The Predictive Value of Abnormal Positive Tone in Earnings Conference Calls
Tone in qualitative ﬁrm disclosures has increasingly caught the academic in-terest. Earnings conference calls are however a form of ﬁrm communication that largely have been overlooked in accounting research. This paper investigates the predictive properties of tone on the initial market reaction (IMR), as well as the 60 day delayed market reaction (DMR). To investigate management’s strate-gic use of tone, we construct a variable of abnormal positive tone, ABTONE, which is the residual of a tone model controlled for ﬁrm fundamentals. We ﬁnd that ABTONE in the preparing remark section of the earnings conference calls predicts positive abnormal returns in both the IMR and DMR windows, which indicates that managers use tone to sincerely inform investors. To test if earnings information uncertainty aﬀects the predictive value of tone, we compose a sample consisting of biotechnological and pharmaceutical ﬁrms as well as a corresponding sample with ﬁrms in more traditional industries. We ﬁnd that the predictive value of ABTONE is considerably stronger for ﬁrms with higher earnings information uncertainty.
MSc in Accounting
earnings conference calls
earnings information uncertainty
Master Degree Project