Conference call communication and managerial learning effect

Abstract

Prior literature has shown that management forecast revisions are positively correlated with stock price movements as price changes reflect investors’ private information that is new to managers (i.e., managerial learning). I posit that managers’ perception of investors’ private information is shaped by their communication with market participants, in particular, the Q&A sessions of the earnings conference calls. I focus on non-following analysts’ participation (i.e., asking a question) and expect that these analysts, compared with analysts who have been following the firm, are more likely to bring up to managers the new perception of investors’ views about the firm. Consistent with my expectations, I find that managerial learning is more pronounced when managers take more questions raised by non-following analysts in the conference calls. Such an effect is further strengthened when these non-following analysts’ questions are longer, contain numeric information, and are answered by more than one manager. Moreover, the effect of conference call communication on managerial learning is greater when the contemporaneous stock returns are accompanied with a larger change in institutional ownership, when sell-side analysts reside an information advantage over managers, and when the economic policy uncertainty is higher. Lastly, I also find that managers’ conference call communication strengthens the role of stock price changes in improving the accuracy of management forecasts. Collectively, my findings are consistent with the notion that conference calls are a two-way communication channel through which managers also learn from the capital market.