Harvard research has clarified the impact that a poorly-timed conference call can have on how a listed company’s earnings are received by the market and, in turn, the impact to its share price. Citadel-MAGNUS digs deeper into the benefits of holding a conference call earlier in the day, rather than holding an afternoon conference call.
Key players in the financial community, including analysts, brokers and institutional investors, are highly attuned to the timing of earnings calls and often read into whether results are good or bad depending on when the call is scheduled. With this in mind, when is the best time of the day for a listed company to schedule a call and, more importantly, does it really matter?
A recent article in the Harvard Business Review has shown that the tone of an earnings call varies with the time of day, becoming increasingly negative as the morning progresses, improving slightly at midday, and then increasing in negativity again in the afternoon.
The authors of the article found that, overall, calls originating late in the afternoon were more negative, irritable and combative when compared to earnings calls originating early in the morning.
Importantly, the authors of the article also found that the tone of an earnings call has real economic consequences with a more negative tone resulting in more negative share price returns over the five trading hours after the call. The research found that “returns associated with negative calls continued to drift down for up to 15 trading days and did not revert to normal even after 50 (trading days)”.
There are additional benefits to releasing earnings results and holding an earnings call early in the day. From an investor relations perspective, these benefits include:
- Analysts prefer an early call:
> An early call may help analysts manage their research deadlines and allow sufficient time for the analysts to put out same day research or first impression “flash notes”.
> As such, an earnings call early in the day is likely to be better attended.
- Control of the message:
> An earnings call that is scheduled soon after an earnings announcement is released to the market will help ensure that any analyst concerns can be dealt with before they spiral into major issues.
> An early and well-managed call, with controlled Q+A facilities, gives management the opportunity to take control of the messaging around the result and address any issues up-front.
> The analyst call forms part of the overall disclosure process and as such, should be arranged as close as possible to the release of the ASX announcement.
- Increased capacity for other activities:
> While analysts are a critical stakeholder in the release of earnings results, other key parties will also be vying for management time – in particular, major shareholders and the media.
> The early release of earnings, followed by a morning conference call for analysts, frees up management for other key activities across the day, including facetime with shareholders, investor lunches and media interviews.
While share price movements should ultimately be driven by the strength of the results themselves, it is worth remembering that sentiment and mood plays a big part in financial markets. When it comes to developing an earnings result day plan, it’s worthwhile keeping in mind some of the simple tactics – like the timing of your conference call – to maximise how the information is received by analysts and the market more broadly.
 Chen, Demers, and Lev, The Dangers of Late-Afternoon Earnings Calls, The Magazine, Harvard Business Review, October 2013.