'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

See all articles by Kate Suslava

Kate Suslava

Bucknell University Freeman College of Management

Date Written: October 1, 2017

Abstract

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

Suslava, Kate, 'Stiff Business Headwinds and Unchartered Economic Waters': The Use of Euphemisms in Earnings Conference Calls (October 1, 2017). Available at SSRN: https://ssrn.com/abstract=2876819 or http://dx.doi.org/10.2139/ssrn.2876819

Kate Suslava (Contact Author)

Bucknell University Freeman College of Management ( email )

701 Moore Ave
Lewisburg, PA 18837
United States

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