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When Managers Change Their Tone, Analysts and Investors Change Their Tune


Druz, Marina; Petzev, Ivan; Wagner, Alexander F; Zeckhauser, Richard (2020). When Managers Change Their Tone, Analysts and Investors Change Their Tune. Financial Analysts Journal, 76(2):47-69.

Abstract

The negativity of managerial word choice (managerial tone) on conference calls is a telltale indicator of a company’s future. Specifically, increases in negativity, what we term bleak tone changes, strongly predict lower future earnings and greater uncertainty. However, decreases in negativity only weakly predict the opposite. To isolate the explanatory power of managerial tone, we control for negativity changes in the earnings press release and analysts' questions. Analysts and investors under-react when they extract value-relevant information from negativity changes. Consequently, a negativity-based trading strategy generates abnormal returns.

Abstract

The negativity of managerial word choice (managerial tone) on conference calls is a telltale indicator of a company’s future. Specifically, increases in negativity, what we term bleak tone changes, strongly predict lower future earnings and greater uncertainty. However, decreases in negativity only weakly predict the opposite. To isolate the explanatory power of managerial tone, we control for negativity changes in the earnings press release and analysts' questions. Analysts and investors under-react when they extract value-relevant information from negativity changes. Consequently, a negativity-based trading strategy generates abnormal returns.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:16 March 2020
Deposited On:11 Feb 2021 07:23
Last Modified:15 Feb 2021 02:42
Publisher:Taylor & Francis
ISSN:1938-3312
OA Status:Green
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1080/0015198X.2019.1707592
Related URLs:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2559157 (Organisation)
https://www.tandfonline.com/doi/full/10.1080/0015198X.2019.1707592 (Publisher)
Other Identification Number:merlin-id:9341

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