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Tips and Tells from Managers: How Analysts and the Market Read Between the Lines of Conference Calls

Author

Listed:
  • Marina DRUZ

    (University of Lugano and Swiss Finance Institute)

  • Alexander F. WAGNER

    (University of Zurich, Swiss Finance Institute, CEPR, and ECGI)

  • Alexander Richard J. ZECKHAUSER

    (Harvard University and NBER)

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.

Suggested Citation

  • Marina DRUZ & Alexander F. WAGNER & Alexander Richard J. ZECKHAUSER, 2015. "Tips and Tells from Managers: How Analysts and the Market Read Between the Lines of Conference Calls," Swiss Finance Institute Research Paper Series 15-02, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1502
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    Cited by:

    1. Borochin, Paul A. & Cicon, James E. & DeLisle, R. Jared & Price, S. McKay, 2018. "The effects of conference call tones on market perceptions of value uncertainty," Journal of Financial Markets, Elsevier, vol. 40(C), pages 75-91.
    2. Kate Suslava, 2021. "“Stiff Business Headwinds and Uncharted Economic Waters”: The Use of Euphemisms in Earnings Conference Calls," Management Science, INFORMS, vol. 67(11), pages 7184-7213, November.
    3. Stephen J. Terry, 2023. "The Macro Impact of Short‐Termism," Econometrica, Econometric Society, vol. 91(5), pages 1881-1912, September.
    4. Hope, Ole-Kristian & Wang, Jingjing, 2018. "Management deception, big-bath accounting, and information asymmetry: Evidence from linguistic analysis," Accounting, Organizations and Society, Elsevier, vol. 70(C), pages 33-51.
    5. Dan Palmon & Yifei Chen & Biao Chen, 2024. "Corporate Social Responsibility and Information Asymmetry: Do Earnings Conference Calls Play a Role?," Journal of Business Ethics, Springer, vol. 194(1), pages 77-101, September.
    6. DeLisle, R. Jared & Grant, Andrew & Mao, Ruiqi, 2024. "Does environmental and social performance affect pricing efficiency? Evidence from earnings conference call tones," Journal of Corporate Finance, Elsevier, vol. 86(C).
    7. Hao, Mengshu & Xu, Yang & Yuan, Peiyao & Chen, Kecai, 2025. "Unveiling the impact of irrelevant answers on analyst forecast errors: A topic modeling approach," International Review of Financial Analysis, Elsevier, vol. 102(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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