Do Managers Put Their Money Where Their Mouths Are? Evidence from Insider Trading after Conference Calls

Abstract:     
We examine the relation between the tone of conference calls presented by company executives and their subsequent insider trading behavior. Our findings reveal a significant discrepancy between word and deed – simply stated, managers do not put their money where their mouths are. We find that positive conference call tones predict net insider selling, and negative conference call tones predict net insider buying. We also show that these inverse tone-trading patterns are unlikely to be the consequence of contrarian trading strategies on the part of insiders. Additional tests reveal a stronger inverse relation in CEO trading patterns, the executives most responsible for setting conference call tones, than in non-CEO trading patterns. We also find a much stronger inverse relation for small firms than for large firms, consistent with the expectation that manipulating conference call tone will be more effective in a weaker information environment.

Number of Pages in PDF File: 44

Keywords: Insider trading, Conference calls, Textual analysis, Presentation tone

JEL Classification: G02, G14, M14

working papers series