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

Author

Listed:
  • Xi Fu

    (University of Liverpool)

  • Xiaoxi Wu

    (Bocconi University)

  • Zhifang Zhang

    (University of Warwick)

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.

Suggested Citation

  • Xi Fu & Xiaoxi Wu & Zhifang Zhang, 2021. "The Information Role of Earnings Conference Call Tone: Evidence from Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 173(3), pages 643-660, October.
    • Handle: RePEc:kap:jbuset:v:173:y:2021:i:3:d:10.1007_s10551-019-04326-1
    DOI: 10.1007/s10551-019-04326-1
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    More about this item

    Keywords

    Ethical financial reporting; Earnings conference calls; Stock price crash risk; Tone; Truthful communication; Voluntary disclosure;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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