When Managers Change Their Tone, Analysts and Investors Change Their Tune

75 Pages Posted: 3 Feb 2015 Last revised: 2 Jan 2018

See all articles by Marina Druz

Marina Druz

Swiss Finance Institute; University of Lugano - Institute of Finance

Ivan Petzev

University of Zurich - Department of Banking and Finance

Alexander F. Wagner

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: December 15, 2017

Abstract

An increase in the negativity of managerial word choice (managerial tone) on conference calls strongly predicts lower future earnings and greater uncertainty. However, a decrease in negativity only weakly predicts the opposite. To isolate managerial tone’s explanatory power, we control for negativity changes in the earnings press release and analysts’ questions. In industries where firms provide earnings guidance, negativity changes are particularly informative. How effectively do analysts and investors process this information? They extract value-relevant information from negativity changes, but incompletely. A monthly calendar-time strategy that exploits the incomplete adjustment of stock prices to negativity changes generates abnormal returns.

Keywords: Analysts, earnings conference calls, information transmission, managerial tone, negative words, tone changes, price drift, textual analysis

JEL Classification: G14, G30

Suggested Citation

Druz, Marina and Petzev, Ivan and Wagner, Alexander F. and Zeckhauser, Richard J., When Managers Change Their Tone, Analysts and Investors Change Their Tune (December 15, 2017). Swiss Finance Institute Research Paper No. 15-02. Available at SSRN: https://ssrn.com/abstract=2559157 or http://dx.doi.org/10.2139/ssrn.2559157

Marina Druz

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Lugano - Institute of Finance ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

Ivan Petzev

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

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