Managers’ Use of Humor on Public Earnings Conference Calls

Abstract

Despite the prevalence and importance of humor in interpersonal communication, the disclosure literature is silent on the use of humor in the context of corporate communication. Using a sophisticated machine learning algorithm, we identify managers’ successful uses of humor during public earnings conference calls. When managers use humor on an earnings call, stock market returns and analyst forecast revisions following the call are more positive, primarily because of a muted response to negative earnings news. Consistent with managers’ use of humor being a favorable signal of future firm performance, we find no evidence of a returns reversal over the subsequent quarter, and managers’ use of humor predicts more favorable news at the subsequent quarter’s earnings announcement. Our study provides new evidence on the use of humor in corporate disclosure events, and our findings indicate that humor can have a meaningful influence on the market response to public earnings conference calls.

Keywords: earnings conference calls, humor, disclosure, financial analysts, management

JEL Classification: G02, G20, G24, G29, D22, M40, M41