Product Market Competition and Disclosure Framing: Evidence from Earnings Conference Calls

Abstract

An extensive stream of literature investigates how product market competition, by increasing the proprietary costs of disclosure, influences corporate disclosure policy. We hypothesize that the proprietary costs incurred by firms are associated with how a disclosure is framed and structured. We predict and find that the intensity of competition in the product market is associated with more negative and uncertain earnings conference calls. We also find evidence of firms “casting calls” by emphasizing more pessimistic analysts’ questions. Our results are robust to matched analyses on cash flow uncertainty and to examining the casting of analysts, as opposed to their questions, on the earnings call. Finally, we find consistent results using alternative measures of linguistic structure and in an alternative channel of disclosure with an alternative measure of linguistic framing. Our results demonstrate that firms attempt to mitigate proprietary costs by managing discretionary disclosure structure and framing their conference calls.