Analysts' Influence on Managers' Guidance

Abstract

Analysts ask managers for forward-looking information in one-third of quarterly conference calls; most frequently, seeking earnings per share guidance. In this study, we examine the long-term consequences of analysts' questions on future manager disclosure choices. Using six types of commonly provided guidance, we find that when analysts request new guidance or ask about prior guidance, managers are more likely to provide similar guidance in future quarters. When analysts do not ask about prior guidance, managers are less likely to provide that type of guidance in the future. This effect is long-lasting, spills over into earnings announcements, and is strongest for firms with the most severe information problems. Our results provide evidence that analysts shape managers' disclosure choices in meaningful ways.

Institutional Investor Attention and Demand for Inconsequential Disclosures

“…For example, firms invest in fixed accounting resources based on their needs, and demands for additional resources can cause errors (Gillette et al 2017). Chapman and Green (2017) Overall, it remains unclear whether passive IOs appear to follow a "more disclosure is better" paradigm, and what consequences would follow if management responded to this paradigm. To the extent that this paradigm is low cost to implement, we expect that passive IOs will be successful in eliciting more disclosure, but may be unsuccessful in generating quality disclosure, which is high cost.…”

“…Firms incur costs when disclosing and wish to limit these costs. These costs relate to collecting and processing information, opportunity costs of adding disclosures within space limitations, proprietary costs, and potential reputation and litigation costs arising from incorrect predictions of uncertain future outcomes (Graham et al 2005; Chapman and Green 2017;Gillette et al 2017). Thus, one hypothesis is that if IOs ask managers for additional disclosures, then managers will respond to IO attention by providing disclosure that is less informative (for example, by providing more forecasts but the forecasts are no more precise or long-term, and contain little new information).…”

The Impact of Media Coverage on Voluntary Disclosure.

“…While prior studies find that the media play an important role in affecting stock prices and disciplining manager decision-making, there is little evidence on whether the media can affect voluntary disclosure decisions. This question is especially relevant given recent evidence of the importance of other information intermediaries, such as sell-side analysts and credit rating agencies, in influencing disclosure decisions (Chapman and Green, 2018;Basu et al, 2018). In this study, I examine whether and how media coverage affects managers' voluntary disclosure decisions.…”

Institutional investor inattention and acquisition of firm-specific information during conference calls

“…I parse each dialogue into sentences and categorize the dialogue as a request for future guidance if any sentence contains at least one "forward-looking" word. 2 For this process, I adopt the list of forwardlooking words introduced by Chuk et al (2013) and augmented by Chapman and Green (2018). Panel A of Table 6 provides descriptive statistics for requests for future guidance.…”

“…Finally, I identify requests for future guidance to examine the content of information requested during earnings conference calls. This third proxy is based on a textual analysis adopted from prior studies that identify future guidance from earnings conference calls (Chuk et al, 2013;Chapman and Green, 2018). I predict a positive association between institutional investors inattention and the three proxies when information gathering through conference call participation and prior firm-specific information gathering are substitutes and a negative association when the two information-gathering activities are complements.…”