Conference calls and information asymmetry

We hypothesize that conference calls are voluntary disclosures that lead to long-term reductions in information asymmetry among equity investors. Cross-sectional and time-series tests show that information asymmetry is negatively associated with conference call activity. Firms initiating a policy of regularly holding conference calls experience statistically and economically significant and sustained reductions in information asymmetry, in contrast to one-time callers, who experience no significant decline in asymmetry. Since prior work shows that the cost of equity capital is increasing in the level of information asymmetry, our results suggest that firms that hold conference calls more frequently have lower costs of capital. (C) 2004 Elsevier B.V. All rights reserved.