Institutional investor inattention and acquisition of firm-specific information during conference calls

Earnings conference calls are salient sources of firm-specific information that investors can attend to inquire firm managers directly. The main focus of this study is how institutional investors—the most dominant group in the U.S. capital market that provides investment vehicles for other investors—rely on earnings conference calls to gather firm-specific information. I find that institutional investors participate more actively in earnings conference calls held by firms on which institutional investors collectively lack firm-specific research (i.e., institutional investors are inattentive) prior to conference calls. Using a broad set of earnings conference call transcripts, I identify participants affiliated with institutional investors and their dialogue to examine the association between institutional investors’ inattention and their activities during earnings conference calls. I show that institutional investors appear more often, ask more questions, and request more guidance in conference calls held by firms that receive less attention before the calls. Collectively, the results indicate that institutional investors compensate for the lack of firm-specific information with conference call participation, despite potential costs such as increased risk of other investors front-running after observing the institutional investors.