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Earnings conference calls and stock returns: The incremental informativeness of textual tone

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  • Price, S. McKay
  • Doran, James S.
  • Peterson, David R.
  • Bliss, Barbara A.

Abstract

Quarterly earnings conference calls are becoming a more pervasive tool for corporate disclosure. However, the extent to which the market embeds information contained in the tone (i.e. sentiment) of conference call wording is unknown. Using computer aided content analysis, we examine the incremental informativeness of quarterly earnings conference calls and the corresponding market reaction. We find that conference call linguistic tone is a significant predictor of abnormal returns and trading volume. Furthermore, conference call tone dominates earnings surprises over the 60 trading days following the call. The question and answer portion of the call has incremental explanatory power for the post-earnings-announcement drift and this significance is primarily concentrated in firms that do not pay dividends, illustrating differences in investor behavior based on the level of cash flow uncertainty. Additionally, we find that a context specific linguistic dictionary is more powerful than a more widely used general dictionary (Harvard IV-4 Psychosocial).

Suggested Citation

  • Price, S. McKay & Doran, James S. & Peterson, David R. & Bliss, Barbara A., 2012. "Earnings conference calls and stock returns: The incremental informativeness of textual tone," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 992-1011.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:992-1011
    DOI: 10.1016/j.jbankfin.2011.10.013
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    References listed on IDEAS

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    Cited by:

    1. S. Price & Jesus Salas & C. Sirmans, 2015. "Governance, Conference Calls and CEO Compensation," The Journal of Real Estate Finance and Economics, Springer, vol. 50(2), pages 181-206, February.
    2. Blau, Benjamin M. & DeLisle, Jared R. & Price, S. McKay, 2015. "Do sophisticated investors interpret earnings conference call tone differently than investors at large? Evidence from short sales," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 203-219.
    3. Kearney, Colm & Liu, Sha, 2014. "Textual sentiment in finance: A survey of methods and models," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 171-185.
    4. repec:eee:finana:v:57:y:2018:i:c:p:231-245 is not listed on IDEAS
    5. Frankel, Richard & Jennings, Jared & Lee, Joshua, 2016. "Using unstructured and qualitative disclosures to explain accruals," Journal of Accounting and Economics, Elsevier, vol. 62(2), pages 209-227.
    6. Michał Dzieliński & Alexander F. Wagner & Richard J. Zeckhauser, 2017. "Straight Talkers and Vague Talkers: The Effects of Managerial Style in Earnings Conference Calls," NBER Working Papers 23425, National Bureau of Economic Research, Inc.
    7. Arslan-Ayaydin, Özgür & Boudt, Kris & Thewissen, James, 2016. "Managers set the tone: Equity incentives and the tone of earnings press releases," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 132-147.
    8. Demers E. & Lev B. & Chen J., 2013. "Oh what a beautiful morning! The time of day effect on the tone and market impact of conference calls," Research Memorandum 038, Maastricht University, Graduate School of Business and Economics (GSBE).
    9. S. McKay Price & Michael J. Seiler & Jiancheng Shen, 2017. "Do Investors Infer Vocal Cues from CEOs During Quarterly REIT Conference Calls?," The Journal of Real Estate Finance and Economics, Springer, vol. 54(4), pages 515-557, May.
    10. repec:eee:jbfina:v:82:y:2017:i:c:p:59-79 is not listed on IDEAS
    11. James Cicon, 2017. "Say it again Sam: the information content of corporate conference calls," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 57-81, January.
    12. Saverio Bozzolan & Charles Cho & Giovanna Michelon, 2015. "Impression Management and Organizational Audiences: The Fiat Group Case," Journal of Business Ethics, Springer, vol. 126(1), pages 143-165, January.
    13. Chouliaras, Andreas, 2015. "The Pessimism Factor: SEC EDGAR Form 10-K Textual Analysis and Stock Returns," MPRA Paper 65585, University Library of Munich, Germany.
    14. Tsai, Ming-Feng & Wang, Chuan-Ju, 2017. "On the risk prediction and analysis of soft information in finance reports," European Journal of Operational Research, Elsevier, vol. 257(1), pages 243-250.

    More about this item

    Keywords

    Conference calls; Disclosure; Content analysis; Textual analysis; Stock returns; Post-earnings-announcement drift;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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