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>