THE ROLE OF FUNCTIONAL EXECUTIVES IN VOLUNTARY DISCLOSURE: EVIDENCE FROM EARNINGS CONFERENCE CALL PARTICIPATION

Publicly traded companies in the United States provide financial performance (i.e., earnings announcement) to investors and analysts, typically every quarter. To facilitate understanding of disclosed financial information, companies generally hold earnings conference calls (via teleconference or a webcast) to discuss key financial results and present guidance for upcoming quarters. In fact, earnings conference calls have become an increasingly important form of voluntary disclosure. Based on the 2014 National Investor Relations Institute Survey, 97% of investor relation officers reported that their companies hold a quarterly earnings call, and this percentage has increased by 21% over the last 18 years.

As earnings conference calls are becoming more a pervasive channel to communicate information to market participants, extent literature has examined earnings conference calls. Empirical evidence in prior research suggests that earnings conference calls are incrementally informative to investors and analysts over accompanying earnings press releases (Frankel et al. 1999; Bowen et al., 2002; Bushee et al., 2003; Matsumoto et al., 2011). Furthermore, companies strategically design earnings conference calls such as scripting answers to expected questions (Lee 2016) and allowing more participation of favorable analysts (Mayew 2008). However, little is known about firms’ strategic choice of firm participants in earnings conference calls.

To expand our understanding on earnings conference calls, I propose to investigate a firm’s strategic choice of functional executive (e.g., chief marketing officers or chief operating officers) participation in earnings conference calls and whether such a vital decision impacts the informativeness of earnings conference calls. I specifically focus on the participation of functional executives based on three reasons. First, chief executive officers and chief financial officers are regular attendees of earnings conference calls, so firms do not have much discretion over their participation. Second, the role of functional executives has evolved from business specialists to strategic advisors. Lastly, there is an evident gap between investor demand for functional executives in earnings conference calls and firms’ practices.

Using earnings conference call transcripts, I plan to examine the determinants of functional executive participation and capital market responses to their participation. I expect to find that participation of functional executives in earnings conference calls is associated with the factors that influence strategic decisions of companies such as earnings conference call audiences, material events, and CEO characteristics. In addition, using path analysis, I propose to investigate the potential mechanism (e.g., conference call length and specificity) between functional executive participation and capital market reactions.