The impact of an SEC investigation on conference call participation and analysts’ forecast quality

Abstract

We examine the impact of a Securities and Exchange Commission (SEC) investigation of Regulation Fair Disclosure (Reg FD) violations on participation during conference calls and on analysts’ forecast quality. We hand-collected conference call transcript data for quarterly conference calls surrounding the date of the SEC investigation announcement over the period 2002 – 2013. We find that management's discriminatory practices are significantly higher for firms under investigation for a Reg FD violation, but management's discriminatory practices significantly decrease after a Reg FD investigation is announced. In this post-investigation period, there is greater forecast accuracy and lower forecast dispersion for firms under investigation compared to firms not being investigated. Overall, we find that when the SEC publicly discloses the existence of a Reg FD investigation, there is a decrease in management's discriminatory practices on quarterly conference calls, an increase in forecast accuracy, and a decrease in forecast dispersion. Our findings suggest that the SEC should publicly announce its investigations as soon as possible given the positive implications for the investing public, analysts, and management's discriminatory practices.