The Effects of Conference Call Tones on Market Perceptions of Value Uncertainty

The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk

“…The residual tone is calculated from a cross-sectional regression of tone on firms' current year performance and fundamentals. Following previous research (Borochin et al 2018;Huang et al 2014), our residual tone measurement (RE_TONE_C) is calculated as the residual term ( ) of the following regression: 11 11 In order to obtain the residual tone measure, we regress conference call tone (TONE) on the ratio of EBIT to beginning total assets (EARN), contemporaneous annual stock returns (RET), the natural logarithm of the market capitalization at the end of one fiscal year (SIZE), book-to-market ratio at the end of one fiscal year (BTM), the standard deviation of monthly stock return over one fiscal year (STD_RET), the standard deviation of EARN over the previous five years (STD_EARN), the natural logarithm of one plus age from the first year the firm entered the CRSP dataset (AGE), the natural logarithm of one plus the number of business segments (BUSSEG), the natural logarithm of one plus the number of geographic segments (GEOSEG), a dummy variable which equals 1 when EARN is negative (LOSS), the first difference of EARN (∆EARN), analyst forecast error (AFE), and analyst consensus forecast for one-year-ahead earnings per share divided by stock price per share at the end of the fiscal year (AF).…”

“…In this case, we would expect optimistic manager tone to have significant and negative predictive power and to drive the predictive power of the Q&A tone. On the other hand, participant tone may have greater predictive power, as previous research shows that analysts' participation and tone lead to stronger market reactions (Borochin et al 2018;Brockman et al 2015;Matsumoto et al 2011). Thus, optimistic participant tone may also have negative predictive power for stock price crash risk and may drive the predictive power of the Q&A tone.…”

“…Thus, the tone measurement may be driven by firms' historical performance and fundamental attributes. To mitigate such concerns, we use a residual tone measurement to proxy for the unexpected optimistic or pessimistic component of tone that cannot be explained by firms' fundamental characteristics or past financial performance (Borochin et al 2018;Huang et al 2014). The residual tone is calculated from a cross-sectional regression of tone on firms' current year performance and fundamentals.…”

“…Next, we investigate whether the negative predictive power of the optimistic Q&A section tone is driven by managers or other call participants (mainly analysts). Previous research shows that both manager tone and participant tone convey useful information (Borochin et al 2018;Brockman et al 2015). However, it is difficult to predict ex ante whether both manager tone and participant tone have Table 5 Results of robustness tests This table presents regression results of robustness tests using alternative tone and stock price crash risk measures.…”

Empirische Kapitalmarktforschung zu Conference Calls: Eine Literaturanalyse

“…Die Kommunikation innerhalb von Conference Calls könnte außerdem einen Einfluss auf die Bewertungsunsicherheit des durchführenden Unternehmens haben. So finden Borochin et al (2018) einen negativen Zusammenhang zwischen der Grundstimmung eines Conference Calls und der Bewertungsunsicherheit des Unternehmens auf dem Markt für Eigenkapitalinstrumente.…”