Discussion Paper Details

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Title: Reading Managerial Tone: How Analysts and the Market Respond to Conference Calls

Author(s): Marina Druz, Alexander F Wagner and Richard Zeckhauser

Publication Date: January 2015

Keyword(s): analysts, earnings conference calls, information transmission, managerial tone, price drift and textual analysis

Programme Area(s): Financial Economics

Abstract: Conference call tone predicts future earnings and uncertainty. ?Tone disappointment? (excessive negativity) predicts more strongly than ?tone delight? (excessive positivity). However, analysts and investors respond more quickly to delight than disappointment. Consequently, stock prices drift downward after their initial reaction to tone disappointment. Tone surprises move stock prices more in those firms where tone surprise predicts earnings and uncertainty more strongly. These results hold even after controlling for negativity of words in the earnings press release, analyst expectations, the firm?s recent performance, and CEO fixed effects. Together, these coherent results suggest that market participants distill value-relevant information from conference calls.

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Bibliographic Reference

Druz, M, Wagner, A and Zeckhauser, R. 2015. 'Reading Managerial Tone: How Analysts and the Market Respond to Conference Calls'. London, Centre for Economic Policy Research.