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The tone of managers’ language during corporate earnings conference calls – particularly changes in negativity – reveals valuable clues about future company fundamentals. Analysts respond to these signals but not sufficiently.


The negativity of managerial word choice (managerial tone) in conference calls is a telltale indicator of a company’s future. Specifically, increases in negativity–what we term “bleak tone changes”–strongly predict lower future earnings and increased uncertainty. Decreases in negativity, however, only weakly predict the opposite. To isolate the explanatory power of managerial tone, we controlled for negativity changes in the earnings press release and analysts’ questions. Analysts and investors underreact when they extract value-relevant information from negativity changes. Consequently, a negativity-based trading strategy generates abnormal returns.

About the Author(s)

Marina Druz

Marina Druz is global account management director at Flex, Zurich, Switzerland.

Ivan Petzev

Ivan Petzev is portfolio manager at Swiss Rock Asset Management, Zurich, Switzerland.

Alexander F. Wagner

Alexander F. Wagner is associate professor of finance at the University of Zurich; research fellow at the Center for Economic Policy Research (CEPR); research associate at the European Corporate Governance Institute (ECGI); and senior chair at the Swiss Finance Institute (SFI), Zurich, Switzerland.

Richard Zeckhauser

Richard Zeckhauser is the Frank P. Ramsey Professor of Political Economy at Harvard University, where he also chairs the annual executive program on investment decisions and behavioral finance. Professor Zeckhauser has been elected a fellow of the Econometric Society and the American Academy of Sciences and is a member of the Institute of Medicine of the National Academy of Sciences. He serves as a trustee for the Commonwealth School and is a member of the National Bureau of Economic Research, the Russell Sage Roundtable in Behavioral Economics, the American Enterprise Institute Council of Academic Advisers, and the OECD High-Level Advisory Board on Large-Scale Catastrophes. His latest book, which he coauthored with Peter Schuck, is titled Targeting in Social Programs: Avoiding Bad Bets and Removing Bad Apples; he coauthored with Jonathan Nelson a forthcoming book, The Patron's Payoff: Conspicuous Commissions in Renaissance Italy. Professor Zeckhauser holds a BA and a PhD in economics from Harvard University.