Executives' Blaming External Factors and Market Reactions: Evidence from Earnings Conference Calls

64 Pages Posted: 9 Jun 2014 Last revised: 1 Dec 2021

See all articles by Joonki Noh

Joonki Noh

Case Western Reserve University - Department of Banking and Finance

Dexin Zhou

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: August 7, 2021

Abstract

We investigate how market participants react when corporate executives strategically blame the economy or industries for poor firm performance. In the quarters subsequent to earnings conference calls, we find that the "blame sentences," which capture executives' blaming tactics, predict negative and non-reverting abnormal returns, negative earnings surprises, and analyst recommendation downgrades. These blaming tactics also reduce the sensitivity of executives' turnover to their performance. Our findings imply that executives strategically inject the negative information about future cash flows into blame sentences. Market participants need to combine distinct categories of information (firm-specific vs. economy-wide) to understand the implications of blame sentences, which consumes more cognitive resources and delays their reactions to the blame sentences.

Keywords: Market underreaction, Corporate executives, Earnings conference calls, External factors, Textual analysis

Suggested Citation

Noh, Joonki and Zhou, Dexin, Executives' Blaming External Factors and Market Reactions: Evidence from Earnings Conference Calls (August 7, 2021). Journal of Banking and Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=2447042 or http://dx.doi.org/10.2139/ssrn.2447042

Joonki Noh

Case Western Reserve University - Department of Banking and Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States
216-368-3737 (Phone)

Dexin Zhou (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

55 Lexington Avenue
New York, NY 10010
United States

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