When firms release their quarterly earnings reports, it can be like The Great Oz speaking the truth to investors and analysts.

But a working study from Professor Scott Asay finds that, like the wizard, those disclosures can have a lot of whiz-bang visual elements that are intended to serve only as a distraction.

His study provides evidence that firms strategically format quarterly earnings announcements to highlight good news and obfuscate bad news. That means those bullet points, tables, sub-headlines, italics, and boldface aren’t just random or unbiased. They’re used in a way that persuades readers to see the firm more favorably no matter what the actual numbers say.

“The SEC’s Plain English Handbook encourages firms to make formatting choices that enhance the readability of disclosures, but we found that firms apply these guidelines selectively,” he said. “They use more transparent formatting when they have good news and less transparent formatting when there’s bad news.

Asay stresses there’s nothing inherently unethical or fraudulent about this. It’s no different than a marketing department telling consumers great things about their company’s product while ignoring the bad. Ultimately, he said investor relations departments work in a similar way to portray a favorable image of the firm to investors.

However, he said investors and analysts should be aware of these efforts when they read disclosures, so they know how the firm is trying to influence them.

Asay and his research partners began their study by looking at press releases from a sample of firms that had notable financial performance changes between fiscal years 2022 and 2023. They found that when companies had great news to report, they made formatting choices for readers to easily process and understand the news, using headlines and bullet points highlighting important metrics like earnings and revenues. Subheads, bold type, and easy-to-read tables were also more likely when illustrating positive trends.

But if things aren’t going so well, Asay’s team observed longer narratives that are more difficult for readers to process and bullet points highlighting qualitative information. Nondescript headlines like “Earnings Report Released” de-emphasize bad news, while good news headlines are filled with great numbers.

He said the changes are subtle enough that they’re difficult to notice from one disclosure to the next. But ultimately, he said the trend is more transparency with good news and less with bad.

Asay says two announcements from AT&T demonstrate how this works. One, from 2022, reports a loss, while a 2023 announcement reports a profit.

The good news release from 2023 uses abundant boldface to report positive cash flow and revenue. The headline is filled with impressive numbers to get investors pumped about buying AT&T stock. A subhead pats leadership on the back by pointing out the company’s multi-year, investment-led strategy is paying off.

But the 2022 bummer of a release has no boldface and no subhead. The headline, “AT&T Reports Fourth Quarter and Full-Year Results,” practically begs not to be read. It leads with subscriber growth and ahead-of-schedule network deployment. Important, but not top of investors’ minds. The disappointing revenues and earnings aren’t reported until the bottom of the page.

“They don’t just use the same press release every quarter and change the numbers,” he said. “When under greater reporting pressure, firms will change the entire structure of the disclosure.”

But does it work?

Asay is doubtful. Just like The Great Oz’s theatrics, it may have a short-term effect, but savvy investors, analysts, and journalists will eventually dig into the numbers and see what’s really happening.

DYK? 

The actual quote from “The Wizard of Oz” is “Pay no attention to that man behind the curtain.” Have you been remembering it wrong, too? Mandela effect!

This article appeared in the 2025 issue of Iowa Ledger.