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

54 Pages Posted: 21 Jun 2019

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, 2019

Abstract

This paper examines whether analysts and investors efficiently incorporate the informational cues from managerial linguistic complexity (e.g. Fog) on conference calls into their forecasts and trading decisions. We predict that managers use linguistic complexity to obfuscate before poor future earnings growth, but use linguistic complexity to provide informative disclosure before good future earnings growth. We find that the obfuscation (information) component of managerial Fog on a conference call is negatively (positively) associated with future earnings growth, and that the relations are generally stronger when there is a higher potential for earnings management during the period. We find that analyst forecast revisions efficiently respond to these informational signals in managerial Fog. However, while stock returns around the call are negatively associated with obfuscatory Fog, they are unrelated to informative Fog, which leads to a delayed positive return reaction to informative Fog after the call. Thus, while both analysts and investors appear to process the negative signal of managerial obfuscation, only analysts correctly interpret the positive signal of greater linguistic complexity due to more informative disclosure.

Keywords: Linguistic Complexity, Conference Calls, Informational Disclosure, Analyst Forecasts

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, 2019). 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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