Review of Accounting Studies, 3, 137–167 (1998)
1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
Bridging the Information Gap:
Quarterly Conference Calls as a Medium
for Voluntary Disclosure
SARAH C. TASKER
Samuel C. Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853-4201
Abstract. This paper uses the quarterly conference call as a disclosure metric to examine whether ﬁrms with
less informative ﬁnancial statements are more likely to respond by providing additional voluntary disclosure.
After controlling for other characteristics of a ﬁrm’s information environment, I ﬁnd a signiﬁcant inverse relation
between measures of the informativeness of a ﬁrm’s ﬁnancial statements and the likelihood that the ﬁrm will use a
quarterly conference call. This ﬁnding is consistent with the hypothesis in Verrecchia (1990) that the probability
of disclosure of management’s private information is negatively related to the precision of prior public information
on ﬁrm value.
This paper examines how ﬁrms’ voluntary disclosure behavior is affectedby the information
content of their ﬁnancial statements. Mandatory ﬁnancial disclosure rules are designed to
ensure that the reported information meets certain minimum standards of objectivity, veriﬁ-
ability, and conservatism. Therefore, ﬁnancial statements prepared according to these rules
do not always capture all the information a manager may have about a ﬁrm’s performance
and future prospects. In this study, I hypothesize that ﬁrms with less informative ﬁnancial
statements will provide more voluntary disclosure. Using quarterly conference calls as a
proxy for voluntary disclosure, I ﬁnd strong evidence to support this hypothesis.
Prior studies of voluntary disclosure have used various measures to capture ﬁrms’ dis-
closure behavior. For example, Lang and Lundholm (1993, 1996a) and Healy, Hutton, and
Palepu (1998) use analyst rankings of ﬁrms’ disclosure quality. Botosan (1997) creates a
relative disclosure index by examining the disclosure attributes of individual annual reports
ﬁled by smaller ﬁrms. This study differs from these prior papers in its use of quarterly
conference calls as a proxy for voluntary disclosure and by introducing a number of new
measures of the relative informativeness of ﬁnancial statements.
There are two important reasons to study conference calls as a medium for voluntary
disclosure. First, despite reports that “the process of communicating large chunks of in-
formation to the investment community has shifted to the conference call,” (Wall Street
Journal, 1995), quarterly conference calls have received little attention in the academic
literature on disclosure. The only other study on this subject to date, a study by Frankel,
Johnson, and Skinner (1998), analyzes market reactions during conference calls. The focus
of their investigation is whether conference calls provide information to market participants,
not management’s motivation for initiating the call.
Second, quarterly conference calls have certain advantages as a disclosure metric. For