What Does "But" Really Mean? — Evidence from Managers' Answers to Analysts' Questions during Conference Calls

• In Event: Information Dynamics in Conference Calls

Abstract

This study examines investors’ reaction to managers’ use of contrastive words (words that introduce corrective and/or unexpected information) during the question and answer (Q&A) sessions of conference calls. We document evidence that managers’ use of contrastive words is an indicator of the quality of their disclosure. Specifically, we find that the use of contrastive words is positively associated with the extent to which investors react to earnings news. Our findings indicate that managers use contrastive words to provide more value-relevant information to investors. Further, we shed light on the underexplored contrarian returns phenomenon and show that the use of contrastive words explains some of the instances in which share price reacts positively to unfavorable earnings news. Finally, we separate disclosure content into two sections: before and after the contrastive word "but". We find that disclosure reported after the contrastive word “but” is more informative than disclosure communicated before. This suggests that there is variation in the informativeness within the disclosure content. Overall, our results support the conjecture that the informativeness of Q&A sessions comes primarily from its explanatory feature.

Authors

• Ke Xu, Rutgers, the State University of New Jersey

• Dan Palmon, Rutgers University - Newark

• Ari Yezegel, Bentley University