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Do Pennies Matter? Investor Relations Consequences of Small Negative Earnings Surprises
Richard Frankel, Washington University in St. Louis
William Mayew, Duke University
Yan Sun, Washington University in St. Louis
ABSTRACT. We study earnings-conference-call characteristics to understand the investor-relations consequences of small negative earnings surprises. We find a significant increase in call length for firms that miss analyst expectations by one cent. This increase is more pronounced for firms with higher analyst following. We also find that firms just missing expectations are about 5% less likely to offer future earnings guidance around the conference call. However, we find no evidence that the tone of the call is significantly more negative for firms that just miss expectations. We confirm these findings by examining whether the discussion between managers and individual analysts is related to whether the expectation of that particular analyst is met. In sum, while we find some statistical evidence to confirm the survey results of Graham et al. (2005) regarding the negative effects of missing expectations, our tests do not suggest that severe economic effects result from missing expectations.
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