When companies announce their earnings, they will often also hold a conference call to better explain firm performance. However, even with this added discussion, investors often have trouble understanding the information conveyed by management. Management can enhance its discussion of corporate performance metrics by providing visualizations of the data. Could the use of visualizations in earnings calls help investors more fully understand the information management is trying to convey?
A new research study addresses this question. The study is titled “The Influence of Data Visualizations on Investor Information Processing: Evidence from Earnings Conference Call Slideshows'” and was recently published in <a href="https://publications.aaahq.org/accounting-review/article/101/5/103/27384/The-Influence-of-Data-Visualizations-on-Investor” rel=”nofollow noopener” target=”_blank”>The Accounting Review. The author of the article is Karson Fronk from Texas Christian University.
The article reports that the proportion of earnings conference calls that use a slideshow has steadily increased from 24% in 2010 to 60% in 2022. Fronk gathered approximately 65 thousand of these slideshows and converted each slide from these slideshows into a JPEG image, which resulted in more than 1.5 million slide images. He then used machine learning to identify slides that had a data visualization, such as a bar chart, line graph, pie graph, or map. Fronk then measured visualization use as the proportion of earnings conference call slides containing a data visualization.
The main finding of the study is that data visualizations help investor understand company information when they announce their earnings. Investors appear to disagree less about future performance when managers provide more visual disclosures. The results are particularly strong when the company’s earnings announcement is more difficult to understand, investors are faced with numerous concurrent earnings releases from other corporations, and the company has no media coverage.
“Data visualizations appear to help investors understand a company’s earnings announcement most when investors have difficulty implementing and using the information into their decisions. For example, the impact of using data visualizations is strongest when the slides display non-financial or forward-looking information, which are two areas with a fair amount of ambiguity,” says Fronk.
Turning to the type of investor that benefits most from visualizations, the article identifies a link between companies’ use of visualizations and retail investor trading activity and short-term profits for these less-sophisticated investors.
