Swiss Finance Institute
Università della Svizzera italiana
Institutional Affiliation: Swiss Finance Institute, University of Zurich
NBER Working Papers and Publications
|February 2015||Tips and Tells from Managers: How Analysts and the Market Read Between the Lines of Conference Calls|
with Alexander F. Wagner, Richard J. Zeckhauser: w20991
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.