The Impact of Credibility on the Pricing of Managerial Textual Content

52 Pages Posted: 30 Jun 2008 Last revised: 7 Jun 2014

See all articles by Elizabeth A. Demers

Elizabeth A. Demers

University of Lausanne - Department of Accounting and Control

Clara Vega

Board of Governors of the Federal Reserve System

Date Written: June 6, 2014

Abstract

The conditions under which managerial textual content that has the potential to be “cheap talk” is more influential in the price formation process have not been previously investigated. We document that investors respond more to unexpected managerial net optimism in settings where our numerous proxies for credible communications are more strongly present. The market impact of this soft information is also higher when the simultaneously released earnings are less informative signals about firm value. Further investigations reveal that a second dimension of managerial communication, textual uncertainty, is incrementally useful in predicting firm-specific abnormal return volatility.

Keywords: Textual analysis; textual content; cheap talk; earnings quality; earnings announcement; information uncertainty; stock price volatility; media coverage; voluntary disclosure; communication credibility

JEL Classification: G14; D82; M41

Suggested Citation

Demers, Elizabeth A. and Vega, Clara, The Impact of Credibility on the Pricing of Managerial Textual Content (June 6, 2014). Available at SSRN: https://ssrn.com/abstract=1153450 or http://dx.doi.org/10.2139/ssrn.1153450

Elizabeth A. Demers (Contact Author)

University of Lausanne - Department of Accounting and Control ( email )

UNIL-Dorigny
Anthropole
Lausanne, 1015
Switzerland

Clara Vega

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/research/staff/vegaclarax.htm

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