Why Do Analysts Participate in Non-Covered Firms’ Conference Calls?

This study investigates why financial analysts participate in non-covered firms’ conference calls. Consistent with the view that firms benefit from information commonalities and complementarities with connected peers, we hypothesize that analysts are more likely to participate in a non-covered firm’s conference calls if the non-covered firm shares information links with the covered firm. Using a sample of earnings conference call transcripts over the 2006–2014 period, we find that the probability of analysts participating in a non-covered firm’s conference call is positively associated with the information links between the non-covered firm and their covered firm, including the same industry link, the same region link, and the customer-supplier link. We also find that analysts who participate in the linked non-covered firm’s conference calls provide more accurate earnings forecasts for their covered firm compared with analysts not adopting such a strategy. In addition, we show that analysts with less general experience or from smaller brokerage houses are more likely to attend the linked non-covered firm’s conference calls while achieving a similar level of forecast accuracy. Furthermore, we find that analysts are more likely to revise earnings forecasts for their covered firm after participating in the linked non-covered firm’s conference calls. Our results are robust to employing the merger of brokerage houses as a quasi-natural experiment and using the text-based similarity as an additional measure of information link. Overall the evidence suggests that analysts participate in linked non-covered firms’ conference calls to obtain information about their covered firms.