Working Paper: CEPR ID: DP10364
Authors: Marina Druz; Alexander F. Wagner; Richard J. Zeckhauser
Abstract: Conference call tone predicts future earnings and uncertainty. ?Tone disappointment? (excessive negativity) predicts more strongly than ?tone delight? (excessive positivity). However, analysts and investors respond more quickly to delight than disappointment. Consequently, stock prices drift downward after their initial reaction to tone disappointment. Tone surprises move stock prices more in those firms where tone surprise predicts earnings and uncertainty more strongly. These results hold even after controlling for negativity of words in the earnings press release, analyst expectations, the firm?s recent performance, and CEO fixed effects. Together, these coherent results suggest that market participants distill value-relevant information from conference calls.
Keywords: analysts; earnings; conference calls; information transmission; managerial tone; price drift; textual analysis
JEL Codes: G14; G24; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| managerial tone (M54) | future earnings (J17) |
| managerial tone (M54) | uncertainty (D89) |
| tone disappointment (Y60) | future earnings (J17) |
| tone delight (Y60) | future earnings (J17) |
| tone disappointment (Y60) | analyst forecast revisions (G17) |
| tone delight (Y60) | analyst forecast revisions (G17) |
| tone disappointment (Y60) | stock market reactions (G10) |
| tone delight (Y60) | stock market reactions (G10) |