How to Talk Down Your Stock Returns
30 Pages Posted: 8 Mar 2019 Last revised: 6 Aug 2019
Date Written: July 30, 2019
We analyze how senior managements' willingness to orally convey information in earnings calls affects firms' stock returns. Using a novel "Blathering" metric for managements’ unwillingness to share precise information by ‘beating around the bush’, we show that market participants perceive imprecise information as bad news. Firms experience significantly lower cumulative abnormal returns following their earnings calls when managers blather more. This finding cannot be explained by time-constant firm characteristics or management style. Further, we investigate the motives behind blathering and observe that blathering is particularly pronounced when earnings management is more likely, when analysts' questions are tougher, and when last quarters' return on equity was poor.
Keywords: conference calls, management blathering, corporate disclosure, stock returns
JEL Classification: D82, G12, G14, G30
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