This paper adds to the strand of research that examines whether managers can strategically use their wording through specific linguistic devices. I define 'tone management' more broadly than just sentiment, incorporating the forward-looking intensity (FLI), and the linguistic complexity of conference calls, which are recognized as key drivers of qualitative information. I contribute to the existing literature in three ways. First, by taking advantage of recent innovations in machine learning and employing Bidirectional Encoder Representations from Transformers (BERT) for financial context texts, i.e., Financial Analysis with BERT (FinBERT) for sentiment and forward-looking intensity analysis, this study delves deeper into the qualitative content of conference calls and improves the understanding of tone management. Furthermore, by examining the differences between earnings and M&A conference calls as well as between sections of these calls, I shed light on the dynamics of qualitative information in different contexts, which has received limited attention in prior research. Finally, by studying the effect of the aforementioned linguistic devices on bid-ask spreads, this study contributes to the bid-ask spread literature by providing insights into the impact of qualitative information on firms’ information environment and market dynamics.
Table of Contents
1 Introduction
2 Conceptual
2.1 Transparency as a corporate governance mechanism
2.1.1 Voluntary transparency
2.1.2 Conference calls
2.2 Institutional setting of the United States
3 Literature Review
3.1 Information content of conference calls
3.2 Tone management in conference calls
3.3 Summary and research gap
4 Theory and hypotheses development
4.1 Information asymmetries
4.2 Hypotheses development
4.2.1 Differences between earnings and M&A calls
4.2.2 Qualitative information and information asymmetries
5 Empirical analysis of tone management
5.1 Research design
5.1.1 Data collection and sample
5.1.2 Approach to the analysis of tone management
5.1.3 Construction of main variables
5.2 Results
5.2.1 General structure of conference calls
5.2.2 Differences between earnings and M&A calls
5.2.3 Effect of tone variables on the information environment
5.2.4 Critical discussion of results
6 Conclusion
Research Objectives and Themes
This thesis investigates the strategic use of "tone management" by managers in corporate conference calls. The central research question examines how linguistic devices—specifically sentiment, forward-looking intensity, and linguistic complexity—differ between earnings-related calls and merger and acquisition (M&A) calls, and how these factors influence firm-level information asymmetries as proxied by changes in bid-ask spreads.
- Comparison of qualitative information content between earnings and M&A conference calls.
- Application of advanced machine learning methods (FinBERT) to analyze conference call transcripts.
- Analysis of the structural differences between presentation and Q&A sessions within conference calls.
- Investigation of the impact of tone management on market-based measures of information asymmetry.
Excerpt from the Book
3.2 Tone management in conference calls
Going deeper, the factors that reduce information asymmetry in conference calls have been the subject of research. The interactive format, as well as the less limited nature of conference calls compared to formal reports, provides room for sources of information other than quantitative data (Li (2008), pp. 222f.). The literature confirms that conference calls are informative, both through hard information, such as financial figures, but especially through soft (qualitative) information (Hutton et al. (2003), p. 868; Brochet et al. (2018), p. 912; Bochkay et al. (2020), p. 5). This notion implies that managers may aim their qualitative disclosure at improving the company's information environment. The latter arises because the way managers present and answer questions, and thus their natural language affects the audience’s understanding of the news (Basu and Xiang (2021), pp. 4f.).
Sentiment in qualitative disclosures is perhaps the factor that has been examined the most frequently in previous studies of textual content (Davis et al. (2015), p. 640). On the one hand, studies investigate how sentiment is determined, and researchers have shown that managers can use sentiment to achieve strategic goals, as it seems to have an impact on stock market performance. For instance, Huang et al. (2014) demonstrates how managers use sentiment to “hype” a stock ahead of a seasoned equity offering (Huang et al., 2014, p. 1097). Another perspective is provided by Amoozegar et al. (2020), who find that institutional ownership is negatively correlated with textual sentiment (Amoozegar et al. (2020), p. 9).
Summary of Chapters
1 Introduction: Defines tone management and outlines the motivation for studying conference calls to mitigate information asymmetries between managers and investors.
2 Conceptual: Discusses the role of voluntary transparency, corporate governance, and the institutional US environment as a framework for conference call disclosure.
3 Literature Review: Synthesizes previous research on the information content of conference calls and current academic understanding of tone management practices.
4 Theory and hypotheses development: Establishes a theoretical basis using signal theory and information asymmetry to formulate testable hypotheses regarding tone management differences and impacts.
5 Empirical analysis of tone management: Details the research methodology, data collection, and statistical analysis using OLS regressions to measure the effects of management communication on bid-ask spreads.
6 Conclusion: Summarizes the findings, highlighting the fundamental differences in communication dynamics between M&A and earnings calls, and suggests limitations and future research directions.
Keywords
Tone management, Conference calls, M&A, Earnings announcements, Sentiment analysis, FinBERT, Information asymmetry, Bid-ask spread, Linguistic complexity, Forward-looking intensity, Corporate transparency, Voluntary disclosure, Natural language processing, Market dynamics, Investor relations.
Frequently Asked Questions
What is the core focus of this master thesis?
The thesis explores "tone management" in corporate conference calls, analyzing how managers steer communication through sentiment, forward-looking statements, and linguistic complexity to influence the firm's information environment.
What are the primary thematic areas covered?
The study covers corporate transparency, the mechanics of voluntary disclosure in the US, the comparative linguistic analysis of earnings versus M&A calls, and the technical application of NLP (specifically FinBERT) to financial communication.
What is the main research objective?
The goal is to determine if managers change their communication style depending on the call type (earnings vs. M&A) and whether these communication choices successfully reduce or impact information asymmetries in capital markets.
Which scientific methods are employed?
The author uses empirical comparative research, sentiment classification via the FinBERT transformer model, automated textual processing of call transcripts, and OLS panel regressions to test the impact of communicative variables on bid-ask spreads.
What topics are discussed in the main body?
The main body examines the conceptual foundations, reviews extensive literature on disclosure, develops hypotheses based on signaling theory, describes the construction of specific variables, and presents empirical results regarding structural and tonal differences across conference call sections.
Which keywords define the work?
Key terms include Tone management, Conference calls, M&A, Sentiment analysis, Information asymmetry, Bid-ask spread, Linguistic complexity, and FinBERT.
How do M&A conference calls differ structurally from earnings calls based on the findings?
The analysis indicates that M&A calls are typically shorter in length, exhibit higher optimism, contain more forward-looking content, and show higher linguistic complexity in the presentation part compared to standard earnings calls.
What role does the "presentation" versus the "discussion" part play in the results?
The research finds that findings are often highly sensitive to the specific part of the call, with the presentation part often driving specific market information effects, while the discussion part reflects the interactive demands of analysts.
- Citar trabajo
- Tarkan Solak (Autor), 2023, Tone Management in Conference Calls. An Emprical Analysis, Múnich, GRIN Verlag, https://www.grin.com/document/1414947
