Strike the right tone: Financial analysts’ tone to acquire information in earnings conference calls
64 Pages Posted: 24 Aug 2019 Last revised: 9 Nov 2020
Date Written: August 23, 2019
We study whether financial analysts use linguistic tone in their questions to elicit information from management during earnings conference calls. By phrasing questions negatively, analysts signal to management that they are aware of negative issues related to firm performance and are willing to push for more information. We document a positive association between analysts’ use of negative tone and the information provided by management in terms of disclosure accuracy and level. However, phrasing questions negatively is costly to analysts. When analysts use negative tone, management more often refuses to respond and answers less clearly, suggesting that analysts’ information processing costs increase. Weighing the benefits and cost, we find that analysts use negative tone when firms are exposed to large industry or macroeconomic risk, conditions where analysts likely need more information from management. This identifies financial analysts’ question phrasing as a driver of the informativeness of earnings conference calls.
Keywords: Tone, strategic information exchanges, financial analysts, earnings conference calls
JEL Classification: M41, G24, G40
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