Recent reports in the business press allege that managers take actions to avoid negative earnings surprises. I hypothesize that certain firm characteristics are associated with greater incentives to avoid negative surprises. I find that firms with higher transient institutional ownership, greater reliance on implicit claims with their stakeholders, and higher value-relevance of earnings are more likely to meet or exceed expectations at the earnings announcement. I also examine whether firms manage earnings upward or guide analysts' forecasts downward to avoid missing expectations at the earnings announcement. I examine the relation between firm characteristics and the probability (conditional on meeting analysts' expectations) of having (1) positive abnormal accruals, and (2) forecasts that are lower than expected (using a model of prior earnings changes). Overall, the results suggest that both mechanisms play a role in avoiding negative earnings surprises.

This study examines recent regulatory and practitioner concerns that managers provide more (less) information to analysts with more (less) favorable stock recommendations. We examine the relative forecast accuracy of analysts before and after a recommendation issuance under the assumption that increases (decreases) in management‐provided information will increase (decrease) analysts' relative forecast accuracy. We find that analysts issuing more favorable recommendations experience a greater increase in their relative forecast accuracy compared with analysts with less favorable recommendations. Additional tests on the change in frequency with which analysts issue forecasts independent of or in conjunction with other analysts after their recommendation change yield corroborating results. In addition, we find that the greater increase in relative accuracy for analysts with more favorable recommendations exists prior to the passage of Regulation FD but not after. The combined results are consistent with analysts receiving relatively more management‐provided information following the issuance of more favorable recommendations.

Recent advances in information technology allow firms to provide broader access to their disclosures. We examine the determinants and effects of the decision to provide unlimited real-time access to conference calls (i.e., “open” conference calls). Our evidence suggests that the decision to provide open calls is associated with the composition of a firm's investor base and, to some degree, the complexity of its financial information. We also find that open calls are associated with a greater increase in small trades (consistent with individuals trading on information released during the call) and higher price volatility during the call period.

Earnings press releases provide managers a forum to present their firm's quarterly financial information and perhaps influence perceptions of the firm's stakeholders. We explore the use of managerial emphasis as a disclosure tool and contribute to the debate over pro forma earnings. We examine (1) the determinants of emphasis placed on pro forma and GAAP earnings within quarterly earnings press releases, (2) whether there has been a shift away from emphasizing pro forma earnings toward GAAP earnings, and (3) whether stock market reactions to earnings news were influenced by emphasis placed on metrics within the press release. We find that firms emphasize metrics that are more value-relevant and portray more favorable firm performance. We also find that the extent of a firm's media coverage affects managers' emphasis decisions. Further, our results indicate a highly significant shift toward GAAP emphasis and away from pro forma emphasis in 2002 relative to 2001. Finally, our stock market tests suggest that greater emphasis on an earnings metric results in a stronger market reaction to the surprise in that metric. Overall, these findings are consistent with managers using emphasis in the earnings press release as a disclosure tool and this emphasis influencing at least one important stakeholder group—investors.

This paper investigates the effect of regulation that mandates open access to information on managers' disclosure choices and investors' reactions to disclosures. The recently passed Regulation FD (Reg FD) requires firms to make material disclosures broadly available. Using a sample of firms that previously restricted access to conference calls and a sample of firms that voluntarily allowed unlimited access to their calls in the pre-Reg FD period, we examine the effect of the new rule on managers' decisions regarding the timing, use, and information content of calls, as well as the effect on investors' trading behavior during the call. Our results indicate that Reg FD had a significant negative impact on managers' decisions to continue hosting conference calls and on their decisions regarding the optimal time to hold the call. However, contrary to the concerns of many critics, the magnitudes of these changes are not large. We do not find evidence that Reg FD decreased the amount of information disclosed during the call period, contrary to the concerns of Reg FD opponents. Finally, we find evidence that the new rule increased price volatility for firms that previously restricted access to their calls (relative to firms that previously held open calls) and that the amount of individual investor trading increased following the rule change. Overall, our results suggest that Reg FD impacted trading during the conference call window for firms most affected by the new regulation.

In 1998, the SEC expressed concern that conference calls encourage selective disclosure by revealing new information to financial analysts privy to the call. This study investigates whether the regular use of earnings-related conference calls increases the amount of information available to financial analysts by examining the effect of conference calls on analysts' forecast error and dispersion. Results indicate that conference calls increase analysts' ability to forecast earnings accurately, suggesting that these calls increase the total information available about a firm. We also find some evidence that conference calls decrease dispersion among analysts. Given conference calls were generally restricted during our sample period, our evidence suggests that conference calls may have contributed to an information gap between analysts privy to the call and the remainder of the investment community. We also investigate whether conference calls differentially affect analysts' forecast errors depending on analysts' prior forecasting ability or brokerage-house affiliation. We find evidence suggesting that analysts with relatively weak prior forecasting performance benefit more from conference calls, suggesting that conference calls help “level the playing field” across analysts.