Firms' Price-setting Behaviour: Insights from Earnings Calls

Abstract

We introduce new firm-level indices covering input costs, demand and final prices based on listed Australian firms' earnings calls going back to 2007. These indices are constructed using a powerful transformer-based large language model. We show the new indices track current economic conditions, consistent with a simple conceptual framework we use to explain why there is real-time information in firms' earnings calls. Focusing on firms' price-setting behaviour, the reduced-form associations we estimate appear to show that discussions around final prices have become more sensitive to import costs but less sensitive to labour costs in the period since 2021. This is after controlling for changes in the operating environment that are common to all firms, including global supply shocks. Firms' price-setting sentiment also appears more sensitive to rising input costs compared to falling costs, suggesting that prices could remain front-of-mind for company executives even as supply pressures ease.