The Effect of Regulation Fair Disclosure on Conference Calls: The Case of Earnings Surprises*

Abstract

AbstractWhile conference calls have been widely used as a communication tool between firms and investors, little research has examined the effect of this voluntary disclosure metric on analyst forecasts. In this paper, we examine whether firms use conference calls to guide down analysts' earnings forecasts, thereby avoiding negative earnings surprises before and after Regulation FD. Our findings show that firms hosting conference calls are more likely to guide analysts' forecasts downward and, as a result, they tend to successfully avoid negative earnings surprises in the pre Reg FD period. However, we do not find such relations in the post Reg FD period. We also find that the market reacts positively to firms hosting conference calls only in the post Reg FD period, consistent with the view that the market rewards a reduction in managers' opportunistic guidance to meet the analysts' earnings estimate.