Differences in Conference Call Tones: Managers vs. Analysts

In this study, the authors extracted the linguistic tones of managers and analysts during earnings conference calls and examined the differences between them. The authors found that manager tones convey much more optimism (less pessimism) than their analyst counterparts and that investors (particularly institutional investors) react more strongly to analyst tones than to manager tones. Following the August 2000 adoption of Regulation Fair Disclosure (Reg FD) by the US Securities and Exchange Commission, interest in the conference call disclosure medium within the investment community, among corporate executives, and by academics has increased substantially. Quarterly earnings conference calls are now open to the public, and recent research has shown that market participants react to the incremental information contained therein. However, prior work has not disentangled the most prominent and interesting aspect of these interactive corporate events—the open dialogue between managers and analysts. The ability to distinguish and examine “who said what” during conference calls has important implications for understanding the mechanisms by which information is mapped into stock prices. Most studies to date have treated these important interactions between managers and analysts as a black-box process: we know who goes in (managers and analysts), and we know what comes out (abnormal stock returns), but we do not know who is responsible for which aspect of what comes out. In this study, we conducted just such an in-depth examination of conference call transcripts by identifying and comparing the linguistic tones of managers and analysts. We used call transcripts to construct a sample that includes conference calls over the 16-quarter period from 2004 through 2007. For each call, we parsed the transcript into its basic components and, using a specialized textual analysis program, extracted the linguistic content (i.e., “tone”) of managers and analysts separately. Our results provide several contributions to our understanding of the informational roles played by managers and analysts. First, we measured and compared the linguistic tones of managers and analysts during conference calls and showed that managers present more optimistic tones, on average, than analysts present. This finding suggests that investors should pay close attention to managerial incentives when weighing the content and meaning of managerial disclosures. Second, we documented that analyst tones are subject to less discounting by market participants than manager tones are. This finding highlights the important role of information intermediaries, such as financial analysts, in discerning the information content of public disclosures. Third, we showed that institutional investors appear to be more capable of analyzing and interpreting linguistic tones than individual investors are. This finding adds to our knowledge of the sources of institutional investors’ information advantages.