Answers Without Questions

We study the disclosure choices of executives during the Q&A sections of earnings conference calls. While some questions elicit non-answers (Gow et al. 2021), we notice that some answers do not have corresponding questions. We refer to this phenomenon as topic divergence. In this study, we implement a topical analysis to gauge the saturation of an earnings conference call with “unsolicited answers”. Using a sample of conference calls from 2004 to 2017, we find that managers in firms with better performance and more powerful CEOs tend to diverge from the topic of the question more often in their answers. Investors appreciate this topic divergence: the benefit associated with a standard deviation increase in topic divergence is equivalent to that from a 22% standard deviation increase in the earnings surprise. Cross-sectional analysis indicates that the enhancement effect of topic divergence is confined to firms with more credible and exclusive conference call disclosures. In addition, investors are most likely to favor divergence to a topic related to that of the corresponding question. Our study documents an opportunity for executives to apply an active disclosure strategy leveraging curated language to communicate with analysts and investors