Do Emotions Matter? The Role of Manager Emotions on Stock Returns

Abstract

We examine the role of manager emotions during earnings conference calls. We use a textual analysis and a validated psychology dictionary, the Plutchik’s wheel of emotions, to extract eight primary human emotions (joy, anticipation, trust, surprise, anger, sad, fear, disgust) for managers attending the earnings call. We identify emotions using novel natural language processing (NLP) techniques that include intensifiers and inhibitors for granular and accurate measurement of emotion intensity. We find that managers exhibit more positive emotions such as ‘joy’ and ‘trust’ than negative emotions such as ‘anger’ and ‘disgust’ during the Q&A section of the earnings call. A firm’s stock price is positively (negatively) affected following a conference call in which the managers exhibit more positive (negative) emotions. Overall, this study enhances our understanding of the impact of emotions in corporate earnings disclosure practices.

Keywords: emotions, conference calls, investors response, stock returns, positive emotions, negative emotions

JEL Classification: M41, G11, G41