Earnings calls without questions can hurt stock price

Medium-to-small companies particularly at risk from silence during question period on analyst calls, study finds

A lack of questions on an earnings conference call, or the lack of participation by analysts, could significantly damage a company’s stock price, according to a new research paper.

While the vast majority of US traded companies hold open earnings conference calls, following the examples of large companies such as Apple and Microsoft, smaller companies are finding it increasingly difficult to attract participants who will ask questions during the call, the research finds.

‘The situation is similar to a public invitation for a birthday party on Facebook: a large number of people are expected to attend, but in the end hardly anyone shows up,’ the report notes. ‘The host looks foolish, and spectators will probably conclude the party was not worth the bother.’

Academics at the University of Texas at Austin and Tilburg University analyzed 1,942 calls with zero questions and 9,205 calls with uncomfortably few questions held by small-cap and mid-cap companies between 2002 and 2010 and then analyzed the reaction in the companies’ share price.

‘With regard to price reaction, we find that zero-questions (ZQ) and low-number-of-questions (LNQ) calls experience a more negative market reaction in the five-day event-return window,’ the authors write. For example, the ‘abnormal return’ on the day following a ZQ conference call is ‘95-135 basis points lower’ than for a call with questions; ‘ie, approximately 12 times more negative than the market reaction to non-ZQ calls,’ write the study authors.

On calls where the presenters give such a thorough summary that it answers analysts’ questions before the question period, however, the negative reaction – if any – can be muted, the research shows. Likewise, a call with no questions will not affect a company’s share price if analysts had already lost interest in the company before the call.

Faced with zero questions on an earnings call, about a third of presenters urge analysts to contact them by phone or email with any further questions, 29 percent reiterate their optimism on the company’s outlook, 8 percent offer an explanation for the lack of questions and 3 percent raise and answer questions themselves, according to a study of 200 randomly selected calls without questions.


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