<p>Prior empirical research has shown that forward-looking
statements can be particularly informative to investors (Li 2010; Muslu et al. 2014). However, the inherent uncertainty
surrounding forward-looking statements may contribute to a delayed price
reaction. This paper examines the market reaction to backward-looking
statements and to forward-looking statements across a 60 trading-day horizon. I
did not find evidence suggesting the inherent uncertainty of forward-looking
statements contributes to a delayed price reaction. However, backward-looking statements
are associated with a delayed price response. This result is consistent with
Bernard and Thomas’s (1990)
suggestion that post-earnings announcement drift is caused by investors not
fully understanding how current earnings map into future earnings. I also
provide evidence that, for the prepared remarks, investors have a stronger
price reaction to net backward-looking tone than to net forward-looking tone.
However, for the question-and-answer session, the opposite is true. Investors
have a stronger price reaction to net forward-looking tone than to net
backward-looking tone. This result suggests that managers should focus their
prepared remarks on the prior performance of the firm and focus their responses
during the question-and-answer session on the future performance of the firm. </p>
| Identifer | oai:union.ndltd.org:purdue.edu/oai:figshare.com:article/8424932 |
| Date | 12 August 2019 |
| Creators | Benjamin W Angelo (6901319) |
| Source Sets | Purdue University |
| Detected Language | English |
| Type | Text, Thesis |
| Rights | CC BY 4.0 |
| Relation | https://figshare.com/articles/The_Impact_of_the_Verb_Tense_of_Tone_Words_on_Price_Discovery_in_Conference_Calls/8424932 |
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