The Disclosure of Management Guidance in Conference Calls: Market Reaction and Determinants

Abstract

The SEC advises firms to release all material information in their earnings announcement press release before their corresponding conference call. Until May 2009, the NYSE went further by explicitly prohibiting the disclosure of new material information in a conference call. However, we document that the S&P 500 firms, including those that are NYSE-listed, disclose a non-trivial amount of management guidance exclusively in their conference calls. Firms in challenging forecasting environments rely more on the conference call, probably because the call enables managers to “flesh out” the guidance. In contrast, firms with relatively low investor visibility and high litigation risk rely less on the conference call, likely due to regulatory concerns. Finally, after controlling for the information released at the earnings announcement, we find greater magnitudes of analyst forecast revisions for firms that provide relatively more management guidance exclusively in their conference call. Collectively, our findings highlight the emerging use of non-traditional disclosure channels.