Do Managers Speak in Two Tongues? Evidence from Inconsistent Messages Conveyed at Conference Calls

• In Event: "Superstar" CFOs, Fraud Detection Proficiency, and Impression Management

Abstract

By using earnings conference call transcripts between 2002 and 2014, this study plans to analyze whether managers employ qualitative disclosures opportunistically to mislead investors by being unduly positive or negative relative to the reported quantitative information. Under tone management, the choice of the tone in conference calls may not be commensurate with the concurrent quantitative information (or inconsistent messages). Using the setting of earnings conference calls, we will first exam whether inconsistent messages conveyed by managers are associated with future firm earnings. Then we will examine whether the issuance of inconsistent messages is related to various events that past literature has identified as associated with the presence of managerial incentives to bias investor perception. These events include firms just meeting or beating earnings benchmarks, issuing new equity, and granting stock options to managers, and so on. Finally, we will investigate how inconsistent messages affect investors’ assessments of uncertainty about firm value, measured by stock return volatilities and analyst forecast dispersion. Overall, we hope to provide evidence that management can use conference calls as a discretionary tool to convey “soft” information and manipulate investors’ expectation.

Authors

• Feng Chen, University of Missouri-Columbia

• Weiguo Fan, Virginia Tech University

• Mi Zhou, Virginia Tech University