Hyperbole or Reality? Investor Response to Extreme Language in Earnings Conference Calls

The Accounting Review, Forthcoming

Posted: 19 May 2016 Last revised: 12 Jul 2019

See all articles by Khrystyna Bochkay

Khrystyna Bochkay

University of Miami - School of Business Administration

Jeffrey Hales

University of Texas at Austin - Department of Accounting

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Date Written: May 18, 2016

Abstract

We develop a dictionary of linguistic extremity in earnings conference calls, a setting where managers have considerable latitude in the language they use, to study the role of extreme language in corporate reporting. Controlling for tone (positive vs. negative) of language, we document that when managers use more extreme words in earnings conference calls, trading volume around the call increases and stock prices react more strongly. In addition, both effects are more pronounced for firms with weaker information environments. Linguistic extremity also affects analyst opinions and contains information about a firm's future operating performance. As such, our results provide evidence that markets are influenced not just by what managers say, but also how they say it, with extreme language playing an important role in communicating reality and not merely reflecting hyperbole.

Keywords: Extreme Language; Tone; Market Reactions; Analyst Revisions; Future Performance; Earnings Conference Calls

JEL Classification: G10; G20; G30; M4

Suggested Citation

Bochkay, Khrystyna and Hales, Jeffrey and Chava, Sudheer, Hyperbole or Reality? Investor Response to Extreme Language in Earnings Conference Calls (May 18, 2016). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2781784 or http://dx.doi.org/10.2139/ssrn.2781784

Khrystyna Bochkay (Contact Author)

University of Miami - School of Business Administration ( email )

Coral Gables, FL 33146-6531
United States

Jeffrey Hales

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-471-2163 (Phone)
512-471-3907 (Fax)

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://www.prism.gatech.edu/~schava6/

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