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

51 Pages Posted: 21 Jun 2019 Last revised: 16 Jun 2021

See all articles by Brian J. Bushee

Brian J. Bushee

University of Pennsylvania - The Wharton School

Ying (Julie) Huang

University of Louisville

Date Written: June 1, 2021

Abstract

This paper examines whether analysts and investors efficiently incorporate the informational signals from managerial linguistic complexity (e.g. Fog) on conference calls into their forecasts and trading decisions. We predict that managerial linguistic complexity provides a signal of the manager’s private information through their willingness to engage with analyst questions. We find that managerial linguistic complexity related to informative technical disclosure provides a positive signal of future earnings growth, whereas obfuscatory linguistic complexity predicts lower future earnings growth. We also find that, as active call participants, analysts efficiently revise their forecasts to incorporate the positive (negative) signal in informative (obfuscatory) Fog. However, as passive participants, investors only correctly interpret the negative signal of obfuscation during the call; we find a delayed price reaction to informative Fog. When we examine calls during which buy-side investors ask questions, we then find a significant contemporary association between stock returns and informative Fog, with no delayed price reaction. This finding underlines the importance of call participation for efficiently incorporating the positive signal of informative linguistic complexity.

Keywords: conference call; linguistic complexity; informative 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 on Conference Calls? (June 1, 2021). 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

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