Impact of OM Content in Earnings Calls on a Firm’s Stock Performance
By Sudhir Voleti, Vishwakant Malladi, Milind Sohoni
Management Science
Citation
Voleti, Sudhir., Malladi, Vishwakant., Sohoni, Milind. (2024). Impact of OM Content in Earnings Calls on a Firm’s Stock Performance Management Science .
Copyright
Management Science, 2024
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Abstract
We investigate whether and to what extent financial markets value and respond to Operations Management (OM) related information in firm communications directed toward financial market participants. We create and use a novel construct, called “stated OM focus”, to mine the incidence of and emphasis on OM information in the quarterly earnings conference calls for a large cross-section of firms (S&P 1500) over a long time frame of 15 years. This enables us to empirically establish the value-relevance of OM information, and summarize and capture both explanatory and predictive aspects of the OM function’s contribution to firm value. We show that OM-related information disclosed by firms systematically, significantly, positively and persistently affects abnormal stock returns after controlling for known covariates and controls (financial metrics, firm and time effects, and lexical-structure related), and after accounting for earnings surprise. Further, we find evidence that firms’ stated OM focus bears significant predictive power in the short term. Long-short portfolios, created using a sorting signal derived solely from stated OM-focus information, predict future abnormal returns consistently over 1,2 and 3 months forward from the earnings call event. We show that the OM information metric is reliable, bears internal, external and predictive validity, and is robust to falsification. These findings offer useful implications for firms, financial market participants, and OM function stakeholders.

Sudhir Voleti is an Associate Professor of Marketing at the Indian School of Business (ISB), where he is also a distinguished faculty member in Business Analytics. A renowned researcher in the fields of marketing research and business analytics, he has previously served as Associate Dean of Faculty Alignment and the Registrar's Office (FARO) at ISB.

Professor Voleti holds a PhD in Marketing and an MS in Applied Statistics from the University of Rochester, a PGDM from Indian Institute of Management (IIM) Calcutta, and a BE from the Birla Institute of Technology, Ranchi, along with years of industry experience.

Professor Voleti is recognised as one of India's leading data science academicians. His research focuses on combining data with econometric and statistical methods to explain phenomena of marketing interest such as evolution in the equity of brands across time, valuation of brands using secondary sales data, the sales impact of geographic and abstract distances between products and markets, and the performance, productivity, and benchmarking of salesforce organisations.

Professor Voleti has published numerous research articles in leading academic journals such as Management Science, Journal of Marketing, Journal of the Royal Statistical Society, the International Journal of Research in Marketing, and the Journal of Retailing, as well as book chapters and articles in the popular media. He also serves on the editorial review boards of numerous journals. Some of his significant works include "Impact of Reference Prices on Product Positioning and Profits", "The role of big data and predictive analytics in retailing", "Why the Dynamics of Competition Matter for Category Profitability", "A Bayesian non-parametric model of residual brand equity in hierarchical branding structures", and "An Approach to Improve the Predictive power of Choice - Based Conjoint Analysis".

Sudhir Voleti
Sudhir Voleti

Vishwakant Malladi is an Assistant Professor of Operations Management at the Indian School of Business (ISB). He obtained his PhD in Risk and Operations Management from the McCombs School of Business, University of Texas at Austin. His research primarily focuses on risk in an operations management context and can be broadly divided into two areas. First, he works on parsimonious modelling of risk in high-dimensional systems using Lévy processes. Second, he studies the impact of risk and risk dependence in operations management problems such as inventory theory, reliability, and the facility location problem. Prior to his doctoral studies, Professor Malladi has worked as a Statistical Analyst for

Fractal Analytics and as an Equity Research Analyst for Centrum Capital. He holds a B. Tech in Mechanical Engineering from Indian Institute of Technology (IIT) Bombay and an MBA from Indian Institute of Management (IIM) Ahmedabad.

Vishwakant Malladi
Vishwakant Malladi