No. 168: Slow Tone: Detecting White Lie Disclosures Using Response Latency

Leveraging recent advances in artificial intelligence, we develop a parsimonious measure of management’s cognitive cost during interactive disclosures using response latency—the time delay between a question and the answer. Our findings reveal that a positive management tone following high response latency to questions predicts an immediate positive stock price reaction that reverses over time. This effect is independent of information complexity, as complex responses elicit weaker immediate price reactions followed by a drift, reflecting that complexity increases the integration cost for users. The negative relationship between deceptive responses and future returns is more pronounced in firms with lower litigation risk, greater stock option incentives, and less analyst scrutiny. We empirically validate that response latency captures managers’ cognitive cost in conference calls and use laboratory data to provide direct evidence that response latency is associated with intentional deception. Additionally, higher response latency predicts less forthcoming disclosure choices, including less guidance, more ambiguity, and more frequent use of boilerplate language. Our findings demonstrate that management’s response latency serves as an indicator of deceptive responses in interactive firm disclosures.