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

Xi Fu (), Xiaoxi Wu () and Zhifang Zhang ()
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Xi Fu: University of Liverpool
Xiaoxi Wu: Bocconi University
Zhifang Zhang: University of Warwick

Journal of Business Ethics, 2021, vol. 173, issue 3, No 11, 643-660

Abstract: Abstract This paper investigates whether and how the disclosure tone of earnings conference calls predicts future stock price crash risk. Using US public firms’ conference call transcripts from 2010 to 2015, we find that firms with less optimistic tone of year-end conference calls experience higher stock price crash risk in the following year. Additional analyses reveal that the predictive power of tone is more pronounced among firms with better information environment and lower managerial equity incentives, suggesting that extrinsic motivations for truthful disclosure partially explain the predictive power of conference call tone. Our results shed light on the long-term information role of conference call tone by exploring the setting of extreme future downside risk, when managers have conflicting incentives either to unethically manipulate disclosure tone to hide bad news or to engage in ethical and truthful communication.

Keywords: Ethical financial reporting; Earnings conference calls; Stock price crash risk; Tone; Truthful communication; Voluntary disclosure (search for similar items in EconPapers)
JEL-codes: D80 G10 G12 G14 G30 M41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s10551-019-04326-1

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