When Managers Change Their Tone, Analysts and Investors Change Their Tune
Financial Analysts Journal, 2020, 76( 2): 47–69
77 Pages Posted: 3 Feb 2015 Last revised: 5 May 2020
Date Written: December 13, 2019
The negativity of managerial word choice (managerial tone) on conference calls is a telltale indicator of a company’s future. Specifically, increases in negativity, what we term bleak tone changes, strongly predict lower future earnings and greater uncertainty. However, decreases in negativity only weakly predict the opposite. To isolate the explanatory power of managerial tone, we control for negativity changes in the earnings press release and analysts' questions. Analysts and investors under-react when they extract value-relevant information from negativity changes. Consequently, a negativity-based trading strategy generates abnormal returns.
Keywords: Analysts, earnings conference calls, managerial tone, negative words, bleak tone, tone changes, price drift, textual analysis
JEL Classification: G14, G30
Suggested Citation: Suggested Citation