10.25394/PGS.8424932.v1 Benjamin W Angelo Benjamin W Angelo The Impact of the Verb Tense of Tone Words on Price Discovery in Conference Calls Purdue University Graduate School 2019 Conference calls voluntary disclosure textual analysis Accounting, Auditing and Accountability not elsewhere classified 2019-08-12 18:42:07 Thesis https://hammer.purdue.edu/articles/thesis/The_Impact_of_the_Verb_Tense_of_Tone_Words_on_Price_Discovery_in_Conference_Calls/8424932 <p>Prior empirical research has shown that forward-looking statements can be particularly informative to investors (Li 2010; Muslu et al. 2014). However, the inherent uncertainty surrounding forward-looking statements may contribute to a delayed price reaction. This paper examines the market reaction to backward-looking statements and to forward-looking statements across a 60 trading-day horizon. I did not find evidence suggesting the inherent uncertainty of forward-looking statements contributes to a delayed price reaction. However, backward-looking statements are associated with a delayed price response. This result is consistent with Bernard and Thomas’s (1990) suggestion that post-earnings announcement drift is caused by investors not fully understanding how current earnings map into future earnings. I also provide evidence that, for the prepared remarks, investors have a stronger price reaction to net backward-looking tone than to net forward-looking tone. However, for the question-and-answer session, the opposite is true. Investors have a stronger price reaction to net forward-looking tone than to net backward-looking tone. This result suggests that managers should focus their prepared remarks on the prior performance of the firm and focus their responses during the question-and-answer session on the future performance of the firm. </p>