IR Papers: Quarterly calls get cranky in afternoon

Aug 27, 2013
<p>A roundup of academic research from the world of IR studies, by Jeff Cossette</p>

Early morning wake-up call

Managers and analysts play together best in the morning. Researchers say the tone of Q&A sessions on quarterly conference calls that start later in the day is remarkably more negative, irritable and combative than that of calls in the earlier morning hours.

They blame the increasing crankiness on ‘mental and physical fatigue gradually and imperceptibly setting in.’ 

‘Parents notice the same effect in their kids,’ says study co-author Elizabeth Demers, associate professor of business administration at the University of Virginia.

‘As adults, even though they are better at masking it, analysts and managers are still human and subject to human physiological processes that affect their behavior.’ 

A little attitude during Q&As might not be such a big deal except that the market likes to hear analysts and management playing nice.

The researchers, crunching more than 26,000 quarterly earnings conference calls, document a strong link between conversational tone and future returns, making it wise to choose the best time of day: mornings. 

‘We were surprised at how strong the pattern was,’ Demers says. ‘As the morning progresses, things get more negative. There’s a respite in the middle of the day when we assume they’ve taken a break and nourished themselves. Then the pattern continues downward until the end of the day.’

She adds that when afternoon communications are unavoidable, people should ‘go out of their way to be upbeat and optimistic.’ 

Don’t delay 

If unexpected events force you to delay your earnings announcement, the market won’t like it. But will publicly announcing the delay mitigate the damage? Not that much. A recent study finds such announcements are linked with an average one-day abnormal stock return of minus 6 percent. 

Still, study co-author K Ramesh, professor of accounting at Rice University, says that despite the significant price drop, announcing an earnings delay – which only about 2 percent of firms do – is often the best policy.

‘Even if investors infer bad news, avoiding legal liability and preserving the C-suite reputation are key reasons to announce the delay,’ he says. 

‘If the factors underlying the delay are relatively benign, disclosure can help ease investor concerns because no news tends to be interpreted as bad news.’ 

News to make you sick

IROs are well aware how investor mood can affect stock price; now academics are reviewing how stock price can affect investor mood.

Investigators have discovered a strong link between daily stock price volatility and hospital admissions, particularly for psychological conditions such as anxiety or major depression.

Researchers at the University of California at San Diego say a price drop of roughly 1.5 percent increases California hospital admissions by about a quarter of a percent over the next two days. 

‘It’s convincing evidence that people’s welfare is affected in real time,’ says study co-author Christopher Parsons, assistant professor of finance at UC San Diego. ‘Mental health conditions are most sensitive to market movements.’ 

World o’ research

  • A study of French firms finds a strong link between intellectual capital disclosure and the cost of equity. But while investors value information on human and structural capital (such as professional skills or innovative processes), researchers at Tunisia’s University of Sfax find little value placed on relational capital such as knowledge of market channels, customer and supplier relationships, and government or industry networks.
  • Russia’s Corporate Governance Code of 2002 did nothing to increase the quality of reported earnings, according to a Finnish study. Adoption of IFRS has, on the other hand, improved the transparency of corporate disclosures.
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