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

Financial Analysts Journal, 2020, 76( 2): 47–69

HKS Working Paper No. 16-004

Swiss Finance Institute Research Paper No. 15-02

77 Pages Posted: 3 Feb 2015 Last revised: 5 May 2020

See all articles by Marina Druz

Marina Druz

Swiss Finance Institute; University of Lugano - Institute of Finance

Ivan Petzev

affiliation not provided to SSRN

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 3 versions of this paper

Date Written: December 13, 2019

Abstract

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

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 13, 2019). Financial Analysts Journal, 2020, 76( 2): 47–69, HKS Working Paper No. 16-004, 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

affiliation not provided to SSRN

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 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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