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Managers set the tone: Equity incentives and the tone of earnings press releases

Özgür Arslan-Ayaydin, Kris Boudt and James Thewissen ()

Journal of Banking & Finance, 2016, vol. 72, issue S, S132-S147

Abstract: Earnings press releases, as a timely vehicle for communicating a firm’s performance to third parties, can be used by managers to influence the perception of the firm’s achievements. Taking the stock price reaction to the tone of earnings press releases at earnings announcements into account, we argue that equity-based incentives induce managers to inflate the tone. We further posit that the impact of tone on the abnormal stock returns at the earnings announcements depends on the magnitude of the equity-based incentives. Based on over 26,000 earnings press releases of S&P1500 firms between 2004Q4 and 2012Q4, we find that the tone of earnings press releases tends to be more positive when the managerial portfolio value is more closely tied to the firm’s stock price. We also find that investors react proportionally less to the tone as managers’ equity incentives increase.

Keywords: Equity incentives; Market efficiency; Textual tone; Voluntary disclosure (search for similar items in EconPapers)
JEL-codes: G14 G30 G32 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Managers set the tone: Equity incentives and the tone of earnings press releases (2016)
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DOI: 10.1016/j.jbankfin.2015.10.007

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