Detecting Deceptive Discussions in Conference Calls

Journal of Accounting Research, Vol. 50, Issue 2, pp. 495-540, 2012

Rock Center for Corporate Governance at Stanford University Working Paper No. 83

71 Pages Posted: 17 Mar 2010 Last revised: 10 Apr 2013

David F. Larcker

Stanford University - Graduate School of Business

Anastasia A. Zakolyukina

University of Chicago - Booth School of Business

Date Written: January 25, 2012

Abstract

We estimate classification models of deceptive discussions during quarterly earnings conference calls. Using data on subsequent financial restatements (and a set of criteria to identify especially serious accounting problems), we label each call as “truthful” or “deceptive”. Our models are developed with the word categories that have been shown by previous psychological and linguistic research to be related to deception. Using conservative statistical tests, we find that the out-of-sample performance of the models that are based on CEO or CFO narratives is significantly better than random by 6%-16% and statistically dominates or is equivalent to models based on financial and accounting variables. We find that the answers of deceptive executives have more references to general knowledge, fewer non-extreme positive emotions, and fewer references to shareholder value. In addition, deceptive CEOs use significantly more extreme positive emotion and fewer anxiety words.

Keywords: Deception, Restatements, Linguistic Analysis

JEL Classification: G3, M4

Suggested Citation

Larcker, David F. and Zakolyukina, Anastasia A., Detecting Deceptive Discussions in Conference Calls (January 25, 2012). Journal of Accounting Research, Vol. 50, Issue 2, pp. 495-540, 2012 ; Rock Center for Corporate Governance at Stanford University Working Paper No. 83. Available at SSRN: https://ssrn.com/abstract=1572705 or http://dx.doi.org/10.2139/ssrn.1572705

David F. Larcker

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Anastasia A. Zakolyukina (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773.834.4838 (Phone)
773.926.0941 (Fax)

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