One Weird Trick for Profiting From Corporate Earnings-Call Manipulation

A blog about business and economics.
Sept. 20 2013 12:09 PM

How Executives Try to Cover Up Bad News

98705425
Financial professionals on the floor of the New York Stock Exchange.

Photo by Chris Hondros/Getty Images

Most publicly traded companies organize a quarterly earnings call timed to coincide with their SEC-mandated quarterly earnings data releases. The calls vary, but generally some executives speak and then they field questions from stock market analysts who cover the companies. It's not totally obvious what the point of this whole undertaking is, but Lauren Cohen, Dong Lou, and Christopher Mallory have done an interesting piece of research on it. They find that sometimes firms "cast" their conference calls by disproportionately calling on bullish analysts and those firms tend to underperform in the future.

In other words, most companies play it straight. They field a range of questions. They perhaps like questions from bullish analysts because they tend to be softball questions. But they perhaps also like questions from bearish analysts, because it's a chance to directly reply to common bearish concerns and set minds at ease.

This calculation shifts, however, for executives who have reason to believe that bad news is coming in the future. Those executives avoid calling on bearish analysts, because they won't be able to provide convincing answers to skeptical questions.

Advertisement

I would put this whole thing down as yet another demerit against the Cult of Shareholder Value. Any time top-level executives are spending thinking about issues like how to manipulate the quarterly earnings call is time they are not spending thinking about the actual management of the enterprise. And yet managing large enterprises is really hard! In theory, the CEO gets paid the big bucks precisely because it's hard.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Students Aren’t Going to College Football Games as Much Anymore

And schools are getting worried.

Two Damn Good, Very Different Movies About Soldiers Returning From War

The XX Factor

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Why a Sketch of Chelsea Manning Is Stirring Up Controversy

How Worried Should Poland, the Baltic States, and Georgia Be About a Russian Invasion?

  News & Politics
Weigel
Sept. 20 2014 11:13 AM -30-
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 20 2014 3:21 PM “The More You Know (About Black People)” Uses Very Funny PSAs to Condemn Black Stereotypes
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 20 2014 7:00 AM The Shaggy Sun
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.