Impact of OM Content in Earnings Calls on a Firm’s Stock Performance

Voleti, S and Malladi, V and Sohoni, M G (2022) Impact of OM Content in Earnings Calls on a Firm’s Stock Performance. Working Paper. SSRN.

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We investigate whether and to what extent financial markets value and respond to Operations Management (OM) related information in firm communications directed toward financial market participants. We create and use a novel construct, called ``stated OM focus", to mine the incidence of and emphasis on OM information in the quarterly earnings conference calls for a large cross-section of firms (S\&P 1500) over a time frame of 15 years. This enables us to empirically establish the value-relevance of OM information and summarize and capture both explanatory and predictive aspects of the OM function's contribution to firm value. We show that OM-related information disclosed by firms systematically, significantly, positively, and persistently affects abnormal stock returns after controlling for known covariates and controls (financial metrics, firm and time effects, and lexical-structure related), and after accounting for earnings surprise. Further, we find evidence that firms' stated OM focus bears significant predictive power in the short term. Long-short portfolios, created using a sorting signal derived solely from stated OM-focus information, predict future abnormal returns consistently over 1,2, and 3 months forward from the earnings call event. We show that the OM information metric is reliable, bears internal, external, and predictive validity, and is robust to falsification. These findings offer useful implications for firms, financial market participants, and OM function stakeholders.

Item Type: Monograph (Working Paper)
Subjects: Marketing
Date Deposited: 04 Sep 2023 14:20
Last Modified: 04 Sep 2023 14:20

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