conference call and earnings press release) and corresponding investor reactions. By drawing from a theory about e-communication, we predict that earnings conference calls induce less processing costs to investors than earnings press releases. Hence, disclosing through it increases the stock price impact and decreases the communicational ambiguity of information. Consistently, when comparing these channels, we find that firms distribute positive information through earnings conference calls and negative information through earnings press releases to investors. Firms that use a positive tone in earnings conference calls increase the stock market reaction sixfold compared to earnings press releases. When firms distribute information, the tone and readability of their calls improve while these characteristics of earnings press releases deteriorate. Also, firms tend to distribute less information through conference calls when earnings exceed benchmarks but more when future performance is good. A portfolio – that holds the quintile of firms that distribute the most information through distinct channels – yields significant abnormal returns (equal to 5 % p.a.).