UC Irvine

Using machine learning algorithms to analyze the format of the information in earnings conference call presentation slides, I examine how managers use diagrams, a salient visual presentation format and I analyze the effect of this format on investors and analysts. I find that managers use more diagrams when current quarterly earnings fall short of analyst expectations. In addition, firms that face a negative earnings surprise use more diagrams to discuss other positive key performance news including revenues, cash flows, and cost management. Also, firms increase their use of diagrams for non–GAAP earnings when current GAAP earnings fail to meet analyst forecasts. These results suggest that managers use diagrams strategically in their conference call presentations. I also find that the use of diagrams is associated with a higher initial response to earnings news at the announcement date. The use of diagrams is also associated with a lower post–earnings announcement drift over the post announcement window. Collectively, these results suggest that when earnings fall short of analyst expectations, managers use more diagrams to highlight the positive aspects of the firm’s financial performance. As a result, managers’ strategic choices regarding the presentation of earnings news hinders the efficient incorporation of earnings news into stock prices.