No. 91: Strike the right tone: Financial analysts’ tone to acquire information in earnings conference calls

Abstract

We study whether and how financial analysts choose tone during earnings conference calls as a means to acquire information from the firm’s management. Analyzing 32,963 analystmanager interactions during conference calls of the S&P 500 firms, we document that analyst questions that are characterized either by a higher absolute level of tone, negative phrasing, or both, are associated with more concrete, clearer, and more accurate management answers. We further document that analysts’ negative question phrasing is a function of firms’ risk exposure. Overall, we find that analysts with a higher absolute tone in their questions and more negative question phrasing issue more accurate earnings forecasts after the conference call. The findings are consistent with analysts’ tone in conference calls reflecting their demand for information to generate accurate earnings forecasts, suggesting that tone works as a strategic means to acquire information in conference calls.