Hyperbole or Reality? Investor Response to Extreme Language in Earnings Conference Calls

• In Event: Information Dynamics in Conference Calls

Abstract

We develop a dictionary of linguistic extremity in earnings conference calls and document that abnormal trading volume and absolute stock returns are higher around calls that contain more extreme language. Further, the effect is more pronounced for firms with weaker information environments. We also find that linguistic extremity is significantly associated with subsequent analyst forecasting behavior and contains information about a firm's future operating performance. Our results suggest that markets are influenced not just by what managers say, but also how they say it, with extreme language playing an important role in communicating reality rather than merely reflecting hyperbole.

Authors

• Khrystyna Bochkay, University of Miami

• Jeffrey Hales, Georgia Institute of Technology

• Sudheer Chava, Scheller College of Business, Georgia Institute of Technology