'Stiff Business Headwinds and Unchartered Economic Waters': The Use of Euphemisms in Earnings Conference Calls
44 Pages Posted: 17 Jul 2017 Last revised: 3 Jul 2018
Date Written: October 1, 2017
I study investor reaction to the use of euphemisms in the earnings conference calls. Euphemisms are indirect words or phrase that people use to refer to something embarrassing or unpleasant to make it seem more acceptable than what it really is. I compile the first dictionary of euphemisms used in the corporate communication and, using textual analysis of 78,000 conference call transcripts, derive a measure of discretionary euphemism usage (ABN_EUPH). I find that ABN_EUPH is negatively related to the abnormal immediate and three-month drift returns beyond earnings surprises and overall call sentiment based on Loughran and McDonald dictionary. Overall, this result indicates that investors recognize opportunistic use of euphemisms and adjust their valuations downwards around the call date. However, abnormal use of euphemisms still misleads investors at the time of the call and results in a muted price reaction that adjusts only gradually over the course of the subsequent quarter. I also find that strategic use of euphemisms is especially effective in misleading investors when their attention is distracted on the busy earnings announcement dates.
Keywords: Conference Calls, Euphemisms, Abnormal Returns, Content Analysis
JEL Classification: G12, G14, M41
Suggested Citation: Suggested Citation