After analyzing thousands of earnings calls, three university professors concluded that public companies risk stock price declines if few or no questions are posed during earnings call question-and-answer sessions (Q&As):
“We document economically significant indirect costs of providing conference calls—increase in information asymmetry and more negative immediate market reaction—when managers fail to elicit questions during the calls’ question-and-answer (Q&A) session. We establish this result by focusing on earnings calls where managers receive either zero questions or “too few” questions when they open the floor for questions.”
The professors theorized that investors sold stocks following earnings calls that experienced few or no questions on the belief that fellow investor interest had evaporated.
They recommended that public companies facing this challenge of limited Q&A participation consider identifying ways other than earnings calls to increase visibility and disseminate earnings related information.
These alternatives to earnings calls could include both hosting more one-on-one meetings with investors and analysts, and hiring third-party research firms to publish coverage on their company and stock.
But is scrapping earnings calls a good idea – even for those companies who risk a post-earnings call stock price decline due to limited Q&A questions?
I don’t think so.
As the professors rightly point out, earnings call Q&As can be devoid of questions for a variety of reasons unrelated to lack of investor interest including: (a) thorough prepared remarks (b) analysts busy on other calls (c) institutional investors not wanting to tip their hands. And the list goes on.
Furthermore, the professors point out:
“earnings calls are…an important corporate communication medium”
“earnings calls…are fast becoming a dominant channel of interactive communication between managers and the investment community”
“investors and analysts benefit from the information revealed during earnings calls and that even the tone and vocal cues of managers move the market”
From my perspective, hosting earnings calls is crucial for investor relations – even if Q&A sessions are struggling for questions.
Earnings calls remain one of the few scripted and unscripted opportunities public companies currently have to interact with investors and communicate key messages.
And thanks to sites like Morningstar, thousands of earnings calls are transcribed each quarter and transcripts made available free online. So, even if Q&As lack questions, many public companies benefit by having their prepared remarks (and key messages) distributed online.
Furthermore, bloggers are always on the lookout for new companies to write about. These earnings call transcripts provide the foundation for blog posts that can then be widely disseminated with ease across the web and on high trafficked sites like Yahoo Finance.
Other ways public companies can leverage their earnings calls?
Every company has an IR website. Once earnings calls are concluded public companies can publish posts containing the key messages they wanted investors to walk away with. Companies could even contribute those posts to one of the many investor platforms online in order to scale their messages.
Finally, if public companies want to focus on the source of the problem and work to increase the number of questions posed during Q&A sessions there are many opportunities available thanks to social media.
KEY TAKEAWAY: Don’t give up the earnings call. There are too many opportunities to leverage them --- even if no one is asking questions on your earnings call Q&A.