Oh What a Beautiful Morning! The Effect of the Time of Day on the Tone and Consequences of Conference Calls

Abstract:     
Using textual analysis software, we examine whether and how the tone of the question and answer (“Q&A”) portion of earnings-related conference calls varies with the time of day. We find that, for calls initiated later in the day when managers and analysts participating in the calls are likely to be suffering from greater physical and mental fatigue, the tone of the conversations between analysts and managers is significantly more negative than for earlier calls. Calls that are held later in the day also exhibit significantly greater textual uncertainty, suggesting that the conversational tone is more wavering and less resolute. We also document that conversational tone has economic consequences: more negatively toned conversations are associated with more negative abnormal stock returns during the call period. Further analyses show that there is negative drift during the 15-day post-call period for both morning and afternoon “bad news” calls, but that there is relatively higher positive abnormal returns over the subsequent 45 trading days (i.e., days (16, 60) relative to the t=0 call day) for afternoon calls. The combined results suggest that there is an initial and negative over reaction to both bad news earnings information and, incrementally, to negative tone and to calls initiated in the afternoon, that eventually (at least partially) reverses. To the best of our knowledge, this is the first study to document the effects of human physiological factors on corporate communications with analysts and to provide evidence regarding their impact on the firm’s stock price dynamics.

Number of Pages in PDF File: 45

Keywords: textual analysis, linguistic tone, conference calls, over-reaction

JEL Classification: G10, G11, M40

working papers series