Do Analysts and Investors Efficiently Respond to Managerial Linguistic Complexity during Conference Calls?

49 Pages Posted: 21 Jun 2019 Last revised: 15 Jul 2022

See all articles by Brian J. Bushee

Brian J. Bushee

University of Pennsylvania - The Wharton School

Ying (Julie) Huang

University of Louisville

Date Written: July 1, 2022

Abstract

This paper examines whether analysts and investors efficiently incorporate the informational signals from managerial linguistic complexity (e.g. Fog) into their forecasts and trading decisions. We predict that managerial linguistic complexity on a conference call provides a signal of the manager’s private information through their willingness to engage with analyst questions. Consistent with this engagement mechanism, we show that linguistic complexity evolves over the course of the call, with informative (uninformative) calls exhibiting more (less) informative technical disclosure as the call progress. We find that informative (obfuscatory) managerial Fog provides a positive (negative) signal of future earnings growth. We also find that analysts efficiently revise their forecasts to both positive and negative signals, whereas investors only correctly interpret obfuscation during the call; there is a delayed price reaction to informative Fog. However, when buy-side investors ask questions during a call, we find an efficient price reaction to informative Fog. Our findings highlight an important benefit of two-way interactive disclosures and underline the importance of call participation for efficiently incorporating linguistic signals of managers’ private information.

Keywords: conference call; linguistic complexity; two-way engagement; informative technical disclosure; analyst forecasts; market reaction.

JEL Classification: D82, G14, G18, M41, M48

Suggested Citation

Bushee, Brian J. and Huang, Ying, Do Analysts and Investors Efficiently Respond to Managerial Linguistic Complexity during Conference Calls? (July 1, 2022). Available at SSRN: https://ssrn.com/abstract=3405086 or http://dx.doi.org/10.2139/ssrn.3405086

Brian J. Bushee

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-4872 (Phone)
215-573-2054 (Fax)

Ying Huang (Contact Author)

University of Louisville ( email )

School of Accountancy
College of Business
Louisville, KY KY Kentucky 40292
United States
5028521647 (Phone)
5028521647 (Fax)

HOME PAGE: http://www.linkedin.com/in/ying-julie-huang-02093769

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
472
Abstract Views
2,220
Rank
105,512
PlumX Metrics