Credibility Signals from Soft Information: Evidence from Investor Reactions to Tone in Earnings Conference Calls

European Accounting Review, Forthcoming

68 Pages Posted: 2 Aug 2023

See all articles by Jan Hennig

Jan Hennig

University of Groningen

Sebastian Firk

University of Groningen - Department of Accounting and Auditing

Michael Wolff

University of Goettingen (Göttingen)

Date Written: April 11, 2023

Abstract

Research assigns significant share price relevance to linguistic tone in earnings conference calls. Tone is, however, only one facet in the mosaic of the soft information that is disseminated in the interactive conference call setting. We argue that investors exploit further aspects of this soft information to simultaneously assess the tone’s credibility. Drawing on the communication literature, we focus on the role of perceived sender and message credibility in conference calls in altering investor reactions to tone. We measure sender credibility as the trustworthiness originating from the manager’s perceived personality (i.e., Big 5 traits), and message credibility as characteristics of a credible communication style and structure. We find corroborating evidence that investor reactions to tone are stronger in the presence of higher sender and message credibility. We also find the credibility effect to be stronger in weaker information environments, where we expect the reliance on simultaneously perceived credibility signals from soft information to be higher. Finally, we find that sender and message credibility strongly attenuate the negative post-conference-call drift in the investor reaction to tone. Our results provide evidence that investors benefit from considering credibility signals from the simultaneously perceived soft information when reacting to tone in conference calls.

Keywords: Credibility signals, Soft information, Tone, Manager-specific communication, Conference call

JEL Classification: M41, G02, G14, G30

Suggested Citation

Hennig, Jan and Firk, Sebastian and Wolff, Michael, Credibility Signals from Soft Information: Evidence from Investor Reactions to Tone in Earnings Conference Calls (April 11, 2023). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4520536

Jan Hennig (Contact Author)

University of Groningen ( email )

P.O. Box 800
9747 AE Groningen, Groningen 9747 AE
Netherlands

Sebastian Firk

University of Groningen - Department of Accounting and Auditing ( email )

Postbus 72
9700 AB Groningen
Netherlands

Michael Wolff

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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