ENDING ON A HIGH NOTE: THE “HOCKEY STICK” GRAPH OF MANAGERIAL TONE WITHIN EARNINGS CONFERENCE CALLS

Abstract

I investigate systematic patterns of tone within an earnings call and how market participants react to such variation. Prior research suggests that people heavily weigh the final moments of an experience. I explore whether managers end earnings calls with a more positive tone to manipulate the audience’s impression of the call. My analyses of more than 57,000 earnings call transcripts show that the tone of managers’ answers improves markedly near the end of the earnings call. The magnitude of tone improvement is negatively associated with current and future firm performance, which suggests that managers end on a high note to mask negative information. Moreover, the magnitude of tone improvement is associated with negative 3-day abnormal stock return and downward analyst forecast revisions. Together these findings suggest that the market participants quickly price the information that managers try to conceal by ending on a high note.