How firms strategically disclose information through selected channels
65 Pages Posted: 20 Apr 2021 Last revised: 11 Oct 2023
Date Written: October 1, 2023
Abstract
This study investigates the strategic use of two disclosure channels for distributing positive or negative information and thereby optimizing for their stock market impact. By drawing from media richness and media naturalness theory, we predict that firms favor earnings conference calls (ECCs) for disclosing positive news to highlight them and earnings press releases (EPRs) for disclosing negative news to understate them. Our results based on textual and machine-learning-based analysis support this conclusion, since if firms distribute information according to its positivity, the tone and the readability of their ECCs improve, whereas they deteriorate for EPRs. Information distribution through distinct channels is pronounced if firms have a high market-to-book ratio, high cash balances, or volatile purchases of fixed assets or if they operate in the financial or regulated industries, i.e., in situations with elevated information demands of investors, which firms cater to with good news. Opposed to that, we find that firms distribute similar information through ECC and EPR, if they have more debt or more volatile cash flows, if they operate under macroeconomic uncertainty, or if they have bad news coverage, i.e., in situations with limited relevance of voluntary information. Firms that use a positive tone in ECCs increase the cumulative abnormal stock returns fourfold compared to EPRs, and a portfolio – which holds the quintile of firms that use ECCs as complementary to EPRs – yields significant abnormal returns (equal to 4.4 % in five-factor adjusted alpha per annum).
Keywords: conference calls, press releases, textual analysis, management language, stock market reaction
JEL Classification: G10, G14, G40, G41
Suggested Citation: Suggested Citation