The Influence of Manager-Analyst Interactions on Street Earnings: Evidence from Conference Calls and Excluded Analysts

We investigate how interactions between analysts and managers influence (1) analyst disagreement about the definition of forecasted street earnings and (2) shifts in the definition of actual street earnings. Textual analysis of conference call transcripts indicates that more discussion about non-GAAP earnings and exclusions is associated with larger street earnings exclusions, consistent with prior evidence that both managers and analysts influence street earnings. To measure disagreement among analysts about the definition of forecasted street earnings, we introduce a new measure based on the number of analysts whose forecasts are excluded from the consensus. We find that the discussion of non-GAAP earnings in the question and answer (Q&A) section of the conference call is significantly associated with this measure, indicating that the dialog between managers and analysts about non-GAAP performance metrics is associated with disagreement about how core performance should be defined. We also find that when more analysts are excluded from the consensus, the market response to positive earnings surprises is significantly muted, suggesting that analyst disagreement in defining performance influences a firm’s information environment. Finally, we employ three proxies to capture shifts in the consensus definition of actual street earnings and find that definition shifts are associated with both (1) manager-analyst non-GAAP discussions in conference calls and (2) our new proxy for analyst disagreement about the definition of street earnings. Our results provide a more comprehensive view of the roles played by managers and analysts in determining street earnings.