Soft information in public firms’ quarterly earnings calls: Isolating the effects of value-relevant information and linguistic tone in financial text

dc.contributorAalto Universityen
dc.contributorAalto-yliopistofi
dc.contributor.advisorKnüpfer, Samuli
dc.contributor.authorKopra, Otto
dc.contributor.departmentRahoituksen laitosfi
dc.contributor.schoolKauppakorkeakoulufi
dc.contributor.schoolSchool of Businessen
dc.date.accessioned2024-02-11T17:00:40Z
dc.date.available2024-02-11T17:00:40Z
dc.date.issued2023
dc.description.abstractIn this thesis, I study the effects that the soft information in public firms’ quarterly earnings call transcripts have on stock returns. More specifically, I measure both the value-relevant information (sentiment) communicated in the earnings calls as well as the linguistic tone of the statements, by studying firms’ cumulative abnormal returns following quarterly earnings calls, both on portfolio-level and with a regression analysis on earnings call -level. My findings can be divided into methodological contributions and the uncovered financial phenomena. Firstly, I provide strong evidence in support of utilizing large language model -based solutions in extracting sentiment information from financial texts, as opposed to the dictionary-based methods that have been predominant in the financial academic literature so far. Furthermore, I show that using a tool like this together with a dictionary-based method that is designed to measure the linguistic tone of financial text makes it possible to isolate the two effects. Leveraging these benefits of my approach, I recognize three distinct stock return phenomena related to either earnings call sentiment or tone. Firstly, I find a strong positive relation between the sentiment of an earnings call Q&A session and the cumulative abnormal returns for that firm. Moreover, unlike some of the previous studies, I find that this stock price impact is nowadays practically immediate, with this information being incorporated into stock prices in the initial reaction period. Secondly, I find evidence that the sentiment information in the calls’ presentation section leads to a relatively similar immediate stock price reaction, but then to a subsequent reversal, that makes the long-term informational value in this section non-significant. Finally, I find that when controlling for the value-relevant information, a higher linguistic tone of the call’s presentation section predicts lower abnormal returns, in line with the theory of strategic communication, which states that managers use of a more positive tone constitutes bad news due to their incentives to downplay negative news. I find this negative stock price reaction to be immediate only for firms that reported a negative earnings surprise, whereas firms that reported positive earnings surprise this effect takes longer to be incorporated into share prices.en
dc.format.extent82 + 4
dc.format.mimetypeapplication/pdfen
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/126725
dc.identifier.urnURN:NBN:fi:aalto-202402112382
dc.language.isoenen
dc.locationP1 Ifi
dc.programmeFinanceen
dc.subject.keywordearnings callen
dc.subject.keywordsentiment analysisen
dc.subject.keywordlinguistic toneen
dc.subject.keywordabnormal returnsen
dc.titleSoft information in public firms’ quarterly earnings calls: Isolating the effects of value-relevant information and linguistic tone in financial texten
dc.titlePehmeä tieto julkisten yritysten kvartaalitulosjulkistusten puhelinkonferensseissa: Arvorelevantin informaation ja kielellisen sävyn vaikutusten eriyttäminen rahoitusalan tekstissäfi
dc.typeG2 Pro gradu, diplomityöfi
dc.type.ontasotMaster's thesisen
dc.type.ontasotMaisterin opinnäytefi
local.aalto.electroniconlyyes
local.aalto.openaccessyes

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