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Earnings Conference Calls and Stock Returns: The Incremental Informativeness of Textual Tone

66 Pages Posted: 18 Jun 2010 Last revised: 25 Feb 2012

S. McKay Price

Lehigh University - Perella Department of Finance

James Doran

Implied Capital Advisors

David R. Peterson

Florida State University - Department of Finance

Barbara A. Bliss

University of San Diego

Date Written: October 10, 2011

Abstract

Quarterly earnings conference calls are becoming a more pervasive tool for corporate disclosure. However, the extent to which the market embeds information contained in the tone (i.e. sentiment) of conference call wording is unknown. Using computer aided content analysis, we examine the incremental informativeness of quarterly earnings conference calls and the corresponding market reaction. We find that conference call linguistic tone is a significant predictor of abnormal returns and trading volume. Furthermore, conference call tone dominates earnings surprises over the sixty trading days following the call. The question and answer portion of the call has incremental explanatory power for the post-earnings-announcement drift and this significance is primarily concentrated in firms that do not pay dividends, illustrating differences in investor behavior based on the level of cash flow uncertainty. Additionally, we find that a context specific linguistic dictionary is more powerful than a more widely used general dictionary (Harvard IV-4 Psychosocial).

Keywords: Conference calls, Disclosure, Content analysis, Textual analysis, Stock returns, Post-earnings-announcement drift

JEL Classification: D80, D82, G10, G12, G14, G30

Suggested Citation

Price, S. McKay and Doran, James and Peterson, David R. and Bliss, Barbara A., Earnings Conference Calls and Stock Returns: The Incremental Informativeness of Textual Tone (October 10, 2011). Journal of Banking and Finance, Vol. 36, No. 4, pp. 992-1011, 2012. Available at SSRN: https://ssrn.com/abstract=1625863

S. McKay Price (Contact Author)

Lehigh University - Perella Department of Finance ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
610-758-4787 (Phone)

HOME PAGE: http://www.mckayprice.com

James Doran

Implied Capital Advisors ( email )

1942 Broadway Suite 409
Boulder, CO 80302
United States

David R. Peterson

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-8200 (Phone)
850-644-4225 (Fax)

Barbara A. Bliss

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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