Impact of OM Content in Earnings Calls on a Firm’s Stock Performance

We investigate whether and to what extent financial markets value and respond to operations management (OM)-related information in quarterly earnings calls directed toward financial market participants. We develop and use a novel construct called “stated OM focus” (SOMF) 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 time frame of 15 years. We empirically establish the value-relevance of OM information as well as 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, standard OM metrics, firm and time effects, and lexical-structure related) and after accounting for earnings surprise. Furthermore, 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 one, two and three months forward from the earnings call event. We show that the OM information metric is reliable and bears internal, external, and predictive validity. These findings offer useful implications for firms, financial market participants, and OM function stakeholders. This paper was accepted by Jayashankar Swaminathan, operations management. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02221 .