Using Earnings Conference Calls to Identify Analysts with Superior Private Information

Abstract

We examine the extent to which analysts who participate in earnings conference calls by asking questions possess superior private information relative to analysts who do not ask questions. Using a large sample of earnings conference call transcripts over the period 2002 to 2005, we find that annual earnings forecasts issued immediately subsequent to a conference call are both more accurate and timelier for participating analysts relative to nonparticipating analysts. These results hold after controlling for observable analyst characteristics, suggesting conference call participation can serve as a mechanism to identify analysts possessing superior private information. The economic magnitude of the superior private information contained in participating analyst forecasts is small but comparable with magnitudes reported in prior studies with respect to other analyst characteristics. Our mediation analysis does not support the notion that the superior private information stems exclusively from the information received during the call. Therefore, from a regulatory stand point, our results suggest that regulatory intervention to allow for equal participation during conference calls may be unwarranted.

Keywords: Conference calls, private information benefits, financial analysts, Regulation FD, forecast accuracy, forecast timeliness

JEL Classification: M41, G24, G29, G38, K22