Evidence of Management Discrimination Among Analysts during Earnings Conference Calls

This paper considers the potential for public information disclosures to complement the existing private information of financial analysts. In such a setting, analysts allowed to participate during earnings conference calls by asking questions receive public signals that can facilitate the generation of new and valuable private information for the asking analyst. Realizing these public signals are valuable for the asking analyst, managers can use their discretion to discriminate among analysts by granting more participation to more favorable analysts. I use post–Regulation Fair Disclosure conference call transcripts to document that the probability of an analyst asking a question during an earnings conference call is increasing in the favorableness of the analyst's outstanding stock recommendation. I also find that downgrades are associated with decreases in access to management during the conference call relative to other recommendation change activity. Analyst prestige moderates these effects. Favorable and prestigious analysts have higher participation probabilities than favorable and unprestigious analysts. Further, downgrades result in participation decreases only for unprestigious analysts. These findings are consistent with practitioner and regulatory concerns that managers discriminate among analysts by allowing more management access to more favorable analysts.