Conference Calls: No or Few Questions Are Costly
A lack of questions during an earnings conference call has an adverse impact on a stock’s price. When no questions are raised by analysts, share price performance is reduced by 1.34% to 1.59% over the following five-day period. If only a few questions are asked by analysts, the stock experiences an average return lag of 0.34% to 0.39%.
Researchers at the University of Texas at Austin and Tilburg University reached these conclusions after analyzing 47,420 earnings conference calls held between 2002 and 2010. They identified 409 earnings calls hosted by 241 unique firms where no questions were asked during the question-and-answer session. They further identified 9,025 calls with a low number of questions asked.
No-question and low-question companies typically have a smaller analyst following, are smaller in size and have lower institutional ownership than companies fielding a higher number of questions. However, such companies are generally not devoid of either analyst coverage (0.8 for no-question firms and 4.3 analysts for low-question firms) or institutional ownership (39% and 58%, respectively). This said, the researchers conclude that “analyst coverage and firm size are the two most important determinants of zero-question calls and calls with ‘too few’ questions.”
The average length of the presentation prior to the question-and-answer session is shorter for both no-question and low-question calls. Notably, the researchers describe the average earnings surprise as being “significantly positive” for companies experiencing no-question and low-question calls.
As to why a stock underperforms following a no- or low-question conference call, the researchers identify two factors. The first is “information asymmetry.” To the extent the question-and-answer session plays a role in sharing and clarifying information, shorter conversations limit what traders and investors can learn about the company and its recent developments. The lack of questions further gives advantage to large institutional investors who may opt to ask the company’s executives questions privately instead over a public forum. Secondly, the lack of questions may signal a lack of buying interest in the stock. If buying interest is perceived as diminished, investors may be more tempted to sell the stock.
Source: “The Price of Silence: When No One Asks Questions During Conference Calls,” Shuping Chen, Stephan Hollander and Kelvin Law, SSRN, June 2014