Working Paper: NBER ID: w20991
Authors: Marina Druz; Alexander F. Wagner; Richard J. Zeckhauser
Abstract: Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. “Tone surprise” – the residual when negativity in managerial tone is regressed on the firm’s recent economic performance and CEO fixed effects – predicts future earnings and analyst uncertainty. Prices move more, as hypothesized, in firms where tone surprise predicts more strongly. Experienced analysts respond appropriately in revising their forecasts; inexperienced analysts overreact (underreact) to tone surprises in presentations (answers). Post-call price drift, like post-earnings announcement drift, suggests less-than-full-use of information embedded in managerial tone.
Keywords: managerial tone; earnings conference calls; analyst forecasts; stock price reactions
JEL Codes: D82; G14; G24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| managerial tone negativity (M54) | stock prices (G12) |
| managerial tone negativity (M54) | future earnings (J17) |
| managerial tone negativity (M54) | analyst uncertainty (D80) |
| tone surprise (Y20) | future earnings (J17) |
| tone surprise (Y20) | analyst uncertainty (D80) |
| analyst experience (G24) | forecast accuracy (C53) |
| managerial tone (M54) | forecast revisions (C53) |
| tone surprise (Y20) | stock market reactions (G10) |
| managerial tone (M54) | expected future cash flows (G17) |
| tone surprises in firms with earnings surprises (G14) | future earnings and uncertainty (D89) |